Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended: September 30, 2011

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                                   to                                   

 

Commission File Number:  0-11688

 

US ECOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

95-3889638

(State of Incorporation)

 

(I.R.S. Employer Identification Number)

 

Lakepointe Centre I,

300 E. Mallard, Suite 300

Boise, Idaho

 

83706

(Address of Principal Executive Offices)

 

(Zip Code)

 

(208) 331-8400

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller Reporting Company o

(Do not check if smaller reporting company)

 

 

 

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

 

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of November 4, 2011 was 18,317,514.

 

 

 



Table of Contents

 

US ECOLOGY, INC.

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010

 

1

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010

 

2

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010

 

3

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2011 and 2010

 

4

 

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

14

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

Item 4.

Controls and Procedures

 

25

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

Cautionary Statement

 

25

 

 

 

 

Item 1.

Legal Proceedings

 

26

 

 

 

 

Item 1A.

Risk Factors

 

26

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

26

 

 

 

 

Item 4.

Removed and Reserved

 

26

 

 

 

 

Item 5.

Other Information

 

26

 

 

 

 

Item 6.

Exhibits

 

27

 

 

 

 

SIGNATURE

 

28

 


 


Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

US ECOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

 

 

 

September 30, 2011

 

December 31, 2010

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

6,059

 

$

6,342

 

Receivables, net

 

28,708

 

33,553

 

Prepaid expenses and other current assets

 

2,709

 

2,635

 

Income taxes receivable

 

29

 

 

Deferred income taxes

 

872

 

455

 

Total current assets

 

38,377

 

42,985

 

 

 

 

 

 

 

Property and equipment, net

 

101,038

 

105,822

 

Restricted cash

 

4,115

 

4,115

 

Intangible assets, net

 

38,863

 

41,740

 

Goodwill

 

20,815

 

21,790

 

Other assets

 

721

 

897

 

Total assets

 

$

203,929

 

$

217,349

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

 

$

5,516

 

$

5,033

 

Deferred revenue

 

4,076

 

3,620

 

Accrued liabilities

 

9,031

 

8,188

 

Accrued salaries and benefits

 

4,459

 

4,051

 

Income taxes payable

 

971

 

2,615

 

Current portion of closure and post-closure obligations

 

2,462

 

778

 

Current portion of capital lease obligations

 

3

 

7

 

Total current liabilities

 

26,518

 

24,292

 

 

 

 

 

 

 

Long-term closure and post-closure obligations

 

14,788

 

15,995

 

Long-term capital lease obligations

 

1

 

3

 

Reducing revolving line of credit

 

48,000

 

63,000

 

Other long-term liabilities

 

157

 

201

 

Unrecognized tax benefits

 

429

 

 

Deferred income taxes

 

18,068

 

19,146

 

Total liabilities

 

107,961

 

122,637

 

 

 

 

 

 

 

Contingencies and commitments

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Common stock $0.01 par value, 50,000 authorized; 18,318 and 18,311 shares issued, respectively

 

183

 

183

 

Additional paid-in capital

 

62,188

 

61,892

 

Retained earnings

 

35,779

 

33,940

 

Treasury stock, at cost, 93 and 119 shares, respectively

 

(1,555

)

(1,979

)

Accumulated other comprehensive (loss) income

 

(627

)

676

 

Total stockholders’ equity

 

95,968

 

94,712

 

Total liabilities and stockholders’ equity

 

$

203,929

 

$

217,349

 

 

See Notes to Consolidated Financial Statements.

 

1



Table of Contents

 

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)
(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

39,670

 

$

25,984

 

$

113,350

 

$

65,356

 

Other direct operating costs

 

18,810

 

10,229

 

54,825

 

30,239

 

Transportation costs

 

5,571

 

5,383

 

20,689

 

11,027

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

15,289

 

10,372

 

37,836

 

24,090

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

5,722

 

3,929

 

15,874

 

10,839

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

9,567

 

6,443

 

21,962

 

13,251

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

6

 

16

 

21

 

47

 

Interest expense

 

(395

)

 

(1,277

)

(1

)

Foreign currency loss

 

(3,661

)

(35

)

(2,193

)

(59

)

Other

 

73

 

65

 

245

 

179

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

(3,977

)

46

 

(3,204

)

166

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

5,590

 

6,489

 

18,758

 

13,417

 

Income tax expense

 

1,864

 

2,551

 

7,087

 

5,366

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,726

 

$

3,938

 

$

11,671

 

$

8,051

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.20

 

$

0.22

 

$

0.64

 

$

0.44

 

Diluted

 

$

0.20

 

$

0.22

 

$

0.64

 

$

0.44

 

 

 

 

 

 

 

 

 

 

 

Shares used in earnings per share calculation:

 

 

 

 

 

 

 

 

 

Basic

 

18,202

 

18,172

 

18,194

 

18,167

 

Diluted

 

18,227

 

18,186

 

18,219

 

18,186

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per share

 

$

0.18

 

$

0.18

 

$

0.54

 

$

0.54

 

 

See Notes to Consolidated Financial Statements.

 

2



Table of Contents

 

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

 

$

11,671

 

$

8,051

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization of property and equipment

 

9,911

 

5,011

 

Amortization of intangible assets

 

1,076

 

 

Accretion of closure and post-closure obligations

 

970

 

830

 

Unrealized foreign currency loss

 

2,217

 

 

Deferred income taxes

 

(904

)

117

 

Stock-based compensation expense

 

623

 

789

 

Unrecognized tax benefits

 

429

 

 

Net loss on sale of property and equipment

 

99

 

167

 

Changes in assets and liabilities:

 

 

 

 

 

Receivables

 

4,585

 

(1,456

)

Income tax receivable

 

(31

)

 

Other assets

 

80

 

(646

)

Accounts payable and accrued liabilities

 

2,392

 

1,884

 

Deferred revenue

 

516

 

483

 

Accrued salaries and benefits

 

483

 

(78

)

Income tax payable

 

(1,646

)

861

 

Closure and post-closure obligations

 

(437

)

(215

)

Other

 

 

18

 

Net cash provided by operating activities

 

32,034

 

15,816

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Purchases of property and equipment

 

(7,493

)

(9,023

)

Proceeds from sale of property and equipment

 

57

 

61

 

Purchases of short-term investments

 

 

(4,998

)

Maturities of short-term investments

 

 

6,375

 

Restricted cash

 

 

686

 

Net cash used in investing activities

 

(7,436

)

(6,899

)

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

Payments on reducing revolving line of credit

 

(29,400

)

 

Proceeds from reducing revolving line of credit

 

14,400

 

 

Dividends paid

 

(9,832

)

(9,816

)

Proceeds from stock option exercises

 

97

 

 

Payment of capital lease obligations

 

(6

)

(9

)

Net cash used in financing activities

 

(24,741

)

(9,825

)

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash

 

(140

)

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(283

)

(908

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

6,342

 

31,347

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

6,059

 

$

30,439

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

Income taxes paid, net of receipts

 

$

9,233

 

$

4,387

 

Interest paid

 

986

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Capital expenditures in accounts payable

 

868

 

868

 

Closure/Post-closure retirement asset

 

 

1,257

 

Restricted stock issued from treasury shares

 

$

424

 

$

611

 

 

See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

($s in thousands)
(unaudited)

 

 

 

Common
Shares
Issued

 

Par Value
Common
Stock

 

Additional
Paid-In
Capital

 

Comprehensive
Income

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Retained
Earnings

 

Treasury
Stock

 

Total

 

Balance 12-31-2009

 

18,305,614

 

$

183

 

$

61,459

 

 

 

$

 

$

34,446

 

$

(2,590

)

$

93,498

 

Net income

 

 

 

 

$

8,051

 

 

8,051

 

 

8,051

 

Comprehensive income

 

 

 

 

$

8,051

 

 

 

 

 

Dividend paid

 

 

 

 

 

 

 

(9,816

)

 

(9,816

)

Stock-based compensation

 

 

 

789

 

 

 

 

 

 

789

 

Issuance of restricted common stock from treasury shares

 

 

 

(611

)

 

 

 

 

611

 

 

Balance 9-30-2010

 

18,305,614

 

$

183

 

$

61,637

 

 

 

$

 

$

32,681

 

$

(1,979

)

$

92,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance 12-31-2010

 

18,310,614

 

$

183

 

$

61,892

 

 

 

$

676

 

$

33,940

 

$

(1,979

)

$

94,712

 

Net income

 

 

 

 

$

11,671

 

 

11,671

 

 

11,671

 

Foreign currency translation

 

 

 

 

(1,303

)

(1,303

)

 

 

(1,303

)

Comprehensive income

 

 

 

 

$

10,368

 

 

 

 

 

Dividend paid

 

 

 

 

 

 

 

(9,832

)

 

(9,832

)

Stock option exercises

 

6,900

 

 

97

 

 

 

 

 

 

97

 

Stock-based compensation

 

 

 

623

 

 

 

 

 

 

623

 

Issuance of restricted common stock from treasury shares

 

 

 

(424

)

 

 

 

 

424

 

 

Balance 9-30-2011

 

18,317,514

 

$

183

 

$

62,188

 

 

 

$

(627

)

$

35,779

 

$

(1,555

)

$

95,968

 

 

See Notes to Consolidated Financial Statements.

