ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
63
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 audited the accompanying consolidated balance sheets of US Ecology, Inc. and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated
statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016. We also have audited the Company's
internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal ControlIntegrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report
on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based
on our audits.
As
described in Management's Annual Report on Internal Controls over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Environmental
Services Inc. ("ESI") and the Vernon, California based RCRA Part B, liquids and solids waste treatment and storage facility of Evoqua Water Technologies LLC ("Vernon"), which were
acquired May 2, 2016 and October 1, 2016 and whose financial statements constitute 1% and 1% of total assets, respectively, and 1% and less than 1% of revenues, respectively, of the
consolidated financial statement amounts as of and for the year ended December 31, 2016. Accordingly, our audits did not include the internal control over financial reporting at ESI and Vernon.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing
similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.
64
Table of Contents
Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of US Ecology, Inc. and subsidiaries as of
December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in
Internal ControlIntegrated Framework (2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Boise,
Idaho
February 27, 2017
65
Table of Contents
US ECOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,015
|
|
$
|
5,989
|
|
Receivables, net
|
|
|
96,819
|
|
|
106,380
|
|
Prepaid expenses and other current assets
|
|
|
7,458
|
|
|
8,484
|
|
Income taxes receivable
|
|
|
4,076
|
|
|
2,017
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
115,368
|
|
|
122,870
|
|
Property and equipment, net
|
|
|
226,237
|
|
|
210,334
|
|
Restricted cash and investments
|
|
|
5,787
|
|
|
5,748
|
|
Intangible assets, net
|
|
|
234,356
|
|
|
239,571
|
|
Goodwill
|
|
|
193,621
|
|
|
191,823
|
|
Other assets
|
|
|
1,031
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
776,400
|
|
$
|
771,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities And Stockholders' Equity
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,948
|
|
$
|
17,169
|
|
Deferred revenue
|
|
|
7,820
|
|
|
8,078
|
|
Accrued liabilities
|
|
|
22,605
|
|
|
25,634
|
|
Accrued salaries and benefits
|
|
|
10,720
|
|
|
11,513
|
|
Income taxes payable
|
|
|
165
|
|
|
117
|
|
Current portion of closure and post-closure obligations
|
|
|
2,256
|
|
|
2,787
|
|
Revolving credit facility
|
|
|
2,177
|
|
|
|
|
Current portion of long-term debt
|
|
|
2,903
|
|
|
3,056
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
62,594
|
|
|
68,354
|
|
Long-term closure and post-closure obligations
|
|
|
72,826
|
|
|
68,367
|
|
Long-term debt
|
|
|
274,459
|
|
|
290,684
|
|
Other long-term liabilities
|
|
|
5,164
|
|
|
5,825
|
|
Deferred income taxes
|
|
|
81,333
|
|
|
82,622
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
496,376
|
|
|
515,852
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
Common stock $0.01 par value, 50,000 authorized; 21,780 and 21,744 shares issued, respectively
|
|
|
218
|
|
|
217
|
|
Additional paid-in capital
|
|
|
172,704
|
|
|
169,873
|
|
Retained earnings
|
|
|
121,879
|
|
|
103,300
|
|
Treasury stock, at cost, 7 and 5 shares, respectively
|
|
|
(52
|
)
|
|
(189
|
)
|
Accumulated other comprehensive loss
|
|
|
(14,725
|
)
|
|
(17,066
|
)
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
280,024
|
|
|
256,135
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
776,400
|
|
$
|
771,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
66
Table of Contents
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenue
|
|
$
|
477,665
|
|
$
|
563,070
|
|
$
|
447,411
|
|
Direct operating costs
|
|
|
330,070
|
|
|
391,660
|
|
|
301,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
147,595
|
|
|
171,410
|
|
|
145,786
|
|
Selling, general and administrative expenses
|
|
|
77,566
|
|
|
93,079
|
|
|
73,336
|
|
Impairment charges
|
|
|
|
|
|
6,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
70,029
|
|
|
71,631
|
|
|
72,450
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
96
|
|
|
65
|
|
|
107
|
|
Interest expense
|
|
|
(17,317
|
)
|
|
(23,370
|
)
|
|
(10,677
|
)
|
Foreign currency loss
|
|
|
(138
|
)
|
|
(2,196
|
)
|
|
(1,499
|
)
|
Gain (loss) on divestiture
|
|
|
2,034
|
|
|
(542
|
)
|
|
|
|
Other
|
|
|
597
|
|
|
1,267
|
|
|
669
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(14,728
|
)
|
|
(24,776
|
)
|
|
(11,400
|
)
|
Income before income taxes
|
|
|
55,301
|
|
|
46,855
|
|
|
61,050
|
|
Income tax expense
|
|
|
21,049
|
|
|
21,244
|
|
|
22,814
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,252
|
|
$
|
25,611
|
|
$
|
38,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.58
|
|
$
|
1.18
|
|
$
|
1.78
|
|
Diluted
|
|
$
|
1.57
|
|
$
|
1.18
|
|
$
|
1.77
|
|
Shares used in earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,704
|
|
|
21,637
|
|
|
21,537
|
|
Diluted
|
|
|
21,789
|
|
|
21,733
|
|
|
21,655
|
|
The accompanying notes are an integral part of these financial statements.
