Attached files

file filename
EX-32 - EX-32 - US ECOLOGY, INC.a11-21012_1ex32.htm
EX-15 - EX-15 - US ECOLOGY, INC.a11-21012_1ex15.htm
EX-99.1 - EX-99.1 - US ECOLOGY, INC.a11-21012_1ex99d1.htm
EX-31.2 - EX-31.2 - US ECOLOGY, INC.a11-21012_1ex31d2.htm
EXCEL - IDEA: XBRL DOCUMENT - US ECOLOGY, INC.Financial_Report.xls
EX-31.1 - EX-31.1 - US ECOLOGY, INC.a11-21012_1ex31d1.htm

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: June 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 August 2, 2011 was 18,310,614.

 

 

 



Table of Contents

 

US ECOLOGY, INC.

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

 

 

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

 

1

 

 

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010

 

2

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010

 

3

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the six months ended June 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

 

27

 

 

 

 

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)

 

 

 

June 30, 2011

 

December 31, 2010

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

4,268

 

$

6,342

 

Receivables, net

 

30,714

 

33,553

 

Prepaid expenses and other current assets

 

3,420

 

2,635

 

Income taxes receivable

 

75

 

 

Deferred income taxes

 

1,132

 

455

 

Total current assets

 

39,609

 

42,985

 

 

 

 

 

 

 

Property and equipment, net

 

105,156

 

105,822

 

Restricted cash

 

4,115

 

4,115

 

Intangible assets, net

 

42,221

 

41,740

 

Goodwill

 

22,419

 

21,790

 

Other assets

 

804

 

897

 

Total assets

 

$

214,324

 

$

217,349

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

 

$

4,749

 

$

5,033

 

Deferred revenue

 

3,741

 

3,620

 

Accrued liabilities

 

8,094

 

8,188

 

Accrued salaries and benefits

 

3,962

 

4,051

 

Income taxes payable

 

70

 

2,615

 

Current portion of closure and post-closure obligations

 

1,925

 

778

 

Current portion of capital lease obligations

 

4

 

7

 

Total current liabilities

 

22,545

 

24,292

 

 

 

 

 

 

 

Long-term closure and post-closure obligations

 

15,389

 

15,995

 

Long-term capital lease obligations

 

1

 

3

 

Reducing revolving line of credit

 

58,000

 

63,000

 

Other long-term liabilities

 

179

 

201

 

Deferred income taxes

 

20,889

 

19,146

 

Total liabilities

 

117,003

 

122,637

 

 

 

 

 

 

 

Contingencies and commitments

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

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

 

183

 

183

 

Additional paid-in capital

 

61,881

 

61,892

 

Retained earnings

 

35,333

 

33,940

 

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

 

(1,555

)

(1,979

)

Accumulated other comprehensive income

 

1,479

 

676

 

Total stockholders’ equity

 

97,321

 

94,712

 

Total liabilities and stockholders’ equity

 

$

214,324

 

$

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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

39,537

 

$

19,832

 

$

73,680

 

$

39,372

 

Other direct operating costs

 

18,325

 

9,725

 

36,015

 

20,010

 

Transportation costs

 

8,134

 

2,964

 

15,118

 

5,644

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

13,078

 

7,143

 

22,547

 

13,718

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

5,324

 

3,343

 

10,152

 

6,910

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

7,754

 

3,800

 

12,395

 

6,808

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

5

 

17

 

15

 

31

 

Interest expense

 

(436

)

 

(882

)

(1

)

Foreign currency gain (loss)

 

218

 

(7

)

1,468

 

(24

)

Other

 

73

 

56

 

172

 

114

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

(140

)

66

 

773

 

120

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

7,614

 

3,866

 

13,168

 

6,928

 

Income tax expense

 

2,929

 

1,543

 

5,223

 

2,815

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,685

 

$

2,323

 

$

7,945

 

$

4,113

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

$

0.13

 

$

0.44

 

$

0.23

 

Diluted

 

$

0.26

 

$

0.13

 

$

0.44

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

Shares used in earnings per share calculation:

 

 

 

 

 

 

 

 

 

Basic

 

18,193

 

18,166

 

18,190

 

18,165

 

Diluted

 

18,219

 

18,187

 

18,215

 

18,186

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per share

 

$

0.18

 

$

0.18

 

$

0.36

 

$

0.36

 

 

See Notes to Consolidated Financial Statements.

 

2



Table of Contents

 

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

 

$

7,945

 

$

4,113

 

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

 

 

 

 

 

Depreciation and amortization of property and equipment

 

6,306

 

3,099

 

Amortization of intangible assets

 

718

 

 

Accretion of closure and post-closure obligations

 

647

 

538

 

Unrealized foreign currency gain

 

(1,601

)

 

Deferred income taxes

 

690

 

(113

)

Stock-based compensation expense

 

413

 

595

 

Net loss on sale of property and equipment

 

26

 

51

 

Changes in assets and liabilities:

 

 

 

 

 

Receivables

 

3,102

 

2,761

 

Income tax receivable

 

(75

)

 

Other assets

 

(678

)

(421

)

Accounts payable and accrued liabilities

 

446

 

(1,078

)

Deferred revenue

 

43

 

396

 

Accrued salaries and benefits

 

(123

)

(55

)

Income tax payable

 

(2,547

)

465

 

Closure and post-closure obligations

 

(150

)

(147

)

Other

 

 

19

 

Net cash provided by operating activities

 

15,162

 