 

4


 


Table of Contents

 

US ECOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 — GENERAL

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements include the results of operations, financial position and cash flows of US Ecology, Inc., and its wholly-owned subsidiaries (collectively, “US Ecology” or “the Company”). All significant intercompany balances have been eliminated.

 

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the results of the Company for the periods presented. These consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s 2010 Annual Report on Form 10-K filed with the SEC on March 15, 2011. The results of operations and cash flows for the three and nine months ended September 30, 2011 are not necessarily indicative of results to be expected for the entire fiscal year.

 

The Company’s Consolidated Balance Sheet as of December 31, 2010 has been derived from the Company’s audited Consolidated Balance Sheet as of that date.

 

Use of Estimates

 

The preparation of the Company’s consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions. Some of these estimates require difficult, subjective or complex judgments about matters that are inherently uncertain. As a result, actual results could differ from these estimates, in some cases materially. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

 

Financial Instruments. Cash and cash equivalents, accounts receivable, short-term borrowings, restricted cash, accounts payable and accrued liabilities as presented in the consolidated financial statements approximate fair value because of the short-term nature of these instruments.

 

NOTE 2 — ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

 

The components of accumulated other comprehensive income/(loss) were as follows (in thousands):

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

Cumulative adjustment of foreign currency statements

 

$

(627

)

$

676

 

Accumulated other comprehensive (loss) income

 

$

(627

)

$

676

 

 

NOTE 3 CONCENTRATION AND CREDIT RISK

 

Major Customers. No customer represented more than 10% of total revenue for the three and nine months ended September 30, 2011.  Revenue under the Company’s multiple year disposal contract with the U.S. Army Corps of Engineers (“USACE”) represented 19% and 18% of total revenue for the three and nine months ended September 30, 2010, respectively. Revenue from General Electric, Inc. (“GE”) represented 11% of total revenue for the three months ended September 30, 2010.  No other customer represented more than 10% of total revenue for the three and nine months ended September 30, 2010.

 

5



Table of Contents

 

No customers accounted for more than 10% of total trade receivables as of September 30, 2011.  The following customers accounted for more than 10% of total trade receivables as of December 31, 2010:

 

 

 

Percent of Receivables

 

 

 

December 31,

 

Customer

 

2010

 

 

 

 

 

U.S. Army Corps of Engineers

 

12

%

Honeywell International, Inc.

 

10

%

General Electric, Inc.

 

10

%

 

Credit Risk Concentration. We maintain most of our cash and short-term investments with nationally recognized financial institutions like Wells Fargo National Association (“Wells Fargo”). Substantially all of our balances are uninsured and are not used as collateral for other obligations. Concentrations of credit risk on accounts receivable are believed to be limited due to the number, diversification and character of the obligors and our credit evaluation process.

 

NOTE 4 — RECEIVABLES

 

Receivables were as follows:

 

 

 

September 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

 

 

 

 

 

 

Trade

 

$

26,699

 

$

32,221

 

Unbilled revenue

 

1,434

 

1,463

 

Other

 

1,083

 

207

 

 

 

29,216

 

33,891

 

Allowance for doubtful accounts

 

(508

)

(338

)

 

 

$

28,708

 

$

33,553

 

 

NOTE 5 PROPERTY AND EQUIPMENT

 

 

 

September 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

 

 

 

 

 

 

Cell development costs

 

$

61,510

 

$

58,944

 

Land and improvements

 

13,083

 

13,016

 

Buildings and improvements

 

51,017

 

44,228

 

Railcars

 

17,375

 

17,375

 

Vehicles and other equipment

 

33,051

 

31,252

 

Construction in progress

 

3,331

 

10,556

 

 

 

179,367

 

175,371

 

Accumulated depreciation and amortization

 

(78,329

)

(69,549

)

 

 

$

101,038

 

$

105,822

 

 

Depreciation expense for the three months ended September 30, 2011 and 2010 was $3.6 million and $1.9 million, respectively. Depreciation expense for the nine months ended September 30, 2011 and 2010 was $9.9 million and $5.0 million, respectively.

 

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Table of Contents

 

NOTE 6 — BUSINESS COMBINATION

 

On October 31, 2010, the Company, through a wholly-owned subsidiary, acquired 100% of the outstanding shares of Seaway TLC Inc. and its wholly-owned subsidiaries Stablex Canada Inc. and Gulfstream TLC, Inc. (collectively “Stablex”). The following unaudited pro forma financial information presents the combined results of operations as if Stablex had been combined with us beginning on January 1, 2010. The pro forma financial information includes the accounting impact of the business combination, including the amortization of intangible assets, depreciation of property, plant and equipment and interest expense.  The unaudited pro forma financial information is presented for informational purposes only.  It is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period presented, nor should it be taken as an indication of our future consolidated results of operations.

 

 

 

(unaudited)

 

(unaudited)

 

(in thousands, except per share data)

 

Three months ended
September 30, 2010

 

Nine months ended
September 30, 2010

 

Pro forma combined revenues

 

$

29,895

 

$

85,355

 

Pro forma combined net income

 

$

2,922

 

$

6,080

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.16

 

$

0.33

 

Dilutive

 

$

0.16

 

$

0.33

 

 

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS

 

Goodwill and intangible assets as of September 30, 2011 and December 31, 2010 reflect our acquisition of Stablex on October 31, 2010 (see Note 6). Prior to the acquisition of Stablex, the Company had no goodwill or intangible assets. The goodwill has been assigned to the Operating Disposal Facilities reporting segment. Changes in goodwill for the three and nine months ended September 30, 2011 were as follows:

 

(in thousands)

 

Three Months Ended
September 30, 2011

 

Nine Months Ended
September 30, 2011

 

Balance, beginning of period

 

$

22,419

 

$

21,790

 

Foreign currency translation

 

(1,604

)

(975

)

Balance, end of period

 

$

20,815

 

$

20,815

 

 

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Below is a summary of amortizable and other intangible assets:

 

 

 

September 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

Amortized intangible assets

 

 

 

 

 

Developed software

 

$

337

 

$

352

 

Database

 

96

 

100

 

Customer relationships

 

3,919

 

4,102

 

Technology - Formulae and processes

 

8,740

 

9,149

 

Permits, licenses and lease

 

26,844

 

28,101

 

 

 

39,936

 

41,804

 

 

 

 

 

 

 

Accumulated amortization

 

(1,236

)

(235

)

 

 

 

 

 

 

Unamortized intangible assets

 

 

 

 

 

Tradename

 

163

 

171

 

 

 

$

38,863

 

$

41,740

 

 

Amortization expense for the three and nine months ended September 30, 2011 was $358,000 and $1.1 million, respectively. There was no amortization of intangibles in the three and nine months ended September 30, 2010.

 

NOTE 8 DEBT

 

We have a credit agreement (the “Credit Agreement”) with Wells Fargo which provides for borrowings in an aggregate of $89.4 million, net of commitment reductions.  The Credit Agreement provides a $20.0 million revolving line of credit (the “Revolving Line of Credit”) with a maturity date of June 15, 2013 and a $69.4 million reducing revolving line of credit (the “Reducing Revolving Line of Credit”), net of commitment reductions with a maturity date of November 1, 2015.

 

Revolving Line of Credit

 

The Revolving Line of Credit provides up to $20 million in revolving credit loans or letters of credit for working capital needs (the “Commitment Amount”).  These revolving loans are available based on the Prime Rate or LIBOR, at the Company’s option, plus an applicable margin, which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). At September 30, 2011, the effective interest rate of the Revolving Line of Credit was 1.9%. Interest only payments are due either monthly or on the last day of any interest period, as applicable. At September 30, 2011 and December 31, 2010 there were no amounts outstanding under the Revolving Line of Credit. At September 30, 2011, the availability under the Revolving Line of Credit was $16.0 million with $4.0 million of the line of credit issued in the form of a standby letter of credit utilized as collateral for closure and post-closure financial assurance.

