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SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2017
Accounting Policies [Abstract] |
SIGNIFICANT ACCOUNTING POLICIES | SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of the Company reflect the application of certain significant accounting policies as described below: Principles of Consolidation The accompanying consolidated statements include the accounts of Clean Harbors, Inc. and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the Company's consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable at the time under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and disclosure, if any, of contingent assets and liabilities and reported amounts of revenues and expenses. Actual results could differ from those estimates and judgments. Cash and Uncashed Checks Cash consists primarily of cash on deposit and money market accounts. The Company's cash management program with its revolving credit lender allows for the maintenance of a zero balance in the U.S. bank disbursement accounts that are used to issue vendor and payroll checks. The program can result in checks outstanding in excess of bank balances in the disbursement accounts. When checks are presented to the bank for payment, cash deposits in amounts sufficient to fund the checks are made, at the Company's discretion, either from funds provided by other accounts or under the terms of the Company's revolving credit facility. Therefore, until checks are presented for payment, there is no right of offset by the bank and the Company continues to have control over cash relating to both released as well as unreleased checks. Checks that have been written to vendors or employees but have not yet been presented for payment at the Company's bank are classified as uncashed checks as part of accounts payable. Marketable Securities Marketable securities with maturities of three months or less from the date of purchase are classified as cash equivalents. Marketable securities with original maturities greater than three months from purchase date and remaining maturities less than one year are classified as short-term marketable securities. Marketable securities with remaining maturities greater than one year as of the balance sheet date and which the Company intends to hold for greater than one year, are classified as long-term marketable securities. The Company has classified its marketable securities as available-for-sale and, accordingly, carries such securities at fair value. Unrealized gains and losses are reported, net of tax, as a component of other comprehensive income (loss). (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) Available-for-sale investments were as follows (in thousands):
| December 31, 2017
| Amortized Cost |  | Gross Unrealized Loss |  | Gross Unrealized Gain |  | Fair Value
Commercial paper | $ | 2,048 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,048 |
Total cash equivalents | 2,048 |  |  | — |  |  | — |  |  | 2,048 |
U.S. Treasury securities | 3,865 |  |  | (10 | ) |  | — |  |  | 3,855 |
Corporate notes and bonds | 32,790 |  |  | (61 | ) |  | — |  |  | 32,729 |
Commercial paper | 1,595 |  |  | — |  |  | — |  |  | 1,595 |
Total short-term marketable securities | 38,250 |  |  | (71 | ) |  | — |  |  | 38,179 |
Total financial assets | $ | 40,298 |  |  | $ | (71 | ) |  | $ | — |  |  | $ | 40,227 |
The gross unrealized loss related to these securities was due primarily to changes in interest rates and was considered temporary in nature. Realized gains and losses on sales of available-for-sale securities in the year ended December 31, 2017 were immaterial. Marketable securities by contractual maturity as of December 31, 2017 are shown below (in thousands).
| Amortized Cost |  | Fair Value
Due in one year or less | $ | 18,684 |  |  | $ | 18,670 |
After one year through three years | 21,614 |  |  | 21,557 |
Total financial assets | $ | 40,298 |  |  | $ | 40,227 |
Fair Value Measurements The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. The Company's financial instruments consist of cash, marketable securities, accounts and unbilled receivable, accounts payable, accrued liabilities and long-term debt obligations. Due to the short-term nature of these instruments, with the exception of long-term debt obligations and marketable securities, their estimated fair value approximates carrying value. Senior unsecured notes are recorded at par. (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial assets measured and recorded at fair value on a recurring basis consisted of the following types of instruments (in thousands):
| December 31, 2017
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Commercial paper | $ | — |  |  | $ | 2,048 |  |  | $ | — |  |  | $ | 2,048 |
Total cash equivalents | — |  |  | 2,048 |  |  | — |  |  | 2,048 |
U.S. Treasury securities | 3,855 |  |  | — |  |  | — |  |  | 3,855 |
Corporate notes and bonds | — |  |  | 32,729 |  |  | — |  |  | 32,729 |
Commercial paper | — |  |  | 1,595 |  |  | — |  |  | 1,595 |
Total short-term marketable securities | 3,855 |  |  | 34,324 |  |  | — |  |  | 38,179 |
Total financial assets | $ | 3,855 |  |  | $ | 36,372 |  |  | $ | — |  |  | $ | 40,227 |