10,223

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Purchases of property and equipment

 

(5,674

)

(4,879

)

Proceeds from sale of property and equipment

 

33

 

51

 

Purchases of short-term investments

 

 

(4,998

)

Maturities of short-term investments

 

 

3,375

 

Restricted cash

 

 

686

 

Net cash used in investing activities

 

(5,641

)

(5,765

)

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

Payments on reducing revolving line of credit

 

(15,400

)

 

Proceeds from reducing revolving line of credit

 

10,400

 

 

Dividends paid

 

(6,552

)

(6,543

)

Payment of capital lease obligations

 

(5

)

(6

)

Net cash used in financing activities

 

(11,557

)

(6,549

)

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash

 

(38

)

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(2,074

)

(2,091

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

6,342

 

31,347

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

4,268

 

$

29,256

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

Income taxes paid, net of receipts

 

$

7,156

 

$

2,462

 

Interest paid

 

635

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Capital expenditures in accounts payable

 

928

 

1,956

 

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

 

Retained
Earnings

 

Treasury
Stock

 

Total

 

Balance 12-31-2009

 

18,305,614

 

$

183

 

$

61,459

 

 

 

$

 

$

34,446

 

$

(2,590

)

$

93,498

 

Net income

 

 

 

 

$

4,113

 

 

4,113

 

 

4,113

 

Comprehensive income

 

 

 

 

$

4,113

 

 

 

 

 

Dividend paid

 

 

 

 

 

 

 

(6,543

)

 

(6,543

)

Stock-based compensation

 

 

 

595

 

 

 

 

 

 

595

 

Issuance of restricted common stock from treasury shares

 

 

 

(611

)

 

 

 

 

611

 

 

Balance 6-30-2010

 

18,305,614

 

$

183

 

$

61,443

 

 

 

$

 

$

32,016

 

$

(1,979

)

$

91,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance 12-31-2010

 

18,310,614

 

$

183

 

$

61,892

 

 

 

$

676

 

$

33,940

 

$

(1,979

)

$

94,712

 

Net income

 

 

 

 

$

7,945

 

 

7,945

 

 

7,945

 

Foreign currency translation

 

 

 

 

803

 

803

 

 

 

803

 

Comprehensive income

 

 

 

 

$

8,748

 

 

 

 

 

Dividend paid

 

 

 

 

 

 

 

(6,552

)

 

(6,552

)

Stock-based compensation

 

 

 

413

 

 

 

 

 

 

413

 

Issuance of restricted common stock from treasury shares

 

 

 

(424

)

 

 

 

 

424

 

 

Balance 6-30-2011

 

18,310,614

 

$

183

 

$

61,881

 

 

 

$

1,479

 

$

35,333

 

$

(1,555

)

$

97,321

 

 

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 six months ended June 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.

 

NOTE 2 — ACCUMULATED OTHER COMPREHENSIVE INCOME

 

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

 

 

 

June 30,

 

December 31,

 

 

 

2011

 

2010

 

Cumulative adjustment of foreign currency statements

 

$

1,479

 

$

676

 

Accumulated other comprehensive income

 

$

1,479

 

$

676

 

 

NOTE 3 CONCENTRATION AND CREDIT RISK

 

Major Customers. The Company has a multiple year disposal contract with the U.S. Army Corps of Engineers (“USACE”). Revenue under this contract represented 10% and 15% of total revenue for the three months ended June 30, 2011 and 2010, respectively and 10% and 17% for the six months ended June 30, 2011 and 2010, respectively. No other customer represented more than 10% of total revenue for the three and six months ended June 30, 2011 and 2010.

 

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

 

5



Table of Contents

 

Receivables

 

 

 

Percent of Receivables

 

 

 

June 30,

 

December 31,

 

Customer

 

2011

 

2010

 

 

 

 

 

 

 

U.S. Army Corps of Engineers

 

9

%

12

%

Honeywell International, Inc.

 

8

%

10

%

General Electric, Inc.

 

0

%

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:

 

 

 

June 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

 

 

 

 

 

 

Trade

 

$

29,251

 

$

32,221

 

Unbilled revenue

 

922

 

1,463

 

Other

 

751

 

207

 

 

 

30,924

 

33,891

 

Allowance for doubtful accounts

 

(210

)

(338

)

 

 

$

30,714

 

$

33,553

 

 

NOTE 5 PROPERTY AND EQUIPMENT

 

 

 

June 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

 

 

 

 

 

 

Cell development costs

 

$

59,087

 

$

58,944

 

Land and improvements

 

13,301

 

13,016

 

Buildings and improvements

 

52,031

 

44,228

 

Railcars

 

17,375

 

17,375

 

Vehicles and other equipment

 

32,710

 

31,252

 

Construction in progress

 

5,810

 

10,556

 

 

 

180,314

 

175,371

 

Accumulated depreciation and amortization

 

(75,158

)

(69,549

)

 

 

$

105,156

 

$

105,822

 

 

Depreciation expense for the three months ended June 30, 2011 and 2010 was $3.2 million and $1.6 million, respectively. Depreciation expense for the six months ended June 30, 2011 and 2010 was $6.3 million and $3.1 million, respectively.