 

Reducing Revolving Line of Credit

 

The Reducing Revolving Line of Credit provides an initial commitment amount of $75.0 million, the proceeds of which were used to acquire all of the shares of Stablex, and thereafter will be used to provide financing for working capital needs (the “Reducing Revolving Commitment Amount”). The initial Reducing Revolving Commitment Amount is reduced by $2.8 million on the last day of each June, September, December and March beginning June 30, 2011, and continuing through November 1, 2015. At September 30, 2011, the net commitment amount under the Reducing Revolving Line of Credit after consideration of scheduled commitment reductions was $69.4 million. Under the Reducing Revolving Line of Credit revolving loans are available based on the Prime Rate or LIBOR, at the Company’s option, plus an applicable margin, which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to EBITDA. At September 30, 2011, the effective interest rate of the Reducing Revolving Line of Credit was 2.4%.  Interest only payments are due either monthly or on the last day of any interest period, as applicable. There was $48.0 million and $63.0 million outstanding on the Reducing Revolving Line of Credit at September 30, 2011 and December 31, 2010, respectively.  At September 30, 2011, the availability for additional borrowings under the Reducing Revolving Line of Credit was $21.4 million.

 

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Table of Contents

 

In addition to standard fees, origination and commitment fees apply based on the average daily unused portion of the Commitment Amount and the Reducing Revolving Commitment Amount. The Credit Agreement contains certain quarterly financial covenants, including a maximum funded debt ratio, a maximum fixed charge coverage ratio, a minimum required tangible net worth and a minimum current ratio. In addition, we may only declare quarterly or annual dividends if on the date of declaration, no default has occurred, or no other event or condition has occurred that would constitute an event of default after giving effect to the payment of the dividend. Obligations under the Credit Agreement are guaranteed by US Ecology and all of its subsidiaries.

 

At September 30, 2011, we were in compliance with all of the financial covenants in the Credit Agreement.

 

NOTE 9 — CLOSURE AND POST-CLOSURE OBLIGATIONS

 

Closure and post-closure obligations are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. We perform periodic reviews of both non-operating and operating facilities and revise accruals for estimated post-closure, remediation and other costs when necessary. Our recorded liabilities are based on estimates of future costs and are updated periodically to reflect existing environmental conditions, current technology, laws and regulations, permit conditions, inflation and other factors.

 

Changes to reported closure and post-closure obligations were as follows:

 

(in thousands)

 

Three Months Ended
September 30, 2011

 

Nine Months Ended
September 30, 2011

 

 

 

 

 

 

 

Beginning obligation

 

$

17,314

 

$

16,773

 

Accretion expense

 

323

 

970

 

Payments

 

(281

)

(431

)

Currency translation

 

(106

)

(62

)

Ending obligation

 

17,250

 

17,250

 

Less current portion

 

(2,462

)

(2,462

)

Long-term portion

 

$

14,788

 

$

14,788

 

 

NOTE 10 INCOME TAXES

 

During the three months ended September 30, 2011, the Company recorded unrecognized tax benefits of $420,000 and accrued interest of $9,000 related to filing positions taken on our recently filed 2010 U.S. income tax returns.  As of September 30, 2011, we had unrecognized tax benefits of $429,000 (including interest of $9,000) that, if recognized, would positively affect the effective tax rate.  We had no unrecognized tax benefits as of December 31, 2010. The Company does not anticipate the total unrecognized tax benefits to increase or decrease materially within the next twelve months. We recognize interest assessed by taxing authorities as a component of interest expense. We recognize any penalties assessed by taxing authorities as a component of selling, general and administrative expenses. Interest and penalties for the three and nine months ended September 30, 2011 and 2010 were not material.

 

Our effective tax rate for the three and nine months ended September 30, 2011 was 33.4% and 37.8%, respectively, down from 39.3% and 40.0% for the three and nine months ended September 30, 2010, respectively. The decrease in our effective tax rate reflects a reduction in our estimated state income tax rate, favorable adjustments resulting from filing our 2010 income tax returns and higher earnings levels in 2011 as compared with the same period in 2010.

 

We file a consolidated U.S. federal income tax return with the Internal Revenue Service (“IRS”) as well as income tax returns in various states and Canada. We may be subject to examination by taxing authorities in the U.S. and Canada for tax years 2008 through 2010. Additionally, we may be subject to examinations by various state and local taxing jurisdictions for tax years 2006 through 2010. We are currently not aware of any examinations by taxing authorities.

 

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Table of Contents

 

NOTE 11 COMMITMENTS AND CONTINGENCIES

 

In the ordinary course of business, we are periodically involved in judicial and administrative proceedings involving federal, state or local governmental authorities. Actions may also be brought by individuals or groups in connection with permit modifications at existing facilities, proposed new facilities, alleged violations of existing permits, or alleged damages suffered from exposure to hazardous substances purportedly released from our operating sites or non-operating sites, as well as other litigation. We maintain insurance intended to cover property and damage claims asserted as a result of our operations. Periodically, management reviews and may establish reserves for legal, environmental and administrative matters, or fees expected to be incurred in connection therewith.

 

NOTE 12 — COMPUTATION OF EARNINGS PER SHARE

 

 

 

Three Months Ended September 30,

 

 

 

2011

 

2010

 

(in thousands, except per share data)

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Net income

 

$

3,726

 

$

3,726

 

$

3,938

 

$

3,938

 

Weighted average common shares outstanding

 

18,202

 

18,202

 

18,172

 

18,172

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of stock options and restricted stock

 

 

 

25

 

 

 

14

 

Weighted average shares outstanding

 

 

 

18,227

 

 

 

18,186

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

$

0.20

 

$

0.20

 

$

0.22

 

$

0.22

 

Anti-dilutive shares excluded from calculation

 

 

 

308

 

 

 

342

 

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

(in thousands, except per share data)

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Net income

 

$

11,671

 

$

11,671

 

$

8,051

 

$

8,051

 

Weighted average common shares outstanding

 

18,194

 

18,194

 

18,167

 

18,167

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of stock options and restricted stock

 

 

 

25

 

 

 

19

 

Weighted average shares outstanding

 

 

 

18,219

 

 

 

18,186

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

$

0.64

 

$

0.64

 

$

0.44

 

$

0.44

 

Anti-dilutive shares excluded from calculation

 

 

 

327

 

 

 

333

 

 

NOTE 13 — TREASURY STOCK

 

During the nine months ended September 30, 2011, the Company issued 25,400 shares of restricted stock from our treasury stock position at an average cost of $16.68 per share.

 

10


 


Table of Contents

 

NOTE 14 — OPERATING SEGMENTS

 

We operate within two segments, Operating Disposal Facilities and Non-Operating Disposal Facilities. The Operating Disposal Facilities segment represents facilities currently accepting waste. The Non-Operating Disposal Facilities segment represents facilities that are no longer accepting waste.

 

Income taxes are assigned to Corporate. All other items are included in the segment of origin. Intercompany transactions have been eliminated from the segment information and are not significant between segments.

 

Summarized financial information concerning our reportable segments is shown in the following tables:

 

(in thousands)

 

Operating
Disposal
Facilities

 

Non-
Operating
Disposal
Facilities

 

Corporate

 

Total

 

Three months ended September 30, 2011

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

34,558

 

$

6

 

$

 

$

34,564

 

Revenue - Transportation services

 

5,106

 

 

 

5,106

 

Total revenue

 

39,664

 

6

 

 

39,670

 

Other direct operating costs

 

18,752

 

58

 

 

18,810

 

Transportation costs

 

5,571

 

 

 

5,571

 

Gross profit (loss)

 

15,341

 

(52

)

 

15,289

 

Selling, general & administration

 

2,925

 

 

2,797

 

5,722

 

Operating income (loss)

 

12,416

 

(52

)

(2,797

)

9,567

 

Interest income (expense), net

 

6

 

 

(395

)

(389

)

Foreign currency gain (loss)

 

218

 

 

(3,879

)

(3,661

)

Other income

 

73

 

 

 

73

 

Income (loss) before tax

 

12,713

 

(52

)

(7,071

)

5,590

 

Income tax expense

 

 

 

1,864

 

1,864

 

Net income (loss)

 

$

12,713

 

$

(52

)

$

(8,935

)

$

3,726

 

Depreciation, amortization & accretion

 