The Company’s Level 2 securities are primarily valued using quoted market prices for similar instruments and non-binding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data, which are obtained from independent pricing vendors, to determine the ultimate fair value of the Company’s assets and liabilities. The inputs and fair value are reviewed for reasonableness. During the year ended December 31, 2017, the Company had no transfers of financial assets and liabilities between Level 1 and Level 2. As of December 31, 2017, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted. Allowances for Doubtful Accounts On a regular basis, the Company evaluates its accounts receivable and establishes the allowance for doubtful accounts based on an evaluation of certain criteria and evidence of collection certainty including historical collection trends, current economic trends and changes in customer payment patterns. Past-due receivable balances are written off when the Company's internal collection efforts have been deemed unsuccessful in collecting the outstanding balance due. Credit Concentration Concentration of credit risks in accounts receivable is limited due to the large number of customers comprising the Company's customer base throughout North America. The Company maintains policies over credit extension that include credit evaluations, credit limits and collection monitoring procedures on a customer-by-customer basis. However, the Company generally does not require collateral before services are performed. As of December 31, 2017 and 2016, no individual customer accounted for more than 10% of accounts receivable. During each of the years ended December 31, 2017, 2016 and 2015, no individual customer accounted for more than 10% of total revenues. Unbilled Receivables The Company recognizes unbilled accounts receivable for service and disposal transactions rendered but not invoiced to the customer as of the end of the period. Deferred Costs Commissions and other incremental direct costs, primarily costs of materials and transportation costs, relating to deferred revenue from the Company’s parts cleaning and waste services are capitalized and deferred. The deferred costs are included in current assets in the consolidated balance sheet and charged to expense when the related revenues are recognized. Inventories and Supplies Inventories are stated at the lower of cost or market. The cost of oil and oil products is principally determined on a first-in, first-out ("FIFO") basis. The cost of supplies and drums, solvent and solution and other inventories is determined on a FIFO or a weighted average cost basis. Costs for oil and oil products, solvent and repair parts include purchase costs, fleet and fuel (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) costs, direct labor, transportation costs and production related costs. The Company continually reviews its inventories for obsolete or unsalable items and adjusts its carrying value to reflect estimated realizable values. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist primarily of prepayments for various services, refundable deposits, and income taxes receivable. Property, Plant and Equipment (excluding landfill assets) Property, plant and equipment are stated at cost and include amounts capitalized under capital lease obligations. Expenditures for major renewals and improvements which extend the life or usefulness of the asset are capitalized. Items of an ordinary repair or maintenance nature are charged directly to operating expense as incurred. During the construction and development period of an asset, the costs incurred, including applicable interest costs, are classified as construction-in-progress. The Company depreciates and amortizes the cost of these assets, using the straight-line method as follows:
Asset Classification |  | Estimated Useful Life
Buildings and building improvements |  |
Buildings |  | 30–42 years
Leasehold and building improvements |  | 2–45 years
Camp equipment |  | 8–15 years
Vehicles |  | 3–15 years
Equipment |  |
Capitalized software and computer equipment |  | 3–5 years
Solar equipment |  | 30 years
Containers and railcars |  | 15–20 years
All other equipment |  | 8–25 years
Furniture and fixtures |  | 5–8 years
Leasehold and building improvements have a weighted average life of 9.6 years. Camp equipment consists of industrial lodging facilities that are utilized to provide lodging services to downstream oil and gas companies in Western Canada. Solar equipment consists of a solar array that is used to provide electric power for a continuously operating groundwater decontamination pump and treatment system at a closed and capped landfill located in New Jersey. The Company recognizes an impairment in the carrying value of long-lived assets when the expected future undiscounted cash flows derived from the assets, or group of assets, are less than their carrying value. For the years ended December 31, 2017, 2016 and 2015, the Company did not record impairment charges related to long-lived assets. The Company will continue to assess all of its long-lived assets for impairment as necessary. Goodwill Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized but is reviewed for impairment annually as of December 31, or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value, by comparing the fair value of each reporting unit to its carrying value, including goodwill. Upon adoption of Accounting Standards Update (“ASU”) 2017-04 in the fourth quarter of 2017, if the fair value is less than the carrying amount, a loss will be recorded for the excess of the carrying value of the goodwill over the implied value of the goodwill. Prior to adoption of ASU 2017-04, if the fair value was less than the carrying amount, a Step II goodwill impairment test was performed to determine if goodwill was impaired. The loss, if any, was measured as the excess of the carrying value of the goodwill over the implied value of the goodwill. See Note 7, "Goodwill and Other Intangible Assets," for additional (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) information related to the Company's goodwill impairment tests and the goodwill impairment charges recorded in 2016 and 2015. Permits and other intangibles Permits and intangible assets, such as legal fees, site surveys, engineering costs and other expenditures are recorded at cost. Other intangible assets consist primarily of customer and supplier relationships, trademarks and trade names, and non-compete agreements. Permits relating to landfills are amortized on a units-of-consumption basis. All other permits are amortized over periods ranging from 5 to 30 years on a straight-line basis. Other intangible assets are amortized on a straight-line basis over their respective useful lives, which range from 2 to 20 years. Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be entirely recoverable. When such factors and circumstances exist, management compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amounts. The impairment loss, if any, is measured as the excess of the carrying amount over the fair value of the asset or group of assets. 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, the Company performs 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. The fair value of the indefinite-lived intangible assets exceeded their carrying values at December 31, 2017 and 2016. Leases The Company leases rolling stock, rail cars, equipment, real estate and office equipment under operating leases. Certain real estate leases contain rent holidays and rent escalation clauses. Most of the Company's real estate lease agreements include renewal periods at the Company's option. For its operating leases, the Company recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased assets. Landfill Accounting The Company amortizes landfill improvements and certain landfill-related permits over their estimated useful lives. The units-of-consumption method is used to amortize land, landfill cell construction, asset retirement costs and remaining landfill cells and sites. The Company also utilizes the units-of-consumption method to record closure and post-closure obligations for landfill cells and sites. Under the units-of-consumption method, the Company includes future estimated construction and asset retirement costs, as well as costs incurred to date, in the amortization base of the landfill assets. Additionally, where appropriate, as described below, the Company includes probable expansion airspace that has yet to be permitted in the calculation of the total remaining useful life of the landfill. If it is determined that expansion capacity should no longer be considered in calculating the recoverability of a landfill asset, the Company may be required to recognize an asset impairment or incur significantly higher amortization expense. If at any time the Company makes the decision to abandon the expansion effort, the capitalized costs related to the expansion effort are expensed immediately. Landfill assets—Landfill assets include the costs of landfill site acquisition, permits and cell construction incurred to date. These amounts are recorded at cost, which includes capitalized interest as applicable. Landfill assets, net of amortization, are combined with management's estimate of the costs required to complete construction of the landfill to determine the amount to be amortized over the remaining estimated useful economic life of a site. Amortization of landfill assets is recorded on a units-of-consumption basis, such that the landfill assets should be completely amortized at the date the landfill ceases accepting waste. Amortization totaled $9.5 million, $9.7 million and $11.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Changes in estimated costs to complete construction are applied prospectively to the amortization rate. 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. The Company 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: (2) SIGNIFICANT ACCOUNTING POLICIES (Continued)
• | Personnel are actively working to obtain the permit or permit modifications (land use, state, provincial 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 5 years.
• | At the time the expansion is included in the Company'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.
• | The Company or other owner of the landfill has a legal right to use or obtain the right to use the land associated with the expansion plan.
• | There are no significant known political, technical, legal or business restrictions or issues that could impair the success of such expansion.
• | A financial feasibility analysis has been completed and the results demonstrate that the expansion will have a positive financial and operational impact such that management is committed to pursuing the expansion.
• | 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, 2017, there were two unpermitted expansions at two locations included in the Company's landfill accounting model, which represented 18.4% of the Company's remaining airspace at that date. If actual expansion airspace is significantly different from the Company's estimate of expansion airspace, the amortization rates used for the units-of-consumption method would change, therefore impacting the Company's profitability. If the Company determines that there is less actual expansion airspace at a landfill, this would increase amortization expense recorded and decrease profitability, while if the Company determines a landfill has more actual expansion airspace, amortization expense would decrease and profitability would increase. As of December 31, 2017, the Company had 11 active landfill sites (including the Company's two non-commercial landfills), which have estimated remaining lives (based on anticipated waste volumes and remaining highly probable airspace) as follows:
|  |  |  | Remaining Lives (Years) |  | Remaining Highly Probable Airspace (cubic yards) (in thousands)
Facility Name |  | Location |  | Permitted |  | Unpermitted |  | Total
Altair |  | Texas |  | 3 |  | 438 |  |  | — |  |  | 438 |
Buttonwillow |  | California |  | 20 |  | 6,459 |  |  | — |  |  | 6,459 |
Deer Park |  | Texas |  | 5 |  | 198 |  |  | — |  |  | 198 |
Deer Trail |  | Colorado |  | 33 |  | 1,812 |  |  | — |  |  | 1,812 |
Grassy Mountain |  | Utah |  | 59 |  | 291 |  |  | 4,830 |  |  | 5,121 |
Kimball |  | Nebraska |  | 8 |  | 211 |  |  | — |  |  | 211 |
Lambton |  | Ontario |  | 53 |  | 4,882 |  |  | — |  |  | 4,882 |
Lone Mountain |  | Oklahoma |  | 24 |  | 4,402 |  |  | — |  |  | 4,402 |
Ryley |  | Alberta |  | 8 |  | 351 |  |  | 880 |  |  | 1,231 |
Sawyer |  | North Dakota |  | 84 |  | 3,627 |  |  | — |  |  | 3,627 |
Westmorland |  | California |  | 64 |  | 2,732 |  |  | — |  |  | 2,732 |