 

6



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
June 30, 2010

 

Six months ended
June 30, 2010

 

Pro forma combined revenues

 

$

28,713

 

$

55,460

 

Pro forma combined net income

 

$

2,182

 

$

3,158

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.12

 

$

0.17

 

Dilutive

 

$

0.12

 

$

0.17

 

 

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS

 

Goodwill and intangible assets as of June 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 six months ended June 30, 2011 were as follows:

 

(in thousands)

 

Three Months Ended
June 30, 2011

 

Six Months Ended
June 30, 2011

 

Balance, beginning of period

 

$

22,325

 

$

21,790

 

Foreign currency translation

 

94

 

629

 

Balance, end of period

 

$

22,419

 

$

22,419

 

 

7



Table of Contents

 

Below is a summary of amortizable and other intangible assets:

 

 

 

June 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

Amortized intangible assets

 

 

 

 

 

Developed software

 

$

362

 

$

352

 

Database

 

103

 

100

 

Customer relationships

 

4,221

 

4,102

 

Technology - Formulae and processes

 

9,414

 

9,149

 

Permits, licenses and lease

 

28,913

 

28,101

 

 

 

43,013

 

41,804

 

 

 

 

 

 

 

Accumulated amortization

 

(968

)

(235

)

 

 

 

 

 

 

Unamortized intangible assets

 

 

 

 

 

Tradename

 

176

 

171

 

 

 

$

42,221

 

$

41,740

 

 

Amortization expense for the three and six months ended June 30, 2011 was $362,000 and $718,000, respectively. There was no amortization of intangibles in the three and six months ended June 30, 2010.

 

NOTE 8 DEBT

 

We have a credit agreement (the “Credit Agreement”) with Wells Fargo which provides for borrowings in an aggregate of $95 million.  The Credit Agreement provides a $20 million revolving line of credit (the “Revolving Line of Credit”) with a maturity date of June 15, 2013 and a $75 million reducing revolving line of credit (the “Reducing Revolving Line of Credit”) 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 June 30, 2011, the effective interest rate of the Revolving Line of Credit was 2.09%. Interest only payments are due either monthly or on the last day of any interest period, as applicable. At June 30, 2011 and December 31, 2010 there were no amounts outstanding under the Revolving Line of Credit. At June 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 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 June 30, 2011 the net commitment amount under the Reducing Revolving Line of Credit after consideration of scheduled commitment reductions was $72.2 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 June 30, 2011, the effective interest rate of the Reducing Revolving Line of Credit was 2.64%.  Interest only payments are due either monthly or on the last day of any interest period, as applicable. There was $58.0 million and $63.0 million outstanding on the Reducing Revolving Line of Credit at June 30, 2011 and December 31, 2010, respectively.  At June 30, 2011, the availability for additional borrowings under the Reducing Revolving Line of Credit was $14.2 million.

 

8



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 June 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
June 30, 2011

 

Six Months Ended
June 30, 2011

 

 

 

 

 

 

 

Beginning obligation

 

$

17,052

 

$

16,773

 

Accretion expense

 

324

 

647

 

Payments

 

(69

)

(150

)

Currency translation

 

7

 

44

 

Ending obligation

 

17,314

 

17,314

 

Less current portion

 

(1,925

)

(1,925

)

Long-term portion

 

$

15,389

 

$

15,389

 

 

NOTE 10 INCOME TAXES

 

As of June 30, 2011 and December 31, 2010, we had no significant unrecognized tax benefits. 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 six months ended June 30, 2011 and 2010 were not material.

 

Our effective tax rate for the three and six months ended June 30, 2011 was 38.5% and 39.7%, respectively, down from 39.9% and 40.6% for the three and six months ended June 30, 2010, respectively. The decrease in our effective tax rate reflects lower non-tax deductible expenses in the three and six months ended June 30,2011 than in the same periods 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 2007 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.

 

9



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 June 30,

 

 

 

2011

 

2010

 

(in thousands, except per share data)

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Net income

 

$

4,685

 

$

4,685

 

$

2,323

 

$

2,323

 

Weighted average common shares outstanding

 

18,193

 

18,193

 

18,166

 

18,166

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of stock options and restricted stock

 

 

 

26

 

 

 

21

 

Weighted average shares outstanding

 

 

 

18,219

 

 

 

18,187

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

$

0.26

 

$

0.26

 

$

0.13

 

$

0.13

 

Anti-dilutive shares excluded from calculation

 

 

 

336

 

 

 

344

 

 

 

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

(in thousands, except per share data)

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Net income

 

$

7,945

 

$

7,945

 

$

4,113

 

$

4,113

 

Weighted average common shares outstanding

 

18,190

 

18,190

 

18,165

 

18,165

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of stock options and restricted stock

 

 

 

25

 

 

 

21

 

Weighted average shares outstanding

 

 

 

18,215

 

 

 

18,186

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

$

0.44

 

$

0.44

 

$

0.23

 

$

0.23

 

Anti-dilutive shares excluded from calculation

 

 

 

336

 

 

 

328

 

 

NOTE 13 — TREASURY STOCK

 

During the three and six months ended June 30, 2011, the Company granted 7,500 and 25,400 shares, respectively, 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 June 30, 2011

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

31,877

 

$

7

 

$

 

$

31,884

 

Revenue - Transportation services

 

7,653

 

 

 

7,653

 

Total revenue

 

39,530

 

7

 

 

39,537

 

Other direct operating costs

 

18,266

 

59

 

 

18,325

 

Transportation costs

 

8,134

 

 

 

8,134

 

Gross profit (loss)

 

13,130

 

(52

)

 

13,078

 

Selling, general & administration

 

2,469

 

 

2,855

 

5,324

 

Operating income (loss)