$

4,217

 

$

55

 

$

13

 

$

4,285

 

Capital expenditures

 

$

1,773

 

$

 

$

46

 

$

1,819

 

Total assets

 

$

194,961

 

$

91

 

$

8,877

 

$

203,929

 

 

11



Table of Contents

 

(in thousands)

 

Operating
Disposal
Facilities

 

Non-
Operating
Disposal
Facilities

 

Corporate

 

Total

 

Three months ended September 30, 2010

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

20,662

 

$

9

 

$

 

$

20,671

 

Revenue - Transportation services

 

5,313

 

 

 

5,313

 

Total revenue

 

25,975

 

9

 

 

25,984

 

Other direct operating costs

 

10,171

 

58

 

 

10,229

 

Transportation costs

 

5,383

 

 

 

5,383

 

Gross profit (loss)

 

10,421

 

(49

)

 

10,372

 

Selling, general & administration

 

1,214

 

 

2,715

 

3,929

 

Operating income (loss)

 

9,207

 

(49

)

(2,715

)

6,443

 

Interest income (expense), net

 

3

 

 

13

 

16

 

Foreign currency gain (loss)

 

(35

)

 

 

(35

)

Other income

 

61

 

4

 

 

65

 

Income (loss) before tax

 

9,236

 

(45

)

(2,702

)

6,489

 

Income tax expense

 

 

 

2,551

 

2,551

 

Net income (loss)

 

$

9,236

 

$

(45

)

$

(5,253

)

$

3,938

 

Depreciation, amortization & accretion

 

$

2,142

 

$

51

 

$

11

 

$

2,204

 

Capital expenditures

 

$

4,124

 

$

20

 

$

 

$

4,144

 

Total assets

 

$

92,306

 

$

57

 

$

36,140

 

$

128,503

 

 

(in thousands)

 

Operating
Disposal
Facilities

 

Non-
Operating
Disposal
Facilities

 

Corporate

 

Total

 

Nine months ended September 30, 2011

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

94,113

 

$

17

 

$

 

$

94,130

 

Revenue - Transportation services

 

19,220

 

 

 

19,220

 

Total revenue

 

113,333

 

17

 

 

113,350

 

Other direct operating costs

 

54,653

 

172

 

 

54,825

 

Transportation costs

 

20,689

 

 

 

20,689

 

Gross profit (loss)

 

37,991

 

(155

)

 

37,836

 

Selling, general & administration

 

7,757

 

 

8,117

 

15,874

 

Operating income (loss)

 

30,234

 

(155

)

(8,117

)

21,962

 

Interest income (expense), net

 

19

 

 

(1,275

)

(1,256

)

Foreign currency gain (loss)

 

125

 

 

(2,318

)

(2,193

)

Other income

 

244

 

1

 

 

245

 

Income (loss) before tax

 

30,622

 

(154

)

(11,710

)

18,758

 

Income tax expense

 

 

 

7,087

 

7,087

 

Net income (loss)

 

$

30,622

 

$

(154

)

$

(18,797

)

$

11,671

 

Depreciation, amortization & accretion

 

$

11,757

 

$

164

 

$

36

 

$

11,957

 

Capital expenditures

 

$

7,369

 

$

12

 

$

112

 

$

7,493

 

Total assets

 

$

194,961

 

$

91

 

$

8,877

 

$

203,929

 

 

12



Table of Contents

 

(in thousands)

 

Operating
Disposal
Facilities

 

Non-
Operating
Disposal
Facilities

 

Corporate

 

Total

 

Nine months ended September 30, 2010

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

55,003

 

$

22

 

$

 

$

55,025

 

Revenue - Transportation services

 

10,331

 

 

 

10,331

 

Total revenue

 

65,334

 

22

 

 

65,356

 

Other direct operating costs

 

30,028

 

211

 

 

30,239

 

Transportation costs

 

11,027

 

 

 

11,027

 

Gross profit (loss)

 

24,279

 

(189

)

 

24,090

 

Selling, general & administration

 

3,957

 

 

6,882

 

10,839

 

Operating income (loss)

 

20,322

 

(189

)

(6,882

)

13,251

 

Interest income (expense), net

 

5

 

 

41

 

46

 

Foreign currency gain (loss)

 

(59

)

 

 

(59

)

Other income

 

171

 

8

 

 

179

 

Income (loss) before tax

 

20,439

 

(181

)

(6,841

)

13,417

 

Income tax expense

 

 

 

5,366

 

5,366

 

Net income (loss)

 

$

20,439

 

$

(181

)

$

(12,207

)

$

8,051

 

Depreciation, amortization & accretion

 

$

5,654

 

$

152

 

$

35

 

$

5,841

 

Capital expenditures

 

$

9,000

 

$

20

 

$

3

 

$

9,023

 

Total assets

 

$

92,306

 

$

57

 

$

36,140

 

$

128,503

 

 

Revenue, Property and Equipment and Intangible Assets Outside of the United States

 

We provide services in the United States and Canada. The table below summarizes revenues by geographic area where the underlying services were performed for the three and nine months ended September 30, 2011 and 2010:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in thousands)

 

2011

 

2010

 

2011

 

2010

 

United States

 

$

30,248

 

$

25,984

 

$

85,100

 

$

65,356

 

Canada

 

9,422

 

 

28,250

 

 

 

 

$

39,670

 

$

25,984

 

$

113,350

 

$

65,356

 

 

Long-lived assets by geographic location, consisting of property and equipment and intangible assets net of accumulated depreciation and amortization as of September 30, 2011 and December 31, 2010 were as follows:

 

 

 

September 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

United States

 

$

73,080

 

$

74,734

 

Canada

 

66,821

 

72,828

 

 

 

$

139,901

 

$

147,562

 

 

NOTE 15 — SUBSEQUENT EVENT

 

On October 3, 2011, we declared a quarterly dividend of $0.18 per common share to stockholders of record on October 14, 2011. The dividend was paid using cash on hand on October 21, 2011 in an aggregate amount of $3.3 million.

 

13



Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of
US Ecology, Inc.
Boise, Idaho

 

We have reviewed the accompanying consolidated balance sheet of US Ecology, Inc. and subsidiaries (the “Company”) as of September 30, 2011, the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 2011 and 2010, and the consolidated statements of cash flows and of stockholders’ equity for the nine-month periods ended September 30, 2011 and 2010. These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of US Ecology, Inc. and subsidiaries as of December 31, 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 15, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ Deloitte & Touche LLP

 

Boise, Idaho

November 8, 2011

 

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Table of Contents

 

US ECOLOGY, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

US Ecology, Inc., through its subsidiaries, is a hazardous, Polychlorinated biphenyl (“PCB”), non-hazardous and radioactive waste services company providing treatment, disposal, recycling and transportation services to commercial and government entities including, but not limited to, oil refineries, chemical production facilities, manufacturers, electric utilities, steel mills, biotechnology companies, military installations, waste broker aggregators and medical and academic institutions. We generate revenue from fees charged to treat and dispose of waste at our five fixed disposal facilities located near Beatty, Nevada; Grand View, Idaho; Richland, Washington; Robstown, Texas; and Blainville, Quebec, Canada. We manage a dedicated fleet of railcars and arrange for the transportation of waste to our facilities. We also utilize our railcar fleet to provide transportation services for disposal at facilities operated by other companies on a less frequent basis. Transportation and logistics services are a significant revenue source for us. We, or our predecessor companies, have been in the waste business since 1952.

 

On October 31, 2010, the Company acquired Stablex Canada Inc (“Stablex”). Stablex is a provider of hazardous waste services that operates a permitted hazardous waste processing and disposal facility in Blainville, Québec, Canada about 30 miles northwest of Montreal, Canada. The net purchase price of $77.5 million in U.S. dollars (“USD”) was funded through a combination of cash on hand and borrowings under a $75.0 million Reducing Revolving Line of credit facility.

 

Our customers may be divided into categories to better evaluate period-to-period changes in our treatment and disposal revenue based on service mix and type of business (recurring “Base” or “Event” clean-up business).  Each of these categories is described in the table below with information on the percentage of total treatment and disposal revenues for each category for the three and nine months ended September 30, 2011 and 2010.

 

Customer
Category

 

Description

 

% of Treatment and
Disposal Revenue (1) for
the Three Months ended
September 30, 2011

 

% of Treatment and
Disposal Revenue (1) for
the Three Months ended
September 30, 2010

 

Broker

 

Companies that collect and aggregate waste from their direct customers, comprised of both Base and Event clean-up business.