67
Table of Contents
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Net income
|
|
$
|
34,252
|
|
$
|
25,611
|
|
$
|
38,236
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
1,379
|
|
|
(8,380
|
)
|
|
(3,863
|
)
|
Net changes in interest rate hedge, net of taxes of $517, ($539) and ($1,098), respectively
|
|
|
962
|
|
|
(1,000
|
)
|
|
(2,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax
|
|
$
|
36,593
|
|
$
|
16,231
|
|
$
|
32,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
68
Table of Contents
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,252
|
|
$
|
25,611
|
|
$
|
38,236
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
|
|
|
|
6,700
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
25,304
|
|
|
27,931
|
|
|
24,413
|
|
Amortization of intangible assets
|
|
|
10,575
|
|
|
12,307
|
|
|
8,207
|
|
Accretion of closure and post-closure obligations
|
|
|
3,953
|
|
|
4,584
|
|
|
2,656
|
|
Unrealized foreign currency loss
|
|
|
65
|
|
|
3,271
|
|
|
2,427
|
|
Deferred income taxes
|
|
|
(2,704
|
)
|
|
(2,714
|
)
|
|
2,035
|
|
Share-based compensation expense
|
|
|
2,925
|
|
|
2,297
|
|
|
1,250
|
|
Unrecognized tax benefits
|
|
|
|
|
|
|
|
|
(480
|
)
|
Loss (gain) on disposition of business
|
|
|
(2,034
|
)
|
|
542
|
|
|
|
|
Net loss (gain) on disposition of assets
|
|
|
(569
|
)
|
|
741
|
|
|
421
|
|
Amortization of debt issuance costs
|
|
|
2,006
|
|
|
4,428
|
|
|
1,037
|
|
Amortization of debt discount
|
|
|
148
|
|
|
148
|
|
|
74
|
|
Changes in assets and liabilities (net of effects of business acquisitions and divestitures):
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
10,912
|
|
|
1,565
|
|
|
(4,400
|
)
|
Income taxes receivable
|
|
|
(2,043
|
)
|
|
4,830
|
|
|
(1,798
|
)
|
Other assets
|
|
|
1,149
|
|
|
734
|
|
|
(921
|
)
|
Accounts payable and accrued liabilities
|
|
|
(7,735
|
)
|
|
(6,481
|
)
|
|
(2,878
|
)
|
Deferred revenue
|
|
|
(281
|
)
|
|
(4,449
|
)
|
|
1,890
|
|
Accrued salaries and benefits
|
|
|
(864
|
)
|
|
(901
|
)
|
|
771
|
|
Income taxes payable
|
|
|
49
|
|
|
(3,918
|
)
|
|
(389
|
)
|
Closure and post-closure obligations
|
|
|
(481
|
)
|
|
(5,679
|
)
|
|
(1,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
74,627
|
|
|
71,547
|
|
|
71,369
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from divestitures (net of cash divested)
|
|
|
2,723
|
|
|
58,728
|
|
|
|
|
Purchases of property and equipment
|
|
|
(35,696
|
)
|
|
(39,370
|
)
|
|
(28,434
|
)
|
Purchases of restricted cash and investments
|
|
|
(2,317
|
)
|
|
(2,075
|
)
|
|
(1,060
|
)
|
Proceeds from sale of restricted cash and investments
|
|
|
2,278
|
|
|
2,057
|
|
|
1,023
|
|
Proceeds from sale of short term investments
|
|
|
|
|
|
|
|
|
654
|
|
Proceeds from sale of property and equipment
|
|
|
991
|
|
|
948
|
|
|
201
|
|
Business acquisitions (net of cash acquired)
|
|
|
(9,983
|
)
|
|
|
|
|
(460,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(42,004
|
)
|
|
20,288
|
|
|
(488,490
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(17,954
|
)
|
|
(94,623
|
)
|
|
(19,384
|
)
|
Dividends paid
|
|
|
(15,673
|
)
|
|
(15,612
|
)
|
|
(15,532
|
)
|
Proceeds from revolving credit facility
|
|
|
49,405
|
|
|
10,316
|
|
|
|
|
Payments on revolving credit facility
|
|
|
(47,228
|
)
|
|
(10,316
|
)
|
|
|
|
Proceeds from exercise of stock options
|
|
|
229
|
|
|
1,823
|
|
|
1,542
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
413,962
|
|
Deferred financing costs paid
|
|
|
|
|
|
|
|
|
(14,001
|
)
|
Payment of equipment financing obligations
|
|
|
(179
|
)
|
|
|
|
|
|
|
Other
|
|
|
(189
|
)
|
|
54
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(31,589
|
)
|
|
(108,358
|
)
|
|
366,793
|
|
Effect of foreign exchange rate changes on cash
|
|
|
(8
|
)
|
|
(459
|
)
|
|
(641
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,026
|
|
|
(16,982
|
)
|
|
(50,969
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
5,989
|
|
|
22,971
|
|
|
73,940
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
7,015
|
|
$
|
5,989
|
|
$
|
22,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
69
Table of Contents
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
Issued
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
Balance at December 31, 2013
|
|
|
21,537,576
|
|
$
|
215
|
|
$
|
162,830
|
|
$
|
70,597
|
|
$
|
(319
|
)
|
$
|
(1,785
|
)
|
$
|
231,538
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
38,236
|
|
|
|
|
|
|
|
|
38,236
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,901
|
)
|
|
(5,901
|
)
|
Dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
(15,532
|
)
|
|
|
|
|
|
|
|
(15,532
|
)
|
Tax benefit of equity based awards
|
|
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
Stock option exercises
|
|
|
93,621
|
|
|
1
|
|
|
1,264
|
|
|
|
|
|
|
|
|
|
|
|
1,265
|
|
Repurchase of common stock: 4,860 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186
|
)
|
|
|
|
|
(186
|
)
|
Issuance of restricted common stock
|
|
|
1,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock from treasury shares
|
|
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
21,632,443
|
|
|
216
|
|
|
165,524
|
|
|
93,301
|
|
|
(18
|
)
|
|
(7,686
|
)
|
|
251,337
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
25,611
|
|
|
|
|
|
|
|
|
25,611
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,380
|
)
|
|
(9,380
|
)
|
Dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
(15,612
|
)
|
|
|
|
|
|
|
|
(15,612
|
)
|
Tax benefit of equity based awards
|
|
|
|
|
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
376
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
2,297
|
|
|
|
|
|
|
|
|
|
|
|
2,297
|
|
Stock option exercises
|
|
|
80,112
|
|
|
1
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
1,823
|
|
Repurchase of common stock: 6,150 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(317
|
)
|
|
|
|
|
(317
|
)
|
Issuance of restricted common stock
|
|
|
31,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock from treasury shares
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
21,743,972
|
|
|
217
|
|
|
169,873
|
|
|
103,300
|
|
|
(189
|
)
|
|
(17,066
|
)
|
|
256,135
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
34,252
|
|
|
|
|
|
|
|
|
34,252
|
|
Other comprehensive gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341
|
|
|
2,341
|
|
Dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
(15,673
|
)
|
|
|
|
|
|
|
|
(15,673
|
)
|
Tax benefit of equity based awards
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
2,925
|
|
|
|
|
|
|
|
|
|
|
|
2,925
|
|
Stock option exercises
|
|
|
11,856
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
Repurchase of common stock: 6,589 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(271
|
)
|
|
|
|
|
(271
|
)
|
Issuance of restricted common stock
|
|
|
23,888
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Issuance of restricted common stock from treasury shares
|
|
|
|
|
|
|
|
|
(408
|
)
|
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
21,779,716
|
|
$
|
218
|
|
$
|
172,704
|
|
$
|
121,879
|
|
$
|
(52
|
)
|
$
|
(14,725
|
)
|
$
|
280,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
70
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
US Ecology, Inc. was most recently incorporated as a Delaware corporation in May 1987 as American Ecology Corporation. On February 22, 2010 the Company changed its name from American
Ecology Corporation to US Ecology, Inc. US Ecology, Inc., through its subsidiaries, is a leading North American provider of environmental services to commercial and government entities.
The Company addresses the complex waste management needs of its customers, offering treatment, disposal and recycling of hazardous and radioactive waste, as well as a wide range of complementary field
and industrial services.