 

10,661

 

(52

)

(2,855

)

7,754

 

Interest income (expense), net

 

5

 

 

(436

)

(431

)

Foreign currency gain (loss)

 

(22

)

 

240

 

218

 

Other income

 

73

 

 

 

73

 

Income (loss) before tax

 

10,717

 

(52

)

(3,051

)

7,614

 

Income tax expense

 

 

 

2,929

 

2,929

 

Net income (loss)

 

$

10,717

 

$

(52

)

$

(5,980

)

$

4,685

 

Depreciation, amortization & accretion

 

$

3,846

 

$

54

 

$

13

 

$

3,913

 

Capital expenditures

 

$

1,582

 

$

 

$

5

 

$

1,587

 

Total assets

 

$

206,364

 

$

94

 

$

7,866

 

$

214,324

 

 

11



Table of Contents

 

(in thousands)

 

Operating
Disposal
Facilities

 

Non-
Operating
Disposal
Facilities

 

Corporate

 

Total

 

Three months ended June 30, 2010

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

17,208

 

$

9

 

$

 

$

17,217

 

Revenue - Transportation services

 

2,615

 

 

 

2,615

 

Total revenue

 

19,823

 

9

 

 

19,832

 

Other direct operating costs

 

9,668

 

57

 

 

9,725

 

Transportation costs

 

2,964

 

 

 

2,964

 

Gross profit (loss)

 

7,191

 

(48

)

 

7,143

 

Selling, general & administration

 

1,226

 

 

2,117

 

3,343

 

Operating income (loss)

 

5,965

 

(48

)

(2,117

)

3,800

 

Interest income (expense), net

 

2

 

 

15

 

17

 

Foreign currency gain (loss)

 

(7

)

 

 

(7

)

Other income

 

54

 

2

 

 

56

 

Income (loss) before tax

 

6,014

 

(46

)

(2,102

)

3,866

 

Income tax expense

 

 

 

1,543

 

1,543

 

Net income (loss)

 

$

6,014

 

$

(46

)

$

(3,645

)

$

2,323

 

Depreciation, amortization & accretion

 

$

1,783

 

$

50

 

$

12

 

$

1,845

 

Capital expenditures

 

$

2,765

 

$

 

$

 

$

2,765

 

Total assets

 

$

86,032

 

$

38

 

$

38,775

 

$

124,845

 

 

(in thousands)

 

Operating
Disposal
Facilities

 

Non-
Operating
Disposal
Facilities

 

Corporate

 

Total

 

Six months ended June 30, 2011

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

59,555

 

$

11

 

$

 

$

59,566

 

Revenue - Transportation services

 

14,114

 

 

 

14,114

 

Total revenue

 

73,669

 

11

 

 

73,680

 

Other direct operating costs

 

35,901

 

114

 

 

36,015

 

Transportation costs

 

15,118

 

 

 

15,118

 

Gross profit (loss)

 

22,650

 

(103

)

 

22,547

 

Selling, general & administration

 

4,832

 

 

5,320

 

10,152

 

Operating income (loss)

 

17,818

 

(103

)

(5,320

)

12,395

 

Interest income (expense), net

 

13

 

 

(880

)

(867

)

Foreign currency gain (loss)

 

(93

)

 

1,561

 

1,468

 

Other income

 

171

 

1

 

 

172

 

Income (loss) before tax

 

17,909

 

(102

)

(4,639

)

13,168

 

Income tax expense

 

 

 

5,223

 

5,223

 

Net income (loss)

 

$

17,909

 

$

(102

)

$

(9,862

)

$

7,945

 

Depreciation, amortization & accretion

 

$

7,539

 

$

109

 

$

23

 

$

7,671

 

Capital expenditures

 

$

5,596

 

$

12

 

$

66

 

$

5,674

 

Total assets

 

$

206,364

 

$

94

 

$

7,866

 

$

214,324

 

 

12



Table of Contents

 

(in thousands)

 

Operating
Disposal
Facilities

 

Non-
Operating
Disposal
Facilities

 

Corporate

 

Total

 

Six months ended June 30, 2010

 

 

 

 

 

 

 

 

 

Revenue - Treatment and disposal

 

$

34,341

 

$

13

 

$

 

$

34,354

 

Revenue - Transportation services

 

5,018

 

 

 

5,018

 

Total revenue

 

39,359

 

13

 

 

39,372

 

Other direct operating costs

 

19,857

 

153

 

 

20,010

 

Transportation costs

 

5,644

 

 

 

5,644

 

Gross profit (loss)

 

13,858

 

(140

)

 

13,718

 

Selling, general & administration

 

2,743

 

 

4,167

 

6,910

 

Operating income (loss)

 

11,115

 

(140

)

(4,167

)

6,808

 

Interest income (expense), net

 

2

 

 

28

 

30

 

Foreign currency gain (loss)

 

(24

)

 

 

(24

)

Other income

 

110

 

4

 

 

114

 

Income (loss) before tax

 

11,203

 

(136

)

(4,139

)

6,928

 

Income tax expense

 

 

 

2,815

 

2,815

 

Net income (loss)

 

$

11,203

 

$

(136

)

$

(6,954

)

$

4,113

 

Depreciation, amortization & accretion

 

$

3,512

 

$

101

 

$

24

 

$

3,637

 

Capital expenditures

 

$

4,876

 

$

 

$

3

 

$

4,879

 

Total assets

 

$

86,032

 

$

38

 