 

57

%

38

%

 

 

 

 

 

 

 

 

Other industry

 

Electric utilities, chemical manufacturers, steel mill and other industrial customers not included in other categories, comprised of both recurring Base Business and Event clean-up business.

 

14

%

9

%

 

 

 

 

 

 

 

 

Private Clean-up

 

Private sector clean-up project waste, typically Event Business.

 

11

%

15

%

 

 

 

 

 

 

 

 

Refinery

 

Petroleum refinery customers, comprised of both Base and Event clean-up business.

 

8

%

7

%

 

 

 

 

 

 

 

 

Government

 

Federal and State government clean-up project waste, comprised of both Base Business and Event clean-up business.

 

6

%

24

%

 

 

 

 

 

 

 

 

Rate regulated

 

Northwest and Rocky Mountain Compact customers paying rate-regulated disposal fees set by the State of Washington, predominantly Base Business.

 

4

%

7

%

 


(1) Excludes all transportation service revenue

 

15



Table of Contents

 

 

Customer
Category

 

Description

 

% of Treatment and
Disposal Revenue (1) for
the Nine Months ended
September 30, 2011

 

% of Treatment and
Disposal Revenue (1) for
the Nine Months ended
September 30, 2010

 

Broker

 

Companies that collect and aggregate waste from their direct customers, comprised of both Base and Event clean-up business.

 

50

%

42

%

 

 

 

 

 

 

 

 

Other industry

 

Electric utilities, chemical manufacturers, steel mill and other industrial customers not included in other categories, comprised of both recurring Base Business and Event clean-up business.

 

15

%

11

%

 

 

 

 

 

 

 

 

Private Clean-up

 

Private sector clean-up project waste, typically Event Business.

 

11

%

8

%

 

 

 

 

 

 

 

 

Government

 

Federal and State government clean-up project waste, comprised of both Base Business and Event clean-up business.

 

10

%

21

%

 

 

 

 

 

 

 

 

Refinery

 

Petroleum refinery customers, comprised of both Base and Event clean-up business.

 

10

%

11

%

 

 

 

 

 

 

 

 

Rate regulated

 

Northwest and Rocky Mountain Compact customers paying rate-regulated disposal fees set by the State of Washington, predominantly Base Business.

 

4

%

7

%

 


(1) Excludes all transportation service revenue

 

A significant portion of our treatment and disposal revenue is attributable to discrete Event Business projects which vary widely in size, duration and unit pricing. Approximately 43% and 39% of this revenue was derived from Event Business projects for the three and nine months ended September 30, 2011, respectively. The one-time nature of Event Business, diverse spectrum of waste types received and widely varying unit pricing necessarily creates variability in revenue and earnings. This variability may be influenced by general economic conditions, funding availability, changes in laws and regulations, government enforcement actions or court orders, public controversy, litigation, weather, real estate redevelopment project timing, government appropriation and funding commitment cycles and other factors. The types and amounts of waste received from Base Business also vary quarter to quarter. As a result of this variability, we can experience significant quarter-to-quarter and year-to-year fluctuations in revenue, gross profit, gross margin, operating income and net income. Also, while many large projects are pursued months or years in advance of work performance, both large and small clean-up project opportunities routinely arise with little prior notice.

 

Depending on project-specific customer needs and competitive economics, transportation services may be offered at or near our cost to help secure additional business. For waste transported by rail from the eastern United States and other locations distant from our Grand View, Idaho facility, transportation-related revenue can account for as much as three-fourths (75%) of total project revenue. While bundling transportation and disposal services reduces overall gross profit as a percentage of total revenue (“gross margin”), this value-added service approach has allowed us to win multiple projects that management believes we could not have otherwise competed for successfully. Our Company-owned railcar fleet has reduced our reliance on short-term rentals reducing transportation expenses and creating competitive advantages on specific projects.

 

The increased waste volumes resulting from projects won through this bundling strategy drive operating leverage and increased profitability. While waste treatment and other variable costs are project-specific, the earnings contribution from the individual projects generally increases as overall disposal volumes increase. Management believes that maximizing cash flow, operating income and earnings per share is a higher priority than maintaining or increasing gross margin. We plan to continue aggressively bidding for bundled transportation and disposal services based on this strategy.

 

To maximize utilization of our railcar fleet, we periodically deploy available railcars to transport waste from clean-up sites to disposal facilities operated by other companies. Such transportation services may be bundled with for-profit logistics and field services support work.

 

We serve oil refineries, chemical production plants, steel mills, waste broker-aggregators serving small manufacturers and other industrial customers that are generally affected by adverse economic conditions and a tight credit environment. Such conditions may cause our customers as well as those they serve to curtail operations,

 

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resulting in lower waste production and/or delayed spending on off-site waste shipments, maintenance, waste clean-up projects and other work. Factors that can impact general economic conditions and the level of spending by our customers include, but are not limited to, government programs and regulatory changes, consumer and industrial spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other global economic factors affecting spending behavior. Market forces may also induce customers to reduce or cease operations, declare bankruptcy, liquidate or relocate to other countries, any of which could adversely affect our business. To the extent our business is either government funded or driven by government regulations or enforcement actions, we believe it is less susceptible to general economic conditions. However, spending by government agencies may also be reduced due to declining tax revenue resulting from a weak economy or changes in policy. Disbursement of funds appropriated by Congress may also be delayed for administrative or other reasons.

 

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Table of Contents

 

Results of Operations

 

The following table summarizes our results of operations for the three and nine months ended September 30, 2011 and 2010 in dollars and as a percentage of total revenue.

 

(in thousands, except per

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

share amounts)

 

2011

 

%

 

2010

 

%

 

2011

 

%

 

2010

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

39,670

 

100.0

%

$

25,984

 

100.0

%

$

113,350

 

100.0

%

$

65,356

 

100.0

%

Direct operating costs

 

18,810

 

47.4

%

10,229

 

39.4

%

54,825

 

48.4

%

30,239

 

46.3

%

Transportation costs

 

5,571

 

14.0

%

5,383

 

20.7

%

20,689

 

18.3

%

11,027

 

16.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

15,289

 

38.6

%

10,372

 

39.9

%

37,836

 

33.3

%

24,090

 

36.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

5,722

 

14.4

%

3,929

 

15.1

%

15,874

 

14.0

%

10,839

 

16.6

%

Operating income

 

9,567

 

24.2

%

6,443

 

24.8

%

21,962

 

19.3

%

13,251

 

20.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

6

 

0.0

%

16

 

0.1

%

21

 

0.0

%

47

 

0.1

%

Interest expense

 

(395

)

-1.0

%

 

0.0

%

(1,277

)

-1.1

%

(1

)

0.0

%

Foreign currency loss

 

(3,661

)

-9.2

%

(35

)

-0.2

%

(2,193

)

-1.9

%

(59

)

-0.1

%

Other

 

73

 

0.2

%

65

 

0.3

%

245

 

0.2

%

179

 

0.3

%

Total other income (expense)

 

(3,977

)

-10.0

%

46

 

0.2

%

(3,204

)

-2.8

%

166

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

5,590

 

14.2

%

6,489

 

25.0

%

18,758

 

16.5

%

13,417

 

20.5

%

Income taxes

 

1,864

 

4.8

%

2,551

 

9.8

%

7,087

 

6.3

%

5,366

 

8.2

%

Net income

 

$

3,726

 

9.4

%

$

3,938

 

15.2

%

$

11,671

 

10.2

%

$

8,051

 

12.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.20

 

 

 

$

0.22

 

 

 

$

0.64

 

 

 

$

0.44

 

 

 

Dilutive

 

$

0.20

 

 

 

$

0.22

 

 

 

$

0.64

 

 

 

$

0.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in earnings per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

18,202

 

 

 

18,172

 

 

 

18,194

 

 

 

18,167

 

 

 

Dilutive

 

18,227

 

 

 

18,186

 

 

 

18,219

 

 

 

18,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per share

 

$

0.18

 

 

 

$

0.18

 

 

 

$

0.54

 

 

 

$

0.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (1)

 

$

14,062

 

 

 

$

8,841

 

 

 

$

34,542

 

 

 

$

19,881

 

 

 

 


(1) For all periods presented, Adjusted EBITDA consists of net income plus net interest expense, income tax expense, depreciation, amortization, stock based compensation and accretion of closure and post-closure liabilities. We also exclude foreign currency gain/loss and other income/expense as these amounts are not considered part of usual business operations. Adjusted EBITDA is a complement to results provided in accordance with accounting principles generally accepted in the United States (“GAAP”) and we believe that such information provides additional useful information to analysts, stockholders and other users to understand the Company’s operating performance. Since Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our financial performance. Adjusted EBITDA should not be considered in isolation to or as an alternative to, or substitute for, net income, cash flows generated by operations or other financial statement data presented in the consolidated financial statements as indicators of financial performance.