Headquartered in Boise, Idaho, with operations in the United States, Canada and Mexico, US Ecology, Inc. has been protecting the environment since 1952. Throughout these financial statements
words such as "we," "us," "our," "US Ecology" and the "Company" refer to US Ecology, Inc. and its subsidiaries.
On
June 17, 2014, the Company acquired 100% of the outstanding shares of EQ Holdings, Inc. and its wholly-owned subsidiaries (collectively "EQ"). The acquisition of EQ significantly
expanded the Company's service offerings, specifically in the areas of field and industrial services. As such, we have made changes to the manner in which we manage our business, make operating
decisions and assess our performance. Under our new structure, our operations are managed in two reportable segments reflecting our internal reporting structure and nature of services offered:
Environmental Services and Field & Industrial Services.
Our
Environmental Services segment provides a broad range of hazardous material management services including the transportation, recycling, treatment and disposal of hazardous and non-hazardous waste
at Company-owned landfill, wastewater and other treatment facilities.
Our
Field & Industrial Services segment provides packaging and collection of hazardous waste and total waste management solutions at customer sites and through our 10-day storage facilities.
Services include on-site management, waste characterization, transportation and disposal of non-hazardous and hazardous waste. This segment also provides specialty services such as high-pressure
cleaning, tank cleaning, decontamination, remediation, transportation, spill cleanup and emergency response and other services to commercial and industrial facilities and to government entities. On
November 1, 2015, we sold our Allstate Power Vac, Inc. ("Allstate") subsidiary, which was previously reported as part of our Field & Industrial Services segment, to a private
investor group. See Note 5 for additional information.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements are prepared on a consolidated basis. All inter-company balances and transactions have been eliminated in consolidation.
Our year-end is December 31.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on deposit, money market accounts or short-term investments with remaining maturities of 90 days or
less at the date of acquisition. Cash and cash equivalents totaled $7.0 million and $6.0 million at December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015,
we had $4.8 million and $2.1 million, respectively, of cash at our operations outside the United States.
71
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Receivables
Receivables are stated at an amount management expects to collect. Based on management's assessment of the credit history of the customers having outstanding
balances and factoring in current economic conditions, management has concluded that potential unidentified losses on balances outstanding at year-end will not be material.
Unbilled
receivables are recorded for work performed under contracts that have not yet been invoiced to customers and arise due to the timing of billings. Substantially all unbilled receivables at
December 31, 2016, were billed in the following month.
Restricted Cash and Investments
Restricted cash and investments of $5.8 million and $5.7 million at December 31, 2016 and 2015, represent funds held in third-party
managed trust accounts as collateral for our financial assurance obligations for post-closure activities at our non-operating facilities. These funds are invested in fixed-income U.S. Treasury and
government agency securities and money market accounts. The balances are adjusted monthly to fair market value based on quoted prices in active markets for identical or similar assets.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery and disposal have occurred or services have been rendered, the price is fixed
or determinable and collection is reasonably assured. We recognize revenue from three primary sources: 1) waste treatment, recycling and disposal, 2) field and industrial waste
management services and 3) waste transportation services.
Waste
treatment and disposal revenue results primarily from fees charged to customers for treatment and/or disposal or recycling of specified wastes. Waste treatment and disposal revenue is generally
charged on a per-ton or per-yard basis based on contracted prices and is recognized when services are complete.
Field
and industrial waste management services revenue results primarily from specialty onsite services such as high-pressure cleaning, tank cleaning, decontamination, remediation, transportation,
spill cleanup and emergency response at refineries, chemical plants, steel and automotive plants, and other government, commercial and industrial facilities. These services are provided based on
purchase orders or agreements with the customer and include prices based upon daily, hourly or job rates for equipment, materials and personnel. Revenues are recognized over the term of the agreements
or as services are performed. Revenue is recognized on contracts with retainage when services have been rendered and collectability is reasonably assured.
Transportation
revenue results from delivering customer waste to a disposal facility for treatment and/or disposal or recycling. Transportation services are generally not provided on a stand-alone
basis and instead are bundled with other Company services. However, in some instances we provide transportation and logistics services for shipment of waste from cleanup sites to disposal facilities
operated by other companies. We account for our bundled arrangements as multiple deliverable
arrangements and determine the amount of revenue recognized for each deliverable (unit of accounting) using the relative fair value method. Transportation revenue is recognized when the transported
waste is received at the disposal facility. Waste treatment and disposal revenue under bundled arrangements is recognized when services are complete and the waste is disposed in the landfill.
72
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Burial
fees collected from customers for each ton or cubic yard of waste disposed in our landfills are paid to the respective local and/or state government entity and are not included in revenue.
Revenue and associated cost from waste that has been received but not yet treated and disposed of in our landfills are deferred until disposal occurs.
Our
Richland, Washington disposal facility is regulated by the Washington Utilities and Transportation Commission ("WUTC"), which approves our rates for disposal of low-level radioactive waste
("LLRW"). Annual revenue levels are established based on a rate agreement with the WUTC at amounts sufficient to cover the costs of operation, including facility maintenance, equipment replacement and
related costs, and provide us with a reasonable profit. Per-unit rates charged to LLRW customers during the year are based on our evaluation of disposal volume and radioactivity projections submitted
to us by waste generators. Our proposed rates are then reviewed and approved by the WUTC. If annual revenue exceeds the approved levels set by the WUTC, we are required to refund excess collections to
facility users on a pro-rata basis. Refundable excess collections, if any, are recorded in Accrued liabilities in the consolidated balance sheets. The current rate agreement with the WUTC was extended
in 2013 and is effective until January 1, 2020.
Deferred Revenue
Revenue from waste that has been received but not yet treated or disposed or advance billings prior to treatment and disposal services are deferred until such
services are completed.
Property and Equipment
Property and equipment are recorded at cost and depreciated on the straight-line method over estimated useful lives. Replacements and major repairs of
property and equipment are capitalized and retirements are made when assets are disposed of or when the useful life has been exhausted. Minor components and parts are expensed as incurred. Repair and
maintenance expenses were $11.8 million, $13.9 million and $12.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.
We
assume no salvage value for our depreciable fixed assets. The estimated useful lives for significant property and equipment categories are as follows:
|
|
|
|
|
Useful Lives
|
Vehicles and other equipment
|
|
3 to 10 years
|
Disposal facility and equipment
|
|
3 to 20 years
|
Buildings and improvements
|
|
5 to 40 years
|
Railcars
|
|
40 years
|
Disposal Cell Accounting
Qualified disposal cell development costs such as personnel and equipment costs incurred to construct new disposal cells are recorded and capitalized at cost.