$

38,775

 

$

124,845

 

 

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 six months ended June 30, 2011 and 2010:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(in thousands)

 

2011

 

2010

 

2011

 

2010

 

United States

 

$

29,729

 

$

19,832

 

$

54,852

 

$

39,372

 

Canada

 

9,808

 

 

18,828

 

 

 

 

$

39,537

 

$

19,832

 

$

73,680

 

$

39,372

 

 

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

 

 

 

June 30,

 

December 31,

 

(in thousands)

 

2011

 

2010

 

United States

 

$

74,592

 

$

74,734

 

Canada

 

72,785

 

72,828

 

 

 

$

147,377

 

$

147,562

 

 

NOTE 15 — SUBSEQUENT EVENT

 

On July 1, 2011, we declared a quarterly dividend of $0.18 per common share to stockholders of record on July 15, 2011. The dividend was paid using cash on hand on July 22, 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 June 30, 2011, the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2011 and 2010, and the consolidated statements of cash flows and of stockholders’ equity for the six-month periods ended June 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

August 5, 2011

 

14



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 six months ended June 30, 2011 and 2010.

 

Customer 
Category

 

Description

 

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

 

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

 

Broker

 

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

 

45

%

46

%

 

 

 

 

 

 

 

 

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

%

 

 

 

 

 

 

 

 

Government

 

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

 

12

%

22

%

 

 

 

 

 

 

 

 

Refinery

 

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

 

12

%

12

%

 

 

 

 

 

 

 

 

Private Clean-up

 

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

 

12

%

1

%

 

 

 

 

 

 

 

 

Rate regulated

 

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

 

4

%

8

%

 


(1) Excludes all transportation service revenue

 

15



Table of Contents

 

Customer
Category

 

Description

 

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

 

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

 

 

 

 

 

 

 

 

 

Broker

 

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

 

46

%

45

%

 

 

 

 

 

 

 

 

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.

 

16

%

12

%

 

 

 

 

 

 

 

 

Government

 

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

 

12

%

19

%

 

 

 

 

 

 

 

 

Refinery

 

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

 

11

%

13

%

 

 

 

 

 

 

 

 

Private Clean-up

 

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

 

10

%

3

%

 

 

 

 

 

 

 

 

Rate regulated

 

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

 

5

%

8

%

 


(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 40% and 37% of this revenue was derived from Event Business projects for the three and six months ended June 30, 2011. 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, which supplements railcars obtained under operating leases, 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 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.

 

16



Table of Contents

 

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, 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.

 

17



Table of Contents

 

Results of Operations

 

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

 

(in thousands, except per

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

share amounts)

 

2011

 

%

 

2010

 

%

 

2011

 

%

 

2010

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

39,537

 

100.0

%

$

19,832

 

100.0

%

$

73,680

 

100.0

%

$

39,372

 

100.0

%

Direct operating costs

 

18,325

 

46.3

%

9,725

 

49.0

%

36,015

 

48.9

%

20,010

 

50.8

%

Transportation costs

 

8,134

 

20.6

%

2,964

 

14.9

%

15,118

 

20.5

%

5,644

 

14.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

13,078

 

33.1

%

7,143

 

36.1

%

22,547

 

30.6

%

13,718

 

34.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

5,324

 

13.5

%

3,343

 

16.9

%

10,152

 

13.8

%

6,910

 

17.6

%

Operating income

 

7,754

 

19.6

%

3,800

 

19.2

%

12,395

 

16.8

%

6,808

 

17.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

5

 

0.0

%

17

 

0.1

%

15

 

0.0

%

31

 

0.1

%

Interest expense

 

(436

)

-1.1

%

 

0.0

%

(882

)

-1.2

%

(1

)

0.0

%

Foreign currency gain (loss)

 

218

 

0.6

%

(7

)

-0.1

%

1,468

 

2.0

%

(24

)

-0.1

%

Other

 

73

 

0.2

%

56

 

0.3

%

172

 

0.2

%

114

 

0.3

%

Total other income (expense)

 

(140

)

-0.3

%

66

 

0.3

%

773

 

1.0

%

120

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

7,614

 

19.3

%

3,866

 

19.5

%

13,168

 

17.8

%

6,928

 

17.6

%

Income taxes

 

2,929

 

7.5

%

1,543

 

7.8

%

5,223

 

7.1

%

2,815

 

7.1

%

Net income

 

$

4,685

 

11.8

%

$

2,323

 

11.7

%

$

7,945

 

10.7

%

$

4,113

 

10.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

 

 

$

0.13

 

 

 

$

0.44

 

 

 

$

0.23

 

 

 

Dilutive

 

$

0.26

 

 

 

$

0.13

 

 

 

$

0.44

 

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in earnings per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

18,193

 

 

 

18,166

 

 

 

18,190

 

 

 

18,165

 

 

 

Dilutive

 

18,219

 

 

 

18,187

 

 

 

18,215

 

 

 

18,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per share

 

$

0.18

 

 

 

$

0.18

 

 

 

$

0.36

 

 

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (1)

 

$

11,877

 

 

 

$

5,847

 

 

 

$

20,479

 

 

 

$

11,040

 

 

 

 


(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.