 

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Table of Contents

 

The following reconciliation itemizes the differences between reported net income and Adjusted EBITDA for the three and nine months ended September, 30, 2011 and 2010:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in thousands)

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

3,726

 

$

3,938

 

$

11,671

 

$

8,051

 

Income tax expense

 

1,864

 

2,551

 

7,087

 

5,366

 

Interest expense

 

395

 

 

1,277

 

1

 

Interest income

 

(6

)

(16

)

(21

)

(47

)

Foreign currency loss

 

3,661

 

35

 

2,193

 

59

 

Other (income)

 

(73

)

(65

)

(245

)

(179

)

Depreciation and amortization of plant and equipment

 

3,604

 

1,912

 

9,911

 

5,011

 

Amortization of intangibles

 

358

 

 

1,076

 

 

Stock-based compensation

 

210

 

194

 

623

 

789

 

Accretion of closure & post-closure liabilities

 

323

 

292

 

970

 

830

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

14,062

 

$

8,841

 

$

34,542

 

$

19,881

 

 

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

 

Revenue - Revenue increased 53% to $39.7 million for the third quarter of 2011, up from $26.0 million in the third quarter of 2010. This increase reflects 67% growth in treatment and disposal (“T&D”) revenue and a 4% decrease in transportation service revenue compared to the third quarter of 2010. Total revenue growth in the third quarter of 2011 includes $9.4 million from Stablex which was acquired on October 31, 2010. Excluding Stablex, T&D revenue during the third quarter of 2011 grew 26% as compared with the third quarter of 2010. Transportation service revenue decreased 20% as compared to the same time period in 2010.

 

During the third quarter of 2011 we disposed of a total of 287,000 tons of waste, or 20% more than the 240,000 tons disposed of in the third quarter of 2010. Excluding Stablex, volumes decreased 2% in the third quarter of 2011 compared to the third quarter of 2010. Average selling price increased 41% during the third quarter of 2011 compared to the same quarter last year due to a favorable service mix at our U.S. operations, the addition of higher priced treatment services provided at Stablex and general pricing increases.

 

During the third quarter of 2011, T&D revenue from recurring Base Business customers was 76% higher than the third quarter of 2010 and comprised 57% of T&D revenue. This compares to 53% of T&D revenue in the third quarter of 2010. Excluding Stablex, T&D revenue from recurring Base Business was 32% higher than the third quarter of 2010 and comprised 58% of T&D revenue. This increase primarily reflects higher revenue from broker and other industry customers.

 

Event Business revenue in the third quarter of 2011 increased 46% compared to the same quarter in 2010 and was 43% of T&D revenue for the third quarter of 2011. This compares to 47% of T&D in the third quarter of 2010.  Excluding Stablex, T&D revenue from Event Business increased 7% in the third quarter of 2011 compared to the third quarter of 2011 and comprised 42% of T&D revenue. As discussed further below, this primarily reflects increased T&D revenue from broker, refinery and private clean-up customer categories.

 

The following table summarizes our third quarter 2011 revenue growth (both Base and Event Business) by customer type as compared with the third quarter of 2010.

 

 

 

Treatment and Disposal Revenue Growth
Three Months Ended September 30, 2011 vs.
Three Months Ended September 30, 2010

 

 

 

 

 

Other industry

 

150

%

Broker

 

142

%

Refinery

 

80

%

Private clean-up

 

22

%

Rate regulated

 

-3

%

Government

 

-62

%

 

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Our other industry revenue category increased 150% in the third quarter of 2011 compared to the third quarter of 2010. This increase primarily reflects the addition of Stablex. Excluding Stablex, other industry revenue increased 33% in the third quarter of 2011 compared to the third quarter of 2010 on strong shipments from numerous industrial based customers.

 

Our broker business increased 142% in the third quarter of 2011 compared to the same quarter in 2010. This increase primarily reflects the addition of Stablex. Excluding Stablex, broker business increased 65% in the third quarter of 2011 compared to the third quarter of 2010. This increase was the result of shipments across our broad broker base customer group including a brokered demilitarization project.

 

T&D revenue from our refinery customers increased 80% in the third quarter of 2011 compared to the same quarter in 2010. Excluding Stablex, T&D revenue from our refinery customers increased 58% due to higher volumes and improved pricing on thermal recycling projects.

 

T&D revenue from private clean-up customers increased 22% in the third quarter of 2011 compared to the third quarter of 2010. Excluding Stablex, revenue from private clean-up customers increased 22% in the third quarter of 2011 compared to the same period in 2010. This increase reflects multiple private remediation projects shipping in 2011 that were not shipping in 2010, partially offset by lower shipments from GE on the Hudson River cleanup project.

 

Rate-regulated business at our Richland, Washington low-level radioactive waste disposal facility decreased 3% in the third quarter of 2011 compared to the third quarter of 2010. Our Richland facility operates under a State-approved annual revenue requirement. The decrease is due to the timing of revenue recognition for the rate-regulated portion of the business.

 

Government clean-up business revenue decreased 62% in the third quarter of 2011 compared to the third quarter of 2010. This decrease was primarily attributable to lower shipments from the USACE and a field services contract where we provided logistics and project management oversight brokering disposal services to an alternative disposal facility in the third quarter of 2010 that was not replaced in 2011. Event Business under our USACE contract contributed $1.7 million, or 4% of total revenue in the third quarter of 2011 compared to $5.0 million, or 19%, of total revenue in the third quarter of 2010. Excluding transportation service revenue, T&D revenue with the USACE decreased 50% in the third quarter of 2011 compared with the third quarter of 2010.  This decrease was due to project-specific timing at the multiple USACE clean-up sites. No USACE projects served by the Company were cancelled or awarded to competitors during the quarter.

 

Gross Profit. Gross profit for the third quarter of 2011 increased 47% to $15.3 million, up from $10.4 million in the third quarter of 2010. This increase primarily reflects increased volumes of waste disposed and higher average selling prices in the third quarter of 2011 compared to the same period in 2010.

 

Gross margin was 39% in the third quarter of 2011, down from 40% in the third quarter of 2010. Our T&D gross margin (which excludes transportation revenue and costs) was 46% in the third quarter of 2011 compared to 51% in the third quarter of 2010. The decrease in gross margin and T&D gross margin primarily reflects the addition of Stablex and increased contributions from our thermal recycling operations, both of which operate a lower gross margin than our other operations.

 

Selling, General and Administrative (“SG&A”). As a percentage of total revenue, SG&A expenses for the third quarters of 2011 and 2010 were 14% and 15%, respectively. SG&A expenses were $5.7 million in the third quarter of 2011 and $3.9 million in the same quarter of 2010. The increase reflects $1.0 million in SG&A expenses related to the Stablex facility in the third quarter of 2011. Also contributing to the higher SG&A expenses during the third quarter of 2011 were increased incentive compensation and other general administrative costs resulting from increase business activity levels.

 

Interest expense. Interest expense is incurred on borrowings under our Credit Agreement.  Interest expense in the third quarter of 2011 was $395,000. There was no interest expense in the third quarter of 2010. The increase in interest expense reflects borrowings on our Credit Agreement which were incurred primarily to acquire Stablex.

 

Foreign Currency Gain (Loss). In the third quarter of 2011, we recognized $3.7 million in foreign currency losses compared to a foreign currency loss of $35,000 in the third quarter of 2010. Foreign currency gain (loss) reflects

 

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Table of Contents

 

changes in business activity conducted in a currency other than the USD, our functional currency. In 2010, we acquired Stablex, a Canadian company, whose functional currency is the Canadian dollar (“CAD”). As part of our treasury management strategy we established intercompany loans between our parent company, US Ecology, and Stablex. These intercompany loans are payable by Stablex to US Ecology in CAD requiring us to revalue the outstanding loan balance through our statements of operations based on USD/CAD currency movements from period to period. At September 30, 2011 we had $51.0 million of intercompany loans subject to currency revaluation. During the third quarter of 2011, the CAD weakened relative to the USD resulting in a $3.8 million foreign currency translation loss in the Company’s Consolidated Statement of Operations.