Capitalized cell development costs, net of recorded amortization, are added to estimated future costs of the permitted disposal cell to be incurred over the remaining construction of the cell, to
determine the amount to be amortized over the remaining estimated cell life. Estimates of future costs are developed using input from independent engineers and internal technical and accounting
managers. We review these estimates at least annually. Amortization is recorded
73
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
on
a unit of consumption basis, typically applying cost as a rate per cubic yard disposed. Disposal facility costs are expected to be fully amortized upon final closure of the facility, as no salvage
value applies. Costs associated with ongoing disposal operations are charged to expense as incurred.
We
have material financial commitments for closure and post-closure obligations for certain facilities we own or operate. We estimate future cost requirements for closure and post-closure monitoring
based on RCRA and conforming state requirements and facility permits. RCRA requires that companies provide the responsible regulatory agency acceptable financial assurance for closure work and
subsequent post-closure monitoring of each facility for 30 years following closure. Estimates for final closure and post-closure costs are developed using input from our technical and
accounting managers as well as independent engineers and are reviewed by management at least annually. These estimates involve projections of costs that will be incurred after the disposal facility
ceases operations, through the required post-closure care period. The present value of the estimated closure and post-closure costs are accreted using the interest method of allocation to direct costs
in our
consolidated statements of operations so that 100% of the future cost has been incurred at the time of payment.
Business Combinations
We account for business combinations under the acquisition method of accounting. The cost of an acquired company is assigned to the tangible and identifiable
intangible assets purchased and the liabilities assumed on the basis of their fair values at the date of acquisition. Any excess of purchase price over the fair value of net tangible and intangible
assets acquired is assigned to goodwill. The transaction costs associated with business combinations are expensed as they are incurred.
Goodwill
Goodwill represents the excess of the fair value of the consideration transferred over the fair value of the underlying identifiable assets and liabilities
acquired. Goodwill is not amortized, but instead is assessed for impairment annually in the fourth quarter as of October 1 and also if an event occurs or circumstances change that may indicate
a possible impairment. In the event that we determine that the value of goodwill has become impaired, we will incur an accounting charge for the amount of impairment during the period in which the
determination has been made. See Note 3 for additional information related to the Company's goodwill impairment tests. Goodwill was recognized in connection with our acquisitions of
Environmental Services Inc. ("ESI") and the Vernon, California based RCRA Part B, liquids and solids waste treatment and storage facility of Evoqua Water Technologies LLC in 2016,
EQ in 2014, Dynecol in 2012 and Stablex in 2010.
Intangible Assets
Intangible assets are stated at the fair value assigned in a business combination net of amortization. We amortize our finite-lived intangible assets using
the straight-line method over their estimated economic lives ranging from 1 to 45 years. We review intangible assets with indefinite useful lives for impairment during the fourth quarter as of
October 1 of each year. We also review both indefinite-lived and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an
intangible asset may not be recoverable.
Our
acquired permits and licenses generally have renewal terms of approximately 5-10 years. We have a history of renewing these permits and licenses as demonstrated by the fact that each of the
sites' treatment
74
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
permits
and licenses have been renewed regularly since the facility began operations. We intend to continue to renew our permits and licenses as they come up for renewal for the foreseeable future.
Costs incurred to renew or extend the term of our permits and licenses are recorded in Selling, general and administrative expenses in our consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment facility development costs and finite-lived intangible assets. The recoverability of long-lived
assets is evaluated periodically through analysis of operating results and consideration of other significant events or changes in the business environment. If an operating unit had indications of
possible impairment, we would evaluate whether impairment exists on the basis of undiscounted expected future cash flows from operations over the remaining amortization period. If an impairment loss
were to exist, the carrying amount of the related long-lived assets would be reduced to their estimated fair value.
Deferred Financing Costs
Deferred financing costs are amortized over the life of our Credit Agreement. Amortization of deferred financing costs is included as a component of interest
expense in the consolidated statements of operations. In April 2015, the FASB issued ASU No. 2015-03,
InterestImputation of Interest
(Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs
. We elected to adopt this guidance in the fourth quarter of 2015. Deferred financing costs
associated with our Term Loan were $5.0 million and $6.4 million, net of accumulated amortization and have been recorded to Long-term debt in the consolidated balance sheets as of
December 31, 2016 and 2015, respectively.
Deferred
financing costs associated with our Revolving Credit Facility were $1.4 million and $2.0 million, net of accumulated amortization and continue to be recorded in Prepaid expenses
and other current assets and Other assets in the consolidated balance sheets as of December 31, 2016 and 2015, respectively.
Derivative Instruments
In order to manage interest rate exposure, we entered into an interest rate swap agreement in October 2014 that effectively converts a portion of our
variable-rate debt to a fixed interest rate. Changes in the fair value of the interest rate swap are recorded as a component of accumulated other comprehensive income within stockholders' equity, and
are recognized in interest expense in the period in which the payment is settled. The interest rate swap has an effective date of December 31, 2014 in an initial notional amount of
$250.0 million. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
Foreign Currency
We have operations in Canada. The functional currency of our Canadian operations is the Canadian dollar ("CAD"). Assets and liabilities are translated to U.S.
dollars ("USD") at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for the period. Gains and losses from the translation of the consolidated
financial statements of our Canadian subsidiaries into USD are included in stockholders' equity as a component of Accumulated other comprehensive income. Gains and losses resulting from foreign
currency transactions are recognized in the consolidated statements of operations. Recorded balances that are denominated in a currency other than the functional currency are
75
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
re-measured
to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the statements of operations.
Income Taxes
Income taxes are accounted for using an asset and liability approach. This requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in the period that includes the enactment date.
We
recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative
evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we
would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the
provision for income taxes.
The
application of income tax law is inherently complex. Tax laws and regulations are voluminous and at times ambiguous and interpretations of guidance regarding such tax laws and regulations change
over time. This requires us to make many subjective assumptions and judgments regarding the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax
positions. A liability for uncertain tax positions is recorded in our consolidated financial statements on the basis of a two-step process whereby (1) we determine whether it is more likely
than not that the tax position taken will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, we
recognize the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. As facts and circumstances change, we reassess these
probabilities and record any changes in the financial statements as appropriate. Our tax returns are subject to audit by the Internal Revenue Service ("IRS"), various states in the U.S. and the
Canadian Revenue Agency.
Insurance
Accrued costs for our self-insured health care coverage were $1.0 million and $1.1 million at December 31, 2016 and 2015, respectively.
Earnings Per Share
Basic earnings per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per
share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. Potential common shares that would increase earnings
per share or decrease loss per share are anti-dilutive and are excluded from earnings per share computations. Earnings per share is computed separately for each period presented.