|  |  |  |  |  | 25,403 |  |  | 5,710 |  |  | 31,113 |
At December 31, 2017 and 2016, the Company had no cubic yards of permitted, but not highly probable, airspace. (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) The following table presents the remaining highly probable airspace from January 1, 2015 through December 31, 2017 (in thousands of cubic yards):
| 2017 |  | 2016 |  | 2015
Remaining capacity at January 1, | 32,228 |  |  | 29,786 |  |  | 30,544 |
Addition of highly probable airspace, net | — |  |  | 3,464 |  |  | 516 |
Consumed | (1,115 | ) |  | (1,022 | ) |  | (1,274 | )
Remaining capacity at December 31, | 31,113 |  |  | 32,228 |  |  | 29,786 |
Amortization of cell construction costs and accrual of cell closure obligations—Landfills are typically comprised of a number of cells, which are constructed within a defined acreage (or footprint). The cells are typically discrete units, which require both separate construction and separate capping and closure procedures. Cell construction costs are the costs required to excavate and construct the landfill cell. These costs are typically amortized on a units-of-consumption basis, such that they are completely amortized when the specific cell ceases accepting waste. In some instances, the Company has landfills that are engineered and constructed as "progressive trenches." In progressive trench landfills, a number of contiguous cells form a progressive trench. In those instances, the Company amortizes cell construction costs over the airspace within the entire trench, such that the cell construction costs will be fully amortized at the end of the trench useful life. The design and construction of a landfill does not create a landfill asset retirement obligation. Rather, the asset retirement obligation for cell closure (the cost associated with capping each cell) is incurred in relatively small increments as waste is placed in the landfill. Therefore, the cost required to construct the cell cap is capitalized as an asset retirement cost and a liability of an equal amount is established, based on the discounted cash flow associated with each capping event, as airspace is consumed. Spending for cell capping is reflected as environmental expenditures within operating activities in the statement of cash flows. Landfill final closure and post-closure liabilities—The balance of landfill final closure and post-closure liabilities at December 31, 2017 and 2016 was $32.4 million and $30.6 million, respectively. The Company has material financial commitments for the costs associated with requirements of the Environmental Protection Agency ("EPA") and the comparable regulatory agency in Canada for landfill final closure and post-closure activities. 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. The Company develops estimates for the cost of these activities based on an evaluation of site-specific facts and circumstances, including the Company's 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. Final closure costs are the costs incurred after the site ceases to accept waste, but before the landfill is certified as closed by the applicable state regulatory agency. These costs generally include the costs required to cap the final cell of the landfill (if not included in cell closure), the costs required to dismantle certain structures for landfills and other landfill improvements, and regulation-mandated groundwater monitoring, and leachate management. Post-closure costs involve the maintenance and monitoring of a landfill site that has been certified closed by the applicable regulatory agency. These costs generally include groundwater monitoring and leachate management. 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. Cell closure, final closure and post-closure costs (also referred to as "asset retirement obligations") are calculated by estimating the total obligation in current dollars, adjusted for inflation (1.02% during 2017 and 2016) and discounted at the Company's credit-adjusted risk-free interest rate (6.32% and 6.23% during 2017 and 2016, respectively.) Non-Landfill Closure and Post-Closure Liabilities Non-landfill closure costs include costs required to dismantle and decontaminate certain structures and other costs incurred during the closure process. Post-closure costs, if required, include associated maintenance and monitoring costs as required by the closure permit. Post-closure periods are performance-based and are not generally specified in terms of years in the closure permit, but generally range from 10 to 30 years or more. (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) The Company records its non-landfill closure and post-closure liability by: (i) estimating the current cost of closing a non-landfill facility and the post-closure care of that facility, if required, based upon the closure plan that the Company is required to follow under its operating permit, or in the event the facility operates with a permit that does not contain a closure plan, based upon legally enforceable closure commitments made by the Company to various governmental agencies; (ii) using probability scenarios as to when in the future operations may cease; (iii) inflating the current cost of closing the non-landfill facility on a probability weighted basis using the inflation rate to the time of closing under each probability scenario; and (iv) discounting the future value of each closing scenario back to the present using the credit-adjusted risk-free interest rate. Non-landfill closure and post-closure obligations arise when the Company commences operations. The balance of non-landfill closure and post-closure liabilities at December 31, 2017 and 2016 was $28.6 million and $27.7 million, respectively. 