 

Other income (expense). Other income (expense) includes non-operating business activities and unusual revenue and expenses. In the third quarter of 2011 and 2010, we recognized $73,000 and $65,000, respectively, in other income, primarily royalty income from a previously sold municipal waste landfill in Texas.

 

Income tax expense. Our effective tax rate for the third quarter of 2011 was 33.4% down from 39.3% in the third quarter of 2010. The decrease in our effective tax rate reflects a reduction in our estimated state income tax rate, favorable adjustments resulting from filing our 2010 income tax returns and higher earnings levels in 2011 as compared with the same period in 2010.  During the three months ended September 30, 2011, the Company recorded unrecognized tax benefits of $420,000 and accrued interest of $9,000 related to filing positions taken on our recently filed 2010 U.S. income tax returns.  As a result, as of September 30, 2011 we had unrecognized tax benefits of $429,000 (including interest of $9,000) that, if recognized, would favorably affect the effective tax rate.  We had no unrecognized tax benefits as of December 31, 2010.

 

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

 

Revenue - Revenue increased 73% to $113.4 million for the first nine months of 2011, up from $65.4 million in the first nine months of 2010. This increase reflects 71% growth in T&D revenue and 86% growth in transportation service revenue compared to the first nine months of 2010. Total revenue growth in the first nine months of 2011 reflects $28.3 million from Stablex, which was acquired on October 31, 2010. Excluding Stablex, T&D revenue during the first nine months of 2011 grew 27% as compared with the same period of 2010. Transportation service revenue grew 47% as compared to the same time period in 2010.

 

During the first nine months of 2011 we disposed of a total of 701,000 tons of waste, or 46% more than the 479,000 tons disposed of in the first nine months of 2010. Excluding Stablex, volumes increased 16% in the first nine months of 2011 compared to the same period of 2010. Average selling price increased 20% during the first nine months of 2011 as compared to the same period last year as a result of favorable service mix at our U.S. operations and the addition of higher priced treatment services provided at Stablex.

 

During the first nine months of 2011, T&D revenue from recurring Base Business customers was 71% higher than the first nine months of 2010 and comprised 61% of T&D revenue. This compared to 60% of T&D revenue in the first nine months of 2010. Excluding Stablex, T&D revenue from recurring Base Business was 23% higher than the first nine months of 2010 and comprised 60% of T&D revenue. This increase primarily reflects higher revenue from refinery, broker and other industry customers.

 

Event Business revenue in the first nine months of 2011 increased 61% compared to the same period in 2010 and was 39% of T&D revenue in the first nine months of 2010. This compares to 40% of T&D revenue in the first nine months of 2010.  Excluding Stablex, T&D revenue from Event Business increased 23% in the first nine months of 2011 compared to the same period of 2010 and comprised 40% of T&D revenue. As discussed further below, this reflects increased T&D revenue from private clean-up, broker and refinery customer categories.

 

The following table summarizes our revenue growth (both Base and Event Business) by customer type for the first nine months of 2011 as compared with the first nine months of 2010.

 

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Table of Contents

 

 

 

Treatment and Disposal Revenue Growth
Nine Months Ended September 30, 2011 vs.
Nine Months Ended September 30, 2010

 

 

 

 

 

Other industry

 

137

%

Private clean-up

 

134

%

Broker

 

97

%

Refinery

 

52

%

Rate regulated

 

1

%

Government

 

-22

%

 

Our other industry revenue category increased 137% in the first nine months of 2011 compared to the first nine months of 2010. This increase primarily reflects the addition of Stablex. Excluding Stablex, other industry revenue increased 19% in the first nine months of 2011 compared to the same period of 2010.

 

T&D revenue from private clean-up customers increased 134% in the first nine months of 2011 compared to the first nine months of 2010, including the addition of Stablex. Excluding Stablex, revenue from private clean-up customers increased 78% in the first nine months of 2011 compared to the same period in 2010. This increase is due to an increased number of private remediation projects shipping in 2011 that were not shipping in 2010.

 

Our broker business increased 97% in the first nine months of 2011 compared to the same period in 2010. This increase primarily reflects the addition of the Stablex facility in the current year. Excluding Stablex, broker business increased 35% in the first nine months of 2011 compared to the first nine months of 2010. This increase was the result of shipments from a brokered demilitarization project and higher shipments across a broad range of customers and industries.

 

T&D revenue from our refinery customers increased 52% in the first nine months of 2011 compared to the same period in 2010. This increase includes the addition of Stablex in the current year. Excluding Stablex, T&D revenue from our refinery customers increased 40%, reflecting higher volumes and improved pricing of thermal recycling projects.

 

Rate-regulated business at our Richland, Washington low-level radioactive waste disposal facility increased 1% in the first nine months of 2011 compared to the first nine months of 2010. Our Richland facility operates under a State-approved annual revenue requirement. The increase is due to the timing of revenue recognition for the rate-regulated portion of the business.

 

Government clean-up business revenue decreased 22% in the first nine months of 2011 compared to the first nine months of 2010. This decrease was primarily attributable to a field services contract where we provided logistics and project management oversight brokering disposal services to an alternative disposal facility in the first nine months of 2011 and lower shipments from the USACE. Event Business under our USACE contract contributed $9.1 million, or 8% of total revenue in the first nine months of 2011 compared to $11.7 million, or 18%, of total revenue in the first nine months of 2010. Excluding transportation service revenue, T&D revenue with the USACE decreased 8% in the first nine months of 2011 compared to the same period of 2010. This decrease was due to project-specific timing at the multiple USACE clean-up sites.  No USACE projects served by the Company were cancelled or awarded to competitors during the nine month period.

 

Gross Profit. Gross profit for the first nine months of 2011 increased 57% to $37.8 million, up from $24.1 million in the first nine months of 2010. This increase primarily reflects increased volumes of waste disposed and an increase in average selling price in the first nine months of 2011 compared to the same period in 2010.

 

Gross margin was 33% in the first nine months of 2011, down from 37% in the first nine months of 2010. Our T&D gross margin (which exclude transportation revenue and costs) was 42% in the first nine months of 2011 compared to 45% in the first nine months of 2010. This decrease primarily reflects the addition of Stablex and growth in our thermal recycling services, which have lower gross margins than our other operations.

 

Selling, General and Administrative (“SG&A”). As a percentage of total revenue, SG&A expenses for the first nine months of 2011 and 2010 were 14% and 17%, respectively. SG&A expenses were $15.9 million in the first nine months of 2011 and $10.8 million in the same period of 2010. The increase reflects $3.3 million in SG&A expenses

 

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Table of Contents

 

related to the Stablex facility in the first nine months of 2011. Also contributing to the higher SG&A expenses during the first nine months of 2011 were increased incentive compensation and other administrative costs resulting from increase business activity levels. SG&A expenses in the first nine months of 2010 included a $497,000 regulatory fine.

 

Interest expense. Interest expense is incurred on borrowings under our Credit Agreement.  Interest expense in the first nine months of 2011 was $1.3 million compared to $1,000 in the same period of 2010. The increase in interest expense reflects higher borrowings under our Credit Agreement which were incurred primarily to acquire Stablex.

 

Foreign Currency Gain (Loss). In the first nine months of 2011, we recognized $2.2 million in foreign currency losses compared to a foreign currency loss of $59,000 in the first nine months of 2010. Foreign currency loss reflects changes in business activity conducted in a currency other than the USD, our functional currency. In 2010, we acquired Stablex, a Canadian company, whose functional currency is the CAD. As part of our treasury management strategy we established intercompany loans between our parent company, US Ecology and Stablex. These intercompany loans are payable by Stablex to US Ecology in CAD requiring us to revalue the outstanding loan balance through our statements of operations, based on the USD/CAD currency movements from period to period. At September 30, 2011, we had $51.0 million of intercompany loans subject to currency revaluation. During the first nine months of 2011, the CAD weakened relative to the USD resulting in a $2.3 million foreign currency translation loss in the Company’s Consolidated Statement of Operations.

 

Other income (expense). Other income (expense) includes non-operating business activities and unusual revenue and expenses. In the first nine months of 2011 and 2010, we recognized $245,000 and $179,000, respectively, in other income, primarily royalty income from a previously sold municipal waste landfill in Texas.