76
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Treasury Stock
Shares of common stock repurchased by us are recorded at cost as treasury stock and result in a reduction of stockholders' equity in our consolidated balance
sheets. Treasury shares are reissued using the weighted average cost method for determining the cost of the shares reissued. The difference between the cost of the shares reissued and the issuance
price is added or deducted from additional paid-in capital.
Recently Issued Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04,
Simplifying the Test for Goodwill Impairment (Topic 350).
This ASU removes the requirement to compare the implied fair value of goodwill with its
carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, "an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of
a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit." The guidance is effective prospectively for annual and interim periods beginning after December 15, 2019. Early
adoption is
permitted. We are assessing the impact the adoption of ASU 2017-04 may have on our consolidated financial position, results of operations and cash flows.
In
November 2016, the FASB issued ASU No. 2016-18,
Restricted Cash (Topic 230).
This ASU amends the guidance in Accounting Standards Codification
("ASC") 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The classification of restricted cash in the statement of cash flows,
along with eight other cash flow-related issues, was initially addressed by the Emerging Issues Task Force ("EITF") in Issue 15-F. However, after deliberation of those issues, the EITF decided to
address the diversity in practice related to the cash flow classification of restricted cash separately, in Issue 16-A. ASU 2016-18 is based on the EITF's consensuses reached on that Issue. The
guidance is effective for annual and interim periods beginning after December 15, 2017. The guidance must be applied retrospectively to all periods presented. Early adoption is permitted. We
are assessing the impact the adoption of ASU 2016-18 may have on our consolidated financial position and consolidated cash flows.
In
August 2016, the FASB issued ASU No. 2016-15,
Statements of Cash Flows (Topic 230).
This ASU amends the guidance in ASC 230 on the
classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent
principles on this topic. The guidance is effective for annual and interim periods beginning after December 15, 2017. The guidance must be applied retrospectively to all periods presented.
Early adoption is permitted. We are assessing the impact the adoption of ASU 2016-15 may have on our consolidated cash flows.
In
March 2016, the FASB issued ASU No. 2016-09,
CompensationStock Compensation (Topic 718)
. This ASU simplifies several aspects of
the accounting for employee share-based transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of
cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted in any interim or annual period, with any adjustments
reflected as of the beginning of the fiscal year of adoption. We are assessing the impact the adoption of ASU 2016-09 may have on our consolidated financial position, results of operations and cash
flows.
77
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The ASU significantly changes the accounting model used by lessees to
account for leases, requiring that all material leases be presented on the balance sheet. Lessees will recognize substantially all leases on the balance sheet as a right-of-use asset and a
corresponding lease liability. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs.
The guidance is effective for annual and interim periods beginning after December 15, 2018. The guidance must be applied using the modified retrospective approach. Early adoption is permitted.
We
are assessing the impact the adoption of ASU 2016-02 may have on our consolidated financial position, results of operations and cash flows.
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which provides guidance for revenue recognition.
The ASU's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to
be entitled in exchange for those goods or services. The guidance permits the use of either the retrospective or cumulative effect transition method. The ASU also requires enhanced disclosures
regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. In August 2015, the FASB issued ASU 2015-14: Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date, which deferred the effective date established in ASU 2014-09. The amendments in ASU 2014-09 are now effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. Early adoption is permitted but not before annual periods beginning after December 15, 2016. The Company is in
the process of evaluating the impact of adopting ASU 2014-19 on its consolidated financial statements. The Company is currently reviewing customer contracts in each of its operating segments for all
services provided, assessing the impact of applying ASU 2014-19, and comparing this to the Company's historical revenue recognition criteria. Based upon the preliminary review of customer contracts,
the Company believes that the Company's revenue recognition policies are consistent with the requirements of ASU 2014-19. While the Company continues to assess all potential impacts of adopting
ASU 2014-19, based upon information available to date, the Company does not expect the adoption of ASU 2014-19 to have a significant impact either on the timing or recognition of revenues.
NOTE 3. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the
reporting period. Listed below are the estimates and assumptions that we consider to be significant in the preparation of our consolidated financial statements.
-
-
Allowance for Doubtful Accounts
We estimate losses for uncollectible accounts based
on the aging of the accounts receivable and an evaluation of the likelihood of success in collecting the receivable.
-
-
Recovery of Long-Lived Assets
We evaluate the recovery of our long-lived assets
periodically by analyzing our operating results and considering significant events or changes in the business environment.
-
-
Income Taxes
We assume the deductibility of certain costs in our income tax
filings, estimate our income tax rate and estimate the future recovery of deferred tax assets.
78
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. USE OF ESTIMATES (Continued)
-
-
Legal and Environmental Accruals
We estimate the amount of potential exposure we
may have with respect to litigation and environmental claims and assessments.
-
-
Disposal Cell Development and Final Closure/Post-Closure Amortization
We expense
amounts for disposal cell usage and closure and post-closure costs for each cubic yard of waste disposed of at our operating facilities. In determining the amount to expense for each cubic yard of
waste disposed, we estimate the cost to develop each disposal cell and the closure and post-closure costs for each disposal cell and facility. The expense for each cubic yard is then calculated based
on the remaining permitted capacity and total permitted capacity. Estimates for closure and post-closure costs are developed using input from third-party engineering consultants, and our internal
technical and accounting personnel. Management reviews estimates at least annually. Estimates for final disposal cell closure and post-closure costs consider when the costs would actually be paid and,
where appropriate, inflation and discount rates.
-
-
Business Acquisitions
The Company records assets and liabilities of the acquired
business at their fair values. Acquisition-related transaction and restructuring costs are expensed rather than treated as part of the cost of the acquisition. Goodwill represents the excess of the
cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business acquisition.
-
-
Goodwill
We assess goodwill for impairment during the fourth quarter as of
October 1 of each year or sooner if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The assessment
consists of comparing the estimated fair value of the reporting unit to the carrying value of the net assets assigned to the reporting unit, including goodwill. Fair values are generally determined by
using both the market approach, applying a multiple of earnings based on guideline for publicly traded companies, and the income approach, discounting projected future cash flows based on our
expectations of the current and future operating environment. The rates used to discount projected future cash flows reflect a weighted average cost of capital based on our industry, capital structure
and risk premiums including those reflected in the current market capitalization. Estimating future cash flows requires significant judgment about factors such as general economic conditions and
projected growth rates, and our estimates often vary from the cash flows eventually realized. Failure to execute on planned growth initiatives within the related reporting units, coupled with the
other factors mentioned above, could lead to the impairment of goodwill and other long-lived assets in future periods.
-
-
Intangible Assets
We review intangible assets with indefinite useful lives for
impairment during the fourth quarter as of October 1 of each year. Fair value is generally determined by considering an internally-developed discounted projected cash flow analysis. If the fair
value of an asset is determined to be less than the carrying amount of the intangible asset, an impairment in the amount of the difference is recorded in the period in which the annual assessment
occurs.