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. Management reviews non-landfill closure and post-closure liabilities for changes to key assumptions that would impact the amount of the recorded liabilities. Changes that would prompt management to revise a liability estimate include changes in legal requirements that impact the Company's expected closure plan or scope of work, in the market price of a significant cost item, in the probability scenarios as to when future operations at a location might cease, or in the expected timing of the cost expenditures. Changes in estimates for non-landfill closure and post-closure events immediately impact the required liability and the value of the corresponding asset. If a change is made to a fully-consumed asset, the adjustment is charged immediately to expense. When a change in estimate relates to an asset that has not been fully consumed, the adjustment to the asset recognized in income prospectively as a component of amortization. Historically, material changes to non-landfill closure and post-closure estimates have been infrequent. Remedial Liabilities The balance of remedial liabilities at December 31, 2017 and 2016 was $124.5 million and $128.0 million, respectively. Remedial liabilities, including Superfund liabilities, include the costs of removal or containment of contaminated material, treatment of potentially contaminated groundwater and maintenance and monitoring costs necessary to comply with regulatory requirements. Most of the Company's remedial liabilities relate to the active and inactive hazardous waste treatment and disposal facilities which the Company acquired in the last 15 years and 35 Superfund sites owned by third parties for which the Company agreed to indemnify certain remedial liabilities owed or potentially owed to governmental entities by the sellers of certain assets (the "CSD assets") which the Company acquired in 2002. The Company performed extensive due diligence to estimate accurately the aggregate liability for remedial liabilities to which the Company became potentially liable as a result of the acquisitions. The Company's estimate of remedial liabilities involved an analysis of such factors as: (i) the nature and extent of environmental contamination (if any); (ii) the terms of applicable permits and agreements with regulatory authorities as to cleanup procedures and whether modifications to such permits and agreements will likely need to be negotiated; (iii) the cost of performing anticipated cleanup activities based upon current technology; and (iv) in the case of Superfund and other sites where other parties will also be responsible for a portion of the cleanup costs, the likely allocation of such costs and the ability of such other parties to pay their share. Remedial liabilities and on-going operations are reviewed quarterly and adjustments are made as necessary. The Company periodically evaluates potential remedial liabilities at sites that it owns or operates or to which the Company or the sellers of the CSD assets (or the respective predecessors of the Company or such sellers) transported or disposed of waste, including 129 Superfund sites as of December 31, 2017. The Company periodically reviews and evaluates sites requiring remediation, including Superfund sites, giving consideration to the nature (i.e., owner, operator, arranger, transporter or generator) and the extent (i.e., amount and nature of waste hauled to the location, number of years of site operations or other relevant factors) of the Company's (or such sellers') alleged connection with the site, the extent (if any) to which the Company believes it may have an obligation to indemnify cleanup costs in connection with the site, the regulatory context surrounding the site, the accuracy and strength of evidence connecting the Company (or such sellers) to the location, the number, connection and financial ability of other named and unnamed potentially responsible parties ("PRPs") and the nature and estimated cost of the likely remedy. Where the Company concludes that it is probable that a liability has been incurred and an amount can be estimated, a provision is made, based upon management's judgment and prior experience, of such estimated liability. Remedial liabilities are inherently difficult to estimate. Estimating remedial liabilities requires that the existing environmental contamination be understood. There are risks that the actual quantities of contaminants differ from the results of the site investigation, and that contaminants exist that have not been identified by the site investigation. In addition, the amount (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) of remedial liabilities recorded is dependent on the remedial method selected. There is a risk that funds will be expended on a remedial solution that is not successful, which could result in the additional incremental costs of an alternative solution. Such estimates, which are subject to change, are subsequently revised if and when additional or new information becomes available. Remedial liabilities are discounted only when the timing of the payments is determinable and the amounts are estimable. Management's experience has been that the timing of payments for remedial liabilities is not usually estimable, and therefore the amounts of remedial liabilities are not generally discounted. In the case of remedial liabilities assumed in connection with acquisitions, acquired liabilities are recorded at fair value as of the dates of the acquisitions calculated by inflating costs in current dollars using an estimate of future inflation rates as of the respective acquisition dates until the expected time of payment, and then discounting the amount of the payments to their present value using a risk-free discount rate as of the acquisition dates. Discounts have been and will be applied to the remedial liabilities as follows:
• | Remedial liabilities assumed relating to acquisitions are and will continue to be inflated using the inflation rates at the time of each acquisition (ranging from 1.01% to 2.57%) until the expected time of payment, then discounted at the risk-free interest rate at the time of such acquisition (ranging from 1.37% to 5.99%).