 

18



Table of Contents

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(in thousands)

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

4,685

 

$

2,323

 

$

7,945

 

$

4,113

 

Income tax expense

 

2,929

 

1,543

 

5,223

 

2,815

 

Interest expense

 

436

 

 

882

 

1

 

Interest income

 

(5

)

(17

)

(15

)

(31

)

Foreign currency (gain) loss

 

(218

)

7

 

(1,468

)

24

 

Other (income) expense

 

(73

)

(56

)

(172

)

(114

)

Depreciation and amortization of plant and equipment

 

3,227

 

1,577

 

6,306

 

3,099

 

Amortization of intangibles

 

362

 

 

718

 

 

Stock-based compensation

 

210

 

202

 

413

 

595

 

Accretion of closure & post-closure liabilities

 

324

 

268

 

647

 

538

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

11,877

 

$

5,847

 

$

20,479

 

$

11,040

 

 

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

 

Revenue - Revenue increased 99% to $39.5 million for the second quarter of 2011, up from $19.8 million in the second quarter of 2010. This increase reflects 85% growth in treatment and disposal revenue and 193% growth in transportation service revenue compared to the second quarter of 2010. Total revenue growth in the second quarter of 2011 includes $9.8 million from Stablex which was acquired on October 31, 2010. Excluding Stablex, treatment and disposal revenue during the second quarter of 2011 grew 39% as compared with the second quarter of 2010. Transportation service revenue grew 126% as compared to the same time period in 2010.

 

During the second quarter of 2011 we disposed of a total of 215,000 tons of waste, or 79% more than the 120,000 tons disposed of in the second quarter of 2010. Excluding Stablex, volumes increased 40% in the second quarter of 2011 compared to the second quarter of 2010. Average selling price increased 7% during the second quarter of 2011 compared to the same quarter last year due to the addition of Stablex and normal service mix.

 

During the second quarter of 2011, treatment and disposal revenue from recurring Base Business customers was 67% higher than the second quarter of 2010 and comprised 60% of non-transportation revenue. This compares to 65% of non-transportation Base Business revenue in the second quarter of 2010. Excluding Stablex, treatment and disposal revenue from recurring Base Business was 16% higher than the second quarter of 2010 and comprised 57% of non-transportation revenue. This increase primarily reflects higher revenue from broker and refinery customers.

 

Event Business revenue in the second quarter of 2011 increased 101% compared to the same quarter in 2010 and was 40% of non-transportation revenue for the second quarter of 2011. This compares to 35% of non-transportation Event Business in the second quarter of 2010.  Excluding Stablex, treatment and disposal revenue from Event Business increased 58% in the second quarter of 2011 compared to the second quarter of 2011 and comprised 43% of non-transportation revenue. As discussed further below, this primarily reflects increased treatment and disposal revenue from broker and private clean-up customer categories.

 

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

 

19



Table of Contents

 

 

 

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

 

 

 

 

 

Private clean-up

 

4229

%

Other industry

 

137

%

Refinery

 

80

%

Broker

 

72

%

Rate regulated

 

2

%

Government

 

-3

%

 

Treatment and disposal revenue from private clean-up customers increased 4229% in the second quarter of 2011 compared to the second quarter of 2010 including the addition of Stablex. Excluding Stablex, revenue from private clean-up customers increased 2715% in the second 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.

 

Our other industry revenue category increased 137% in the second quarter of 2011 compared to the second quarter of 2010. This increase primarily reflects the addition of Stablex. Excluding Stablex, other industry revenue increased 20% in the second quarter of 2011 compared to the second quarter of 2010.

 

Treatment and disposal revenue from our refinery customers increased 80% in the second quarter of 2011 compared to the same quarter in 2010. Excluding Stablex, treatment and disposal revenue from our refinery customers increased 68% due to higher volumes and slightly improved pricing on thermal recycling projects.

 

Our broker business increased 72% in the second quarter of 2011 compared to the same quarter in 2010. This increase primarily reflects the addition of Stablex. Excluding Stablex, broker business increased 16% in the second quarter of 2011 compared to the second quarter 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.

 

Rate-regulated business at our Richland, Washington low-level radioactive waste disposal facility increased 2% in the second quarter of 2011 compared to the second quarter 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 3% in the second quarter of 2011 compared to the second quarter 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 second quarter of 2010 that was not replaced in 2011.  This decrease was partially offset by increased shipments from the USACE. Event Business under our USACE contract contributed $3.8 million, or 10% of total revenue in the second quarter of 2011 compared to $3.0 million, or 15%, of total revenue in the second quarter of 2010. Excluding transportation service revenue, treatment and disposal revenue with the USACE increased 34% in the second quarter of 2011 compared with the second quarter of 2010.

 

Gross Profit. Gross profit for the second quarter of 2011 increased 83% to $13.1 million, up from $7.1 million in the second quarter of 2010. This increase primarily reflects increased volumes of waste disposed in the second quarter of 2011 compared to the same period in 2010.

 

Gross margin was 33% in the second quarter of 2011, down from 36% in the second quarter of 2010. Our treatment and disposal gross margin (excluding transportation revenue and costs) was 43% in the second quarter of 2011 compared to 44% in the second quarter of 2010. The decrease in gross margin and treatment and disposal gross margin primarily reflects the addition of Stablex which has 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 second quarters of 2011 and 2010 were 13% and 17%, respectively. SG&A expenses were $5.3 million in the second quarter of 2011 and $3.3 million in the same quarter of 2010. The increase reflects $1.1 million in SG&A expenses related to the Stablex facility in the second quarter of

 

20


 


Table of Contents

 

2011. Also contributing to the higher SG&A expenses during the second quarter of 2011 were increased sales commissions and other incentive compensation.