We
also review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable. In order to
assess whether a potential impairment exists, the assets' carrying values are compared with their undiscounted expected future cash flows. Estimating future cash flows requires significant judgment
about factors such as general economic conditions and projected growth rates, and our estimates often vary from the cash flows eventually realized. Impairments are measured by comparing the fair value
of the asset to its carrying value. Fair value is generally determined by considering: (i) the internally-developed discounted
79
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. USE OF ESTIMATES (Continued)
projected
cash flow analysis; (ii) a third-party valuation; and/or (iii) information available regarding the current market environment for similar assets. If the fair value is
determined to be less than the carrying amount of the intangible assets, an impairment in the amount of the difference is recorded in the period in which the events or changes in circumstances that
indicated the carrying value of the intangible assets may not be recoverable occurred.
Actual
results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements. As it relates to estimates and assumptions in
amortization rates and environmental obligations, significant engineering, operations and accounting judgments are required. We review these estimates and assumptions no less than annually. In many
circumstances, the ultimate outcome of these estimates and assumptions will not be known for decades into the future. Actual results could differ materially from these estimates and assumptions due to
changes in applicable regulations, changes in future operational plans and inherent imprecision associated with estimating environmental impacts far into the future.
NOTE 4. BUSINESS COMBINATIONS
Environmental Services Inc.
On May 2, 2016, the Company acquired 100% of the outstanding shares of Environmental Services Inc., ("ESI"), an environmental services company
based in Tilbury, Ontario, Canada. ESI is focused primarily on hazardous and non-hazardous transportation and disposal, hazardous and non-hazardous waste treatment, industrial services, confined space
rescue and emergency response work throughout Ontario. The total purchase price was $4.9 million, net of cash acquired, and was funded with cash on hand. ESI is reported as part of our
Environmental Services segment, however, revenues, net income, earnings per share and total assets of ESI are not material to our consolidated financial position or results of operations.
We
allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, resulting in $1.0 million allocated to
goodwill (which is not deductible for tax purposes), $813,000 allocated to intangible assets (primarily customer relationships) to be amortized over a weighted average life of approximately
14 years, and $686,000 allocated to indefinite-lived environmental permits.
Acquisition of Vernon, California Facility
On October 1, 2016, we acquired the Vernon, California based RCRA Part B, liquids and solids waste treatment and storage facility of Evoqua
Water Technologies LLC for $5.0 million. The Vernon, California facility is reported as part of our Environmental Services segment, however, revenues, net income, earnings per share and
total assets of the Vernon, California facility are not material to our consolidated financial position or results of operations.
We
allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, resulting in $354,000 allocated to goodwill,
$1.9 million allocated to intangible assets (primarily customer relationships) to be amortized over a weighted average life of approximately 20 years, and $1.3 million allocated
to indefinite-lived environmental permits.
80
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. BUSINESS COMBINATIONS (Continued)
EQ Holdings, Inc.
On June 17, 2014, the Company acquired 100% of the outstanding shares of EQ. EQ is a fully integrated environmental services company providing waste
treatment and disposal, wastewater treatment, remediation, recycling, industrial cleaning and maintenance, transportation, total waste management, technical services, and emergency response services
to a variety of industries and customers in North America. The total purchase price was $460.9 million, net of cash acquired, and was funded through a combination of cash on hand and borrowings
under a new $415.0 million term loan.
As
of June 30, 2015, the Company finalized the purchase accounting for the acquisition of EQ. The following table summarizes the final EQ purchase price allocation:
|
|
|
|
|
$s in thousands
|
|
Purchase Price
Allocation
|
|
Current assets
|
|
$
|
112,009
|
|
Property and equipment
|
|
|
101,543
|
|
Identifiable intangible assets
|
|
|
252,874
|
|
Current liabilities
|
|
|
(58,312
|
)
|
Other liabilities
|
|
|
(139,068
|
)
|
|
|
|
|
|
Total identifiable net assets
|
|
|
269,046
|
|
Goodwill
|
|
|
197,600
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
466,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
of $197.6 million arising from the acquisition is the result of several factors. EQ has an assembled workforce that serves the U.S. industrial market utilizing state-of-the-art
technology to treat a wide range of industrial and hazardous waste. The acquisition of EQ increases our geographic base providing a coast-to-coast presence and an expanded service platform to better
serve key North American hazardous waste markets. In addition, the acquisition of EQ provides us with an opportunity to compete for additional waste cleanup project work; expand penetration with
national accounts; improve and enhance transportation, logistics, and service offerings with existing customers and attract new customers. $132.4 million of the goodwill recognized was
allocated to reporting units in our Environmental Services segment and $65.2 million of the goodwill recognized was allocated to reporting units in our Field & Industrial Services
segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
81
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. BUSINESS COMBINATIONS (Continued)
The
fair value estimate of identifiable intangible assets by major intangible asset class and related weighted average amortization period are as follows:
|
|
|
|
|
|
|
|
$s in thousands
|
|
Fair Value
|
|
Weighted Average
Amortization
Period (Years)
|
|
Customer relationships
|
|
$
|
98,400
|
|
|
15
|
|
Permits and licenses
|
|
|
89,600
|
|
|
45
|
|
Permits and licenses, nonamortizing
|
|
|
49,000
|
|
|
|
|
Tradename
|
|
|
5,481
|
|
|
3
|
|
Customer backlog
|
|
|
4,600
|
|
|
10
|
|
Developed software
|
|
|
3,443
|
|
|
9
|
|
Non-compete agreements
|
|
|
900
|
|
|
1
|
|
Internet domain and website
|
|
|
869
|
|
|
19
|
|
Database
|
|
|
581
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
252,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following unaudited pro forma financial information presents the combined results of operations as if EQ had been combined with us at the beginning of 2014. The pro forma financial information
includes the accounting effects 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 and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the
beginning of the periods presented, nor should it be taken as indication of our future consolidated results of operations.
|
|
|
|
|
|
|
(unaudited)
|
|
$s in thousands, except per share amounts
|
|
2014
|
|
Pro forma combined:
|
|
|
|
|
Revenue
|
|
$
|
615,264
|
|
Net income
|
|
$
|
37,347
|
|
Earnings per share
|
|
|
|
|
Basic
|
|
$
|
1.73
|
|
Diluted
|
|
$
|
1.72
|
|
Revenue
from EQ included in the Company's consolidated statements of operations was $228.2 million for the year ended December 31, 2014. Operating income from EQ included in the
Company's consolidated statements of operations was $18.5 million for the year ended December 31, 2014. Acquisition-related costs of $1.2 million and $6.4 million were
included in Selling, general and administrative expenses in the Company's consolidated statements of operations for the years ended December 31, 2015 and 2014, respectively.