 

Income tax expense. Our effective tax rate for the nine months of 2011 was 37.8%, down from 40.0% in the first nine months of 2010. The decrease in our effective tax rate reflects a reduction in our estimated state income tax rate, favorable adjustments resulting from filing our 2010 income tax returns and higher earnings levels in 2011 as compared with the same period in 2010.  During the nine months ended September 30, 2011, the Company recorded unrecognized tax benefits of $420,000 and accrued interest of $9,000 related to filing positions taken on our recently filed 2010 U.S. income tax returns.  At September 30, 2011 we had unrecognized tax benefits of $429,000 (including interest of $9,000) that, if recognized, would favorably affect the effective tax rate.  We had no unrecognized tax benefits as of December 31, 2010. We recognize interest assessed by taxing authorities as interest expense. We recognize any penalties assessed by taxing authorities as SG&A expense. Interest and penalties for each of the nine months ended September 30, 2011 and 2010 were not material.

 

Critical Accounting Policies

 

Financial statement preparation requires management to make estimates and judgments that affect reported assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. The accompanying consolidated financial statements are prepared using the same critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity are cash and cash equivalents, cash generated from operations and borrowings under the Credit Agreement. At September 30, 2011, we had $6.1 million in cash and cash equivalents immediately available for operations. We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our primary ongoing cash requirements will be to fund operations, capital expenditures, interest and principal payments and to continue paying dividends pursuant to our dividend policy. We believe our future operating cash flows will be sufficient to meet our future operating and investing cash needs for the foreseeable future. Furthermore, the existing cash balances and the availability of additional borrowings under our revolving Credit Agreement provide additional potential sources of liquidity should they be required.

 

Operating Activities - For the nine months ended September 30, 2011, net cash provided by operating activities was $32.0 million. This primarily reflects net income of $11.7 million, decreases in accounts receivable of $4.6 million, depreciation and amortization and accretion of $12.0 million and unrealized foreign currency losses of $2.2 million.  Partially offsetting these sources of cash were decreases in income tax payable of $1.6 million. Impacts on net income are due to the factors discussed above under Results of Operations. The decrease in accounts receivable is primarily attributable to the timing of significant customer payments received in the first nine months of 2011. Days

 

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sales outstanding were 68 days as of September 30, 2011, compared to 65 days at December 31, 2010 and 62 days at September 30, 2010.

 

For the nine months ended June 30, 2010, net cash provided by operating activities was $15.8 million. This reflects net income of $8.1 million, increases in accounts payable and accrued liabilities of $1.9 million, increases in taxes payable of $861,000, stock compensation of $789,000 and depreciation, amortization and accretion of $5.8 million.  Partially offsetting these sources of cash were increases in accounts receivable of $1.5 million.

 

Investing Activities - For the nine months ended September 30, 2011, net cash used in investing activities was $7.4 million primarily related to capital expenditures of $7.5 million. Significant capital projects included construction of additional disposal capacity and treatment facility upgrades at our Beatty, Nevada location, construction of a new catalyst handling equipment in Robstown, Texas and equipment purchases at all five operating disposal facilities.

 

For the nine months ended September 30, 2010, net cash used in investing activities was $6.9 million, including capital expenditures of $9.0 million.  Partially offsetting cash outflows were net maturities of short-term investments of $1.4 million and a reduction in our restricted cash balances of $686,000.

 

Financing Activities - For the nine months ended September 30, 2011, net cash used in financing activities was $24.7 million and included repayments, net of borrowings, on our credit facility of $15.0 million and payment of dividends to our stockholders of $9.8 million.

 

For the nine months ended September 30, 2010, net cash used in financing activities was $9.8 million, reflecting payment of dividends to our stockholders.

 

Contractual Obligations and Guarantees

 

For information on contractual obligations and guarantees, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on March 15, 2011. There were no material changes in the amounts of our contractual obligations and guarantees during the nine months ended September 30, 2011.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We have minimal interest rate risk on investments or other assets due to our general preservation of capital approach to investments. At September 30, 2011, approximately $6.1 million was held in cash and cash equivalents.

 

We are exposed to changes in interest rates as a result of our borrowings under the Credit Agreement with Wells Fargo. Under the Credit Agreement, revolving loans are available based on the Prime Rate or LIBOR, at the Company’s option, plus an applicable margin, which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to EBITDA. At September 30, 2011, we had $48.0 million of borrowings on the Reducing Revolving Line of Credit bearing an interest rate of 2.4% and no amount borrowed on the Revolving Line of Credit bearing an interest rate of 1.9%.  If interest rates were to rise we would be subject to higher interest payments if outstanding balances remain unchanged. Based on the outstanding indebtedness of $48.0 million under our credit facility at September 30, 2011, if market rates used to calculate interest expense were to average 1% higher in the next twelve months, our interest expense would increase by approximately $480,000 per year.

 

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Foreign Currency Risk

 

We are subject to currency exposures and volatility because of currency fluctuations. The majority of our transactions are in USD; however, our Stablex subsidiary conducts business in Canada and the United States. In addition, contracts for services Stablex provides to U.S. customers are generally denominated in USD. During the first nine months of 2011, Stablex transacted approximately 41% of its revenue in USD. We maintain cash on deposit in USD and outstanding USD trade receivables and payables related to these transactions. These USD cash, receivable and payable accounts are subject to foreign currency translation gains or losses. Exchange rate fluctuations also affect the translation of Canadian generated profits and losses into USD.

 

We established intercompany loans between Stablex and US Ecology, Inc. as part of our tax and treasury management allowing for repayment of third-party bank debt used to complete the acquisition.  At September 30, 2011 we have $51.0 million of intercompany loans subject to foreign currency revaluation. These intercompany loans are payable using CAD and are subject to mark-to-market adjustments with fluctuations in the CAD. During the first nine months of 2011, the CAD weakened as compared to the USD resulting in a $2.3 million foreign currency translation loss recognized in the Company’s Consolidated Statement of Operations related to the intercompany loans. Based on intercompany balances as of September 30, 2011 a $0.01 CAD increase or decrease in currency rate compared to the USD at September 30, 2011 would have generated approximately $510,000 of gains or losses for the nine months ended September 30, 2011.

 

Item 4. Controls and Procedures

 

Management of the Company, including the Chief Executive Officer and the Chief Financial Officer of the Company, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2011. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, including the accumulation and communication of disclosures to the Company’s Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure, are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC.

 

There were no changes in our internal control over financial reporting that occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Cautionary Statement for Purposes of “Safe Harbor Provisions” of the Private Securities Litigation Reform Act of 1995

 

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar expressions. These statements include, among others, statements regarding our financial and operating results, strategic objectives and means to achieve those objectives, the amount and timing of capital expenditures, repurchases of its stock under approved stock repurchase plans, the amount and timing of interest expense, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.

 

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions include, among others, those regarding demand for Company services, expansion of service offerings geographically or through new or expanded service lines, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, a loss of a major customer, successful integration of Stablex Canada Inc., exposure to unknown liabilities resulting from the Stablex Canada Inc. acquisition, compliance with

 

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and changes to applicable laws, rules, or regulations, access to cost effective transportation services, access to insurance, surety bonds and other financial assurances, loss of key personnel, lawsuits, labor disputes, adverse economic conditions, government funding or competitive pressures, incidents or adverse weather conditions that could limit or suspend specific operations, implementation of new technologies, market conditions, average selling prices for recycled materials, our ability to replace business from recently completed large projects, our ability to perform under required contracts, our ability to permit and contract for timely construction of new or expanded disposal cells, our willingness or ability to pay dividends and our ability to effectively close and integrate future acquisitions.

 

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (the”SEC”), we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results or performance. Before you invest in our common stock, you should be aware that the occurrence of the events described in the “Risk Factors” section in our 2010 Annual Report on Form 10-K filed with the SEC on March 15, 2011 could harm our business, prospects, operating results, and financial condition.

 

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of US Ecology, Inc.

 

Item 1. Legal Proceedings

 

We are not currently a party to any material pending legal proceedings and are not aware of any other claims that could have a materially adverse effect on our financial position, results of operations or cash flows.

 

Item 1A. Risk Factors

 

There have been no material changes in our risk factors from those disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Removed and Reserved

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits

 

15

 

Letter re: Unaudited Interim Financial Statements

 

 

 

31.1

 

Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

The following materials from the quarterly report on Form 10-Q of US Ecology, Inc. for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL) include:  (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Cash Flows, (iv) Unaudited Consolidated Statements of Stockholders Equity, and (v) Notes to the Unaudited Consolidated Financial Statements tagged as blocks of text.

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

US Ecology, Inc.

 

(Registrant)

 

 

 

 

Date:  November 8, 2011

/s/ Jeffrey R. Feeler

 

Jeffrey R. Feeler

 

Vice President and
Chief Financial Officer

 

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