 

Interest expense. Interest expense is incurred on borrowings under our Credit Agreement.  Interest expense in the second quarter of 2011 was $436,000. There was no interest expense  in the second 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 second quarter of 2011, we recognized $218,000 in foreign currency gains compared to a foreign currency loss of $7,000 in the second quarter of 2010. Foreign currency gain (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 USD/CAD currency movements from period to period. At June 30, 2011 we had $57.0 million of intercompany loans subject to currency revaluation. During the second quarter of 2011, the CAD strengthened relative to the USD resulting in a $264,000 foreign currency translation gain 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 second quarter of 2011 and 2010, we recognized $73,000 and $56,000, 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 second quarter of 2011 was 38.5% down from 39.9% in the second quarter of 2010. The decrease in our effective tax rate reflects lower non-tax deductible expenses in the second quarter of 2011 as compared with the second quarter of 2010. At June 30, 2011 and December 31, 2010, we had no significant unrecognized tax benefits. 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 three months ended June 30, 2011 and 2010 were not material.

 

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

 

Revenue - Revenue increased 87% to $73.7 million for the first six months of 2011, up from $39.4 million in the first six months of 2010. This increase reflects 73% growth in treatment and disposal revenue and 181% growth in transportation service revenue compared to the first six months of 2010. Total revenue growth in the first six months of 2011 reflects $18.8 million from Stablex which was acquired on October 31, 2010. Excluding Stablex, treatment and disposal revenue during the first six months of 2011 grew 28% as compared with the same period of 2010. Transportation service revenue grew 118% as compared to the same time period in 2010.

 

During the first six months of 2011 we disposed of a total of 415,000 tons of waste, or 73% more than the 240,000 tons disposed of in the first six months of 2010. Excluding Stablex, volumes increased 34% in the first six months of 2011 compared to the same period of 2010. Average selling price increased 4% during the first six months of 2011 as compared to the same period last year on normal service mix.

 

During the first six months of 2011, treatment and disposal revenue from recurring Base Business customers was 69% higher than the first six months of 2010 and comprised 63% of non-transportation revenue. This compared to 64% of non-transportation Base Business revenue in the first six months of 2010. Excluding Stablex, treatment and disposal revenue from recurring Base Business was 18% higher than the first six months of 2010 and comprised 61% of non-transportation revenue. This increase primarily reflects higher revenue from refinery, broker and other industry customers.

 

Event Business revenue in the first six months of 2011 increased 73% compared to the same period in 2010 and was 37% of non-transportation revenue for the quarter. This compares to 36% of non-transportation Event Business in the first six months of 2010.  Excluding Stablex, treatment and disposal revenue from Event Business increased 35% in the first six months of 2011 compared to the same period of 2011 and comprised 39% of non-transportation revenue. As discussed further below, this reflects increased treatment and disposal revenue from private clean-up, broker and government customer categories.

 

21



Table of Contents

 

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

 

 

 

Treatment and Disposal Revenue Growth
Six Months Ended June 30, 2011 vs.
 Six Months Ended June 30, 2010

 

 

 

 

 

Private clean-up

 

462

%

Other industry

 

130

%

Broker

 

75

%

Refinery

 

43

%

Government

 

7

%

Rate regulated

 

2

%

 

Treatment and disposal revenue from private clean-up customers increased 462% in the first six months of 2011 compared to the first six months of 2010 including the addition of Stablex. Excluding Stablex, revenue from private clean-up customers increased 242% in the first six months of 2011 compared to the same period in 2010. This increase is due to a larger a number of private remediation projects shipping in 2011 that were not shipping in 2010.

 

Our other industry revenue category increased 130% in the first six months of 2011 compared to the first six months of 2010. This increase primarily reflects the addition of Stablex. Excluding Stablex, other industry revenue increased 13% in the first six months of 2011 compared to the same period of 2010.

 

Our broker business increased 75% in the first six 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 20% in the first six months of 2011 compared to the first six 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.

 

Treatment and disposal revenue from our refinery customers increased 43% in the first six months of 2011 compared to the same period in 2010. This increase includes the addition of Stablex in the current year. Excluding Stablex, treatment and disposal revenue from our refinery customers increased 34% reflecting higher volumes and slightly improved pricing of thermal recycling projects.

 

Government clean-up business revenue increased 7% in the first six months of 2011 compared to the first six months of 2010. This increase was primarily attributable to a remedial clean-up project from the Department of Energy and increased shipments from the USACE. Event Business under our USACE contract contributed $7.4 million, or 10% of total revenue in the first six months of 2011 compared to $6.7 million, or 17%, of total revenue in the first six months of 2010. Excluding transportation service revenue, treatment and disposal revenue with the USACE increased 23% in the first six months of 2011 compared to the same period of 2010.

 

Rate-regulated business at our Richland, Washington low-level radioactive waste disposal facility increased 2% in the first six months of 2011 compared to the first six 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.

 

Gross Profit. Gross profit for the first six months of 2011 increased 64% to $22.5 million, up from $13.7 million in the first six months of 2010. This increase primarily reflects increased volumes of waste disposed in the first six months of 2011 compared to the same period in 2010.

 

Gross margin was 31% in the first six months of 2011, down from 35% in the first six months of 2010. Our treatment disposal gross margin (excluding transportation revenue and costs) was 40% in the first six months of 2011 compared to 42% in the first six 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.