NOTE 5. DIVESTITURES
Divestiture of Augusta, Georgia Facility
On April 5, 2016, we completed the divestiture of our Augusta, Georgia facility for cash proceeds of $1.9 million. The Augusta, Georgia facility
was reported as part of our Environmental Services segment.
82
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. DIVESTITURES (Continued)
Sales,
net income and total assets of the Augusta, Georgia facility are not material to our consolidated financial position or results of operations in any period presented. We recognized a
$1.9 million pre-tax gain on the divestiture of the Augusta, Georgia facility, which is included in Other income (expense) in our consolidated statements of operations for the year ended
December 31, 2016.
Divestiture of Allstate
On November 1, 2015, we completed the divestiture of Allstate for cash proceeds at closing of $58.8 million. For the year ended
December 31, 2015, we recognized a pre-tax loss on the divestiture of Allstate, including transaction-related costs, of $542,000, which was included in Other income (expense) in our
consolidated statements of operations. On April 25, 2016, we received additional cash proceeds of $827,000 in settlement of final post-closing adjustments. We recognized a $178,000 pre-tax gain
on the divestiture of Allstate, which is included in Other income (expense) in our consolidated statements of operations for the year ended December 31, 2016.
Prior
to the divesture, Allstate represented the majority of the industrial services business included in our Field & Industrial Services segment. As a result of this divestiture and
management's strategic review, we evaluated the recoverability of the assets associated with our industrial services business. Based on this analysis, we recorded a non-cash goodwill impairment charge
of $6.7 million in the second quarter of 2015. The sale of Allstate did not meet the requirements to be reported as a discontinued operation as defined in ASU No. 2014-08,
Presentation of Financial Statements (Topic
205) and Property, Plant and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of
an Entity
.
Loss
before income taxes from Allstate of $4.9 million and income before income taxes from Allstate of $1.6 million were included in the Company's consolidated statements of operations
for the years ended December 31, 2015 and 2014, respectively. Loss before income taxes for the year ended December 31, 2015, includes a non-cash goodwill impairment charge of
$6.4 million.
The
following table presents the carrying amounts of major classes of assets and liabilities of Allstate classified as held for sale immediately preceding the disposition on November 1, 2015,
which are excluded from the Company's consolidated balance sheet at December 31, 2015:
|
|
|
|
|
$s in thousands
|
|
November 1,
2015
|
|
Cash and cash equivalents
|
|
$
|
46
|
|
Receivables, net
|
|
|
25,407
|
|
Prepaid expenses and other current assets
|
|
|
1,469
|
|
Property and equipment, net
|
|
|
19,760
|
|
Intangible assets, net
|
|
|
21,825
|
|
Goodwill
|
|
|
13,572
|
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
82,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
7,253
|
|
Accrued liabilities
|
|
|
1,784
|
|
Accrued salaries and benefits
|
|
|
594
|
|
Deferred income taxes
|
|
|
13,601
|
|
|
|
|
|
|
Total liabilities held for sale
|
|
$
|
23,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in accumulated other comprehensive income (loss) ("AOCI") consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
Foreign
Currency
Translation
Adjustments
|
|
Unrealized Loss
on Interest Rate
Hedge
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
(5,648
|
)
|
$
|
(2,038
|
)
|
$
|
(7,686
|
)
|
Other comprehensive loss before reclassifications, net of tax
|
|
|
(8,380
|
)
|
|
(3,269
|
)
|
|
(11,649
|
)
|
Amounts reclassified out of AOCI, net of tax(1)
|
|
|
|
|
|
2,269
|
|
|
2,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net
|
|
|
(8,380
|
)
|
|
(1,000
|
)
|
|
(9,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
(14,028
|
)
|
$
|
(3,038
|
)
|
$
|
(17,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications, net of tax
|
|
|
1,379
|
|
|
(1,121
|
)
|
|
258
|
|
Amounts reclassified out of AOCI, net of tax(2)
|
|
|
|
|
|
2,083
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
|
1,379
|
|
|
962
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(12,649
|
)
|
$
|
(2,076
|
)
|
$
|
(14,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Before-tax
reclassifications of $3.5 million ($2.3 million after-tax) for the year ended December 31, 2015 were included in Interest expense in
the Company's consolidated statements of operations. Amount relates to the Company's interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI
are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made. Amounts in AOCI expected to be recognized in interest expense over the next
12 months total approximately $3.5 million ($2.3 million after tax).
-
(2)
-
Before-tax
reclassifications of $3.2 million ($2.1 million after-tax) for the year ended December 31, 2016 were included in Interest expense in
the Company's consolidated statements of operations. Amount relates to the Company's interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI
are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made. Amounts in AOCI expected to be recognized in interest expense over the next
12 months total approximately $3.2 million ($2.1 million after tax).
NOTE 7. DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
Income taxes and interest paid:
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net of receipts
|
|
$
|
25,729
|
|
$
|
27,252
|
|
$
|
22,754
|
|
Interest paid
|
|
|
14,304
|
|
|
18,587
|
|
|
9,298
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Closure/Post-closure retirement asset
|
|
|
426
|
|
|
(349
|
)
|
|
7,157
|
|
Capital expenditures in accounts payable
|
|
|
2,906
|
|
|
3,805
|
|
|
6,101
|
|
Acquisition of equipment with financing arrangements
|
|
|
1,156
|
|
|
|
|
|
|
|
Restricted stock issuances from treasury shares
|
|
|
408
|
|
|
127
|
|
|
487
|
|
84
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and
liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:
|
Level 1Quoted prices in active markets for identical assets or liabilities;
|
Level 2Inputs other than quoted prices included within Level 1 that are either directly or indirectly
observable;
|
Level 3Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own
assumptions that market participants would use to value the asset or liability.
|
The
Company's financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash and investments, accounts payable and accrued liabilities, debt and interest rate swap
agreements. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to the short-term nature of these
instruments.
The
Company estimates the fair value of its variable-rate debt using Level 2 inputs, such as interest rates, related terms and maturities of similar obligations. At December 31, 2016,
the fair value of the Company's variable-rate debt was estimated to be $283.7 million.