• | Remedial liabilities incurred subsequent to the acquisitions and remedial liabilities of the Company that existed prior to the acquisitions have been and will continue to be recorded at the estimated current value of the liabilities, which is usually neither increased for inflation nor reduced for discounting.
Foreign Currency During the years ended December 31, 2017 and 2016, the Company had operations in Canada, and to a much lesser extent, Mexico, Trinidad and India. The functional currencies of those operations are their local currency and therefore assets and liabilities of those foreign operations are translated to U.S. dollars at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for the period. Gains and losses from the translation of the consolidated financial statements of foreign subsidiaries into U.S. dollars are included in stockholders' equity as a component of accumulated other comprehensive loss. Gains and losses resulting from foreign currency transactions are recognized in the consolidated statements of operations. Recorded balances that are denominated in a currency other than the functional currency are remeasured to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the statements of operations. As part of the Company’s overall capital structure, intercompany loans have been established between subsidiaries of the Company and in some cases are denominated in Canadian dollars. These intercompany loans are considered to be of a long-term investment nature as the repayment of these loans is neither planned nor anticipated in the foreseeable future. Impacts from the remeasurement of these loan amounts from the Canadian to the U.S. dollar reporting currency are recorded as an adjustment to foreign currency translation adjustment within accumulated other comprehensive loss, a component of shareholders' equity. Revenue Recognition and Deferred Revenue In 2017, the Company generated services and product revenues through the following operating segments: Technical Services, Industrial Services, Field Services, Safety-Kleen, Oil and Gas Field Services, and Lodging Services. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured. In many cases revenue is recognized net of estimated allowances. Revenue is generated by short-term projects, most of which are governed by master service agreements that are long-term in nature. These master service agreements are typically entered into with the Company's larger customers and outline the pricing and legal frameworks for such arrangements. Due to the nature of the Company's business and the invoices that result from the services provided, customers may withhold payments and attempt to negotiate amounts invoiced. Accordingly, management establishes a revenue allowance to cover the estimated amounts of revenue that may need to be credited to customers' accounts in future periods. The Company records a provision for revenue allowances based on specific review of particular customers, historical trends and other relevant information. Technical Services revenue is generated from fees charged for hazardous material management and disposal services including onsite environmental management services, collection and transportation, packaging, recycling, treatment and disposal of hazardous and non-hazardous waste. Services are provided based on purchase orders or agreements with the (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) customer and include prices based upon units of volume of waste, and transportation and other fees. Collection and transportation, and packaging revenues are recognized when the transported waste is received at the disposal facility. Revenues for treatment and disposal of hazardous waste are recognized upon completion of wastewater treatment, final disposition in a landfill or incineration of the waste, all at Company-owned sites, or when the waste is shipped to a third party for processing and disposal. Revenues from recycled oil are recognized upon shipment to the customer. Revenue for all other Technical Services is recognized when services are rendered. The Company, at the request of a customer, periodically enters into bundled arrangements for the collection and transportation and disposal of waste. The Company accounts for such arrangements as multiple-element arrangements with each substantive deliverable treated as a separate unit of accounting. The Company measures and allocates the consideration from the arrangement to the separate units, based on evidence of the estimated selling price for each deliverable. Revenues from waste that is not yet completely processed and disposed and the related costs are deferred. The revenue is recognized and the deferred costs are expensed when the related services are completed. Industrial Services provides industrial and specialty services, such as high-pressure and chemical cleaning, daylighting services, production servicing, decoking, pigging and material processing to refineries, chemical plants, oil sands facilities, pulp and paper mills, and other industrial facilities. These services are provided based on purchase orders or agreements with the customer and include prices based upon daily, hourly or job rates for equipment, materials and personnel. Revenues are recognized over the term of the agreements or as services are performed. Field Services provides cleanup services on customer sites or other locations on a scheduled or emergency response basis. These services are provided based on purchase orders or agreements with the customers and include prices based upon daily, hourly or job rates for equipment, materials and personnel. Revenues are recorded as services are performed. Revenue is recognized on contracts with retainage when services have been rendered and collectability is reasonably assured. Safety-Kleen service revenues are generated from providing parts cleaning services, containerized waste services, oil collection services, blending and packaging of blended oils, and other complementary services. Product revenues consist of sales of high quality base and blended lubricating oils manufactured from re-refining used oil and sales of recycled used oil collected in excess of the Company's re-refining capacity into recycled fuel oil. The high quality base and blended lubricating oils are sold to third-party distributors, retailers, government agencies, fleets, railroads and industrial customers. In 2016, the Company implemented a direct-to-consumer sales model for Safety-Kleen’s renewable oil products. The recycled fuel oil is sold to asphalt plants, industrial plants, blenders, pulp and paper companies, vacuum gas oil producers and marine diesel oil producers. Product revenue is recognized upon the transfer