 

22



Table of Contents

 

Selling, General and Administrative (“SG&A”). As a percentage of total revenue, SG&A expenses for the first six months of 2011 and 2010 were 14% and 18%, respectively. SG&A expenses were $10.2 million in the first six months of 2011 and $6.9 million in the same period of 2010. The increase reflects $2.2 million in SG&A expenses related to the Stablex facility in the first six months of 2011. Also contributing to the higher SG&A expenses during the first six months of 2011 were increased sales commissions, other incentive compensation and business development costs. SG&A in the first six 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 six months of 2011 was $882,000 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 six months of 2011, we recognized $1.5 million in foreign currency gains compared to a foreign currency loss of $24,000 in the first six months of 2010. Foreign currency gain (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 June 30, 2011, we had $57.0 million of intercompany loans subject to currency revaluation. During the first six months of 2011, the CAD strengthened relative to the USD resulting in a $1.6 million foreign currency translation gain 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 six months of 2011 and 2010, we recognized $172,000 and $114,000, 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 six months of 2011 was 39.7% down from 40.6% in the first six months of 2010. The decrease in our effective tax rate reflects lower non-tax deductible expenses in the first six months of 2011 as compared with the same period in 2010. At June 30, 2011 and December 31, 2010, we had no significant unrecognized tax benefits. 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 six months ended June 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 June 30, 2011, we had $4.3 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 six months ended June 30, 2011, net cash provided by operating activities was $15.2 million. This primarily reflects net income of $7.9 million, decreases in accounts receivable of $3.1 million, increases in deferred income tax liabilities of $690,000 and depreciation and amortization and accretion of $7.7 million. Partially offsetting these sources of cash were decreases in income tax payable of $2.5 million and unrealized foreign currency non-cash translation gains 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

 

23



Table of Contents

 

attributable to the timing of significant customer payments received in the first six months of 2011. Days sales outstanding were 67 days as of June 30, 2011, compared to 65 days at December 31, 2010 and 61 days at June 30, 2010.

 

For the six months ended June 30, 2010, net cash provided by operating activities was $10.2 million. This reflects net income of $4.1 million, decreases in receivables of $2.8 million and depreciation and amortization and accretion of $3.6 million. Partially offsetting these sources of cash were decreases in accounts payable and accrued liabilities of $1.1 million.

 

Investing Activities - For the six months ended June 30, 2011, net cash used in investing activities was $5.6 million primarily related to capital expenditures of $5.7 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 six months ended June 30, 2010, net cash used in investing activities was $5.8 million, including capital expenditures of $4.9 million and net purchases of short-term investments totaling $1.6 million.  Partially offsetting cash outflows was a reduction in our restricted cash balances of $686,000.

 

Financing Activities - For the six months ended June 30, 2011, net cash used in financing activities was $11.6 million and included repayments, net of borrowings, on our credit facility of $5.0 million and payment of dividends to our stockholders of $6.6 million.

 

For the six months ended June 30, 2010, net cash used in financing activities was $6.5 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 six months ended June 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 June 30, 2011, approximately $4.3 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 June 30, 2011, we had $58.0 million of borrowings on the Reducing Revolving Line of Credit bearing an interest rate of 2.64% and no amount borrowed on the Revolving Line of Credit bearing an interest rate of 2.09%.  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 $58.0 million under our credit facility at June 30, 2011, if market rates used to calculate interest expense were to average 1% higher in the next twelve months, our net-of-tax interest expense would increase by approximately $580,000 per year.

 

24



Table of Contents

 

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 six months of 2011, Stablex transacted approximately 48% 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 June 30, 2011 we have $57.0 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 six months of 2011, the CAD strengthened as compared to the USD resulting in a $1.6 million foreign currency translation gain recognized in the Company’s Consolidated Statement of Operations related to the intercompany loans. Based on intercompany balances as of June 30, 2011 a $0.01 CAD increase or decrease in currency rate compared to the USD at June 30, 2011 would have generated approximately $570,000 of gains or losses for the six months ended June 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 of June 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 Securities Exchange Act of 1934 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

 

25



Table of Contents

 

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 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 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

 

Except as set forth below, 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.

 

Any downgrade in the credit of the U.S. Government could result in a failure to make or a material delay in payments which could have a material adverse effect on our cash flow and ability to pay our obligations.

 

USACE is our largest customer and accounted for 10% and 15% of total revenue for the three months ended June 30, 2011 and 2010, respectively, and 10% and 17% for the six months ended June 30, 2011 and 2010, respectively. No other customer represented more than 10% of total revenue for the three and six months ended June 30, 2011 and 2010. At least one nationally recognized statistical rating organization has announced that it has placed the U.S. Government’s credit rating on review for a possible downgrade. If the U.S. Government credit rating is downgraded it may result in the U.S. Government having difficulty borrowing additional funds and therefore may stop or delay making payments on its obligations, including fees payable to us. A failure by the U.S. Government to pay or a material delay in payments to us could have a material adverse effect on our cash flow and our ability to pay our obligations.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Removed and Reserved

 

26



Table of Contents

 

Item 5. Other Information

 

None.

 

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

 

 

 

99.1

 

First Amendment to the Credit Agreement with Wells Fargo Bank

 

 

 

101

 

The following materials from the quarterly report on Form 10-Q of US Ecology, Inc. for the quarter ended June 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.

 

27



Table of Contents

 

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: August 5, 2011

/s/ Jeffrey R. Feeler

 

Jeffrey R. Feeler

Vice President and
Chief Financial Officer

 

28