of title. Parts cleaning services generally consist of placing a specially designed parts washer at a customer's premises and then, on a recurring basis, delivering clean solvent or aqueous-based washing fluid, cleaning and servicing the parts washer and removing the used solvent or aqueous fluid. The Company also services customer-owned parts washers. Revenue from parts cleaning services is recognized over the service interval. Service intervals represent the actual amount of time between service visits to a particular parts cleaning customer. Average service intervals vary from seven to 14 weeks depending on several factors, such as customer accommodation, types of machines serviced and frequency of use. Containerized waste services consist of profiling, collecting, transporting and recycling or disposing of a wide variety of hazardous and non-hazardous wastes. Collection and transportation, and packaging revenues are recognized when the transported waste is received at the disposal facility. Other complementary products and services include vacuum services, sale of allied supply products and other environmental services. Revenue is recognized when products are delivered and services are performed. Oil and Gas Field Services provides fluid handling, fluid hauling, surface rentals, seismic services, and directional boring services to the energy sector serving oil and gas exploration and production and power generation. These services are provided based on purchase orders or agreements with the customer and include prices based upon daily, hourly or job rates for equipment, materials and personnel. Revenues for such services are recognized over the term of the agreements or as services are performed. Oil and Gas Field Services also provides equipment rentals to support drill sites. Revenue from rentals is recognized ratably over the rental period. Lodging Services provides accommodation services, along with catering and hospitality primarily in remote areas of Western Canada. In addition, within Lodging Services is a manufacturing unit that provides construction of modular buildings including modular camp accommodations and wastewater solutions. Revenue for lodging and related services is recognized in the period each room is used by the customer based on the related lodging agreements. Revenue for manufacturing services is recognized based on contracted terms resulting in either a percentage of completion methodology or upon transfer of ownership of completed units. (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) For all periods presented, any amounts billed to customers related to shipping and handling are classified as revenue and the Company's shipping and handling costs are included in costs of revenues. In the course of the Company's operations, it collects sales tax from its customers and recognizes a current liability which is then relieved when the taxes are remitted to the appropriate governmental authorities. The Company excludes the sales tax collected from its revenues. Advertising Expense Advertising costs are expensed as incurred. Advertising expense was approximately $11.8 million in 2017, $10.8 million in 2016 and $15.0 million in 2015. Stock-Based Compensation Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of awards that will be forfeited. In addition, the Company issues awards with performance targets which are recognized as expense over the requisite service period when management believes it is probable those targets will be achieved. The fair value of the Company's grants of restricted stock are based on the quoted market price for the Company's common stock on the respective dates of grant. Compensation expense is based on the number of awards expected to vest. Forfeitures estimated when recognizing compensation expense are adjusted when actual forfeitures differ from the estimate. Income Taxes There are two major components of income tax expense, current and deferred. Current income tax expense approximates cash to be paid or refunded for taxes for the applicable period. Deferred tax expense or benefit is the result of changes between deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based upon the temporary differences between the financial statement basis and tax basis of assets and liabilities as well as from net operating loss and tax credit carryforwards as measured by the enacted tax rates, which will be in effect when these differences reverse. The effect of a change in tax rates on deferred tax assets and liabilities is generally recognized in income in the period that includes the enactment date. See Note 12, "Income Taxes," for more information related to the Tax Cuts and Jobs Act of 2017 and its impacts. The Company evaluates the recoverability of future tax deductions and credits and a valuation allowance is established by tax jurisdiction when, based on an evaluation of both positive and negative objective verifiable evidence, it is more likely than not that some portion or all of deferred tax assets will not be realized. The Company recognizes and measures a tax benefit from uncertain tax positions when it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company recognizes a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate or future recognition of an unrecognized benefit. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations. Accrued interest and penalties are included within deferred taxes, unrecognized tax benefits and other long-term liabilities line in the consolidated balance sheet. Earnings per Share ("EPS") Basic EPS is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all potentially dilutive common shares that were outstanding during the period. Business Combinations For all business combinations, the Company records 100% of all assets and liabilities of the acquired business, including goodwill, at their estimated fair values. Acquisition-related costs are expensed in the period in which the costs are incurred and the services are received. (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements Standards implemented In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-11, Inventory (Topic 330). The amendment provides guidance regarding the measurement of inventory. Entities should measure inventory within the scope of this update at the lower of cost and net realizable value. The adoption of ASU 2015-11 was applied prospectively and as of January 1, 2017 did not have an impact on the Company's consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendment simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Stock-based compensation excess tax benefits or deficiencies are now reflected in the consolidated statements of operations as a component of the (benefit) provision for income taxes, whereas they previously were recognized in equity. Additionally, the consolidated statements of cash flows now include excess tax benefits as an operating activity. Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. The Company has elected to apply that change in cash flow classification on a prospective basis, leaving previously reported net cash from operating activities and net cash from financing activities in the accompanying consolidated statement of cash flows for the prior periods unchanged. Finally, the Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures. As a result of the adoption of this update, the Company recorded a cumulative-effect adjustment that reduced beginning retained earnings by $0.5 million, net of tax. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendment provides updated guidance on eight specific cash flow issues, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from settlement of insurance claims and corporate-owned life insurance, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The Company early adopted the amendment on a retrospective basis in the second quarter of fiscal year 2017. As a result of adoption, the Company has recorded cash paid in 2017 for debt prepayment and extinguishment costs as financing activities in the accompanying consolidated statements of cash flows. In January 2017, FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendment simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The Company early adopted ASU 2017-04 for its 2017 annual goodwill impairment test. Adoption did not have an impact on the Company's consolidated financial statements. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under Accounting Standards Codification (ASC) 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendment allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act and also requires certain disclosures about stranded tax effects. The Company early adopted ASU 2018-02 as part of its fiscal year 2017 consolidated financial statements. Adoption did not have a material impact on the Company's consolidated financial statements. (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) Standards to be implemented The Company is currently evaluating the impact that the below standards to be implemented will have on the Company's consolidated financial statements. In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 for all entities by one year. In March 2016, FASB issued ASU 2016-08, which reduces the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance, as well as the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. In April 2016, FASB issued ASU 2016-10, which reduces the potential for diversity in initial application, as well as the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. In May 2016, FASB issued ASU 2016-12, which provided narrow scope improvements and practical expedients on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company adopted ASU 2014‑09 as of January 1, 2018 using the modified retrospective method. The Company has reached conclusions on key accounting assessments related to the new standard and the adoption of the new standard did not have a material impact to its consolidated financial statement results and is not expected to be material going forward. The Company expects revenue recognition for its portfolio of services and products to remain largely unchanged as the majority of the Company’s contracts are recognized based on time and materials incurred and were not impacted by the new guidance. The Company has concluded that the most significant impact of the standard relates to the incremental disclosures required. In January 2016, FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10). The amendment provides guidance to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendment in this update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Adoption is not expected to have a material impact on the Company's consolidated financial statements. In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The amendment increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendment is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt the new standard beginning on January 1, 2019. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While the Company is still continuing to assess the effect of adoption, it expects that the new standard will have a material effect on its consolidated balance sheet related to the recognition of new assets and lease liabilities. In October 2016, the FASB issued ASU 2016-16, Income Tax - Intra-Entity Transfers of Assets Other than Inventory. The amendment improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The amendment should be applied using a modified retrospective basis and is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Adoption is not expected to have a material impact on the Company's consolidated financial statements. In January 2017, FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this Update should be applied prospectively and are effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Adoption is not expected to have a material impact on the Company's consolidated financial statements. (2) SIGNIFICANT ACCOUNTING POLICIES (Continued) In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The amendment is meant to clarify the scope of ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and to add guidance for partial sales of nonfinancial assets. The amendment should be applied using a full retrospective method or a modified retrospective method and is effective at the same time as ASU 2014-09. Further, the Company is required to adopt ASU 2017-05 at the same time that it adopts the guidance in ASU 2014-09. Adoption is not expected to have a material impact on the Company's consolidated financial statements. In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendment requires an employer to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. In addition, the amendment allows only the service cost component to be eligible for capitalization when applicable. The amendment is effective for the Company for annual and interim reporting periods after December 15, 2017. The amendment should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company is currently evaluating the impact ASU 2017-07 will have on its consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. The amendment is meant to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendment should be applied prospectively to an award modified on or after the adoption date and is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017.

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