The
Company's assets and liabilities measured at fair value on a recurring basis at December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$s in thousands
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-income securities(1)
|
|
$
|
607
|
|
$
|
3,473
|
|
$
|
|
|
$
|
4,080
|
|
Money market funds(2)
|
|
|
1,707
|
|
|
|
|
|
|
|
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,314
|
|
$
|
3,473
|
|
$
|
|
|
$
|
5,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement(3)
|
|
$
|
|
|
$
|
3,198
|
|
$
|
|
|
$
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
3,198
|
|
$
|
|
|
$
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. FAIR VALUE MEASUREMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
$s in thousands
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-income securities(1)
|
|
$
|
403
|
|
$
|
3,573
|
|
$
|
|
|
$
|
3,976
|
|
Money market funds(2)
|
|
|
1,772
|
|
|
|
|
|
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,175
|
|
$
|
3,573
|
|
$
|
|
|
$
|
5,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement(3)
|
|
$
|
|
|
$
|
4,676
|
|
$
|
|
|
$
|
4,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
4,676
|
|
$
|
|
|
$
|
4,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
We
invest a portion of our Restricted cash and investments in fixed-income securities, including U.S. Treasury and U.S. agency securities. We measure the fair value
of U.S. Treasury securities using quoted prices for identical assets in active markets. We measure the fair value of U.S. agency securities using observable market activity for similar assets. The
fair value of our fixed-income securities approximates our cost basis in the investments.
-
(2)
-
We
invest a portion of our Restricted cash and investments in money market funds. We measure the fair value of these money market fund investments using quoted
prices for identical assets in active markets.
-
(3)
-
In
order to manage interest rate exposure, we entered into an interest rate swap agreement in October 2014 that effectively converts a portion of our variable-rate
debt to a fixed interest rate. The swap is designated as a cash flow hedge, with gains and losses deferred in other comprehensive income to be recognized as an adjustment to interest expense in the
same period that the hedged interest payments affect earnings. The interest rate swap has an effective date of December 31, 2014 with an initial notional amount of $250.0 million. The
fair value of the interest rate swap agreement represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end
of the period. We calculate the fair value of the interest rate swap agreement quarterly based on the quoted market price for the same or similar financial instruments. The fair value of the interest
rate swap agreement is included in Other long-term liabilities in the Company's consolidated balance sheet as of December 31, 2016 and 2015.
NOTE 9. CONCENTRATIONS AND CREDIT RISK
Major Customers
No customer accounted for more than 10% of total revenue for the years ended December 31, 2016 or 2015. Revenue from a single customer accounted for
approximately 10% of total revenue for the year ended December 31, 2014.
No
customer accounted for more than 10% of total receivables as of December 31, 2016 or 2015.
86
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9. CONCENTRATIONS AND CREDIT RISK (Continued)
Credit Risk Concentration
We maintain most of our cash and cash equivalents with nationally recognized financial institutions like Wells Fargo Bank, National Association ("Wells
Fargo") and Comerica, Inc.
Substantially all 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.
Labor Concentrations
As of December 31, 2016, 13 employees at our Richland, Washington facility were represented by the Paper, Allied-Industrial Chemical & Energy
Workers International Union, AFL-CIO, CLC (PACE); 105 employees at our Blainville, Québec, Canada facility were represented by the Communications, Energy and Paperworkers Union of
Canada; 137 employees were represented by the Local 324 Operating Engineers Union; and 10 employees were represented by the Teamsters and the Operating Engineers Union. As of December 31, 2016,
our 1,188 other employees did not belong to a union.
NOTE 10. RECEIVABLES
Receivables as of December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
Trade
|
|
$
|
84,487
|
|
$
|
95,055
|
|
Unbilled revenue
|
|
|
13,835
|
|
|
11,983
|
|
Other
|
|
|
831
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
|
99,153
|
|
|
109,606
|
|
Allowance for doubtful accounts
|
|
|
(2,334
|
)
|
|
(3,226
|
)
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
$
|
96,819
|
|
$
|
106,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
allowance for doubtful accounts is a provision for uncollectible accounts receivable and unbilled receivables. The allowance is evaluated and adjusted to reflect our collection history and an
analysis of the accounts receivables aging. The allowance is decreased by accounts receivable as they are written off. The allowance is adjusted periodically to reflect actual experience. The change
in the allowance during 2016, 2015 and 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
Balance at
Beginning of
Period
|
|
Charged
(Credited) to
Costs and
Expenses
|
|
Recoveries
(Deductions/
Write-offs)
|
|
Adjustments
|
|
Balance at
End of Period
|
|
Year ended December 31, 2016
|
|
$
|
3,226
|
|
$
|
(186
|
)
|
$
|
(705
|
)
|
$
|
(1
|
)
|
$
|
2,334
|
|
Year ended December 31, 2015
|
|
$
|
704
|
|
$
|
2,224
|
|
$
|
848
|
|
$
|
(550
|
)(1)
|
$
|
3,226
|
|
Year ended December 31, 2014
|
|
$
|
525
|
|
$
|
1,391
|
|
$
|
(1,211
|
)
|
$
|
(1
|
)
|
$
|
704
|
|
-
(1)
-
Adjustment
for the year ended December 31, 2015 relates to the sale of Allstate on November 1, 2015. For additional information on the sale of
Allstate, see Note 5.
87
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
Cell development costs
|
|
$
|
128,821
|
|
$
|
121,473
|
|
Land and improvements
|
|
|
34,285
|
|
|
31,606
|
|
Buildings and improvements
|
|
|
78,081
|
|
|
70,990
|
|
Railcars
|
|
|
17,299
|
|
|
17,375
|
|
Vehicles and other equipment
|
|
|
110,267
|
|
|
92,797
|
|
Construction in progress
|
|
|
24,392
|
|
|
20,067
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
393,145
|
|
|
354,308
|
|
Accumulated depreciation and amortization
|
|
|
(166,908
|
)
|
|
(143,974
|
)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
226,237
|
|
$
|
210,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expense was $25.3 million, $27.9 million and $24.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.
NOTE 12. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets as of December 31, 2016, were the result of our acquisitions of ESI and the Vernon, California based RCRA Part B, liquids and solids waste treatment and
storage facility of Evoqua Water Technologies LLC in 2016, EQ in 2014, Dynecol in 2012 and Stablex in 2010. Changes in goodwill for the years ended December 31, 2016 and 2015 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
Environmental
Services
|
|
Field &
Industrial
Services
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
147,692
|
|
$
|
44,131
|
|
$
|
191,823
|
|
ESI acquisition
|
|
|
1,011
|
|
|
|
|
|
1,011
|
|
Vernon acquisition
|
|
|
354
|
|
|
|
|
|
354
|
|
Foreign currency translation and other adjustments
|
|
|
433
|
|
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
149,490
|
|
$
|
44,131
|
|
$
|
193,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12. GOODWILL AND INTANGIBLE ASSETS (Continued)
Intangible
assets as of December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
$s in thousands
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits, licenses and lease
|
|
$
|
110,341
|
|
$
|
(9,462
|
)
|
$
|
100,879
|
|
$
|
109,652
|
|
$
|
(6,682
|
)
|
$
|
102,970
|
|
Customer relationships
|
|
|
84,711
|
|
|
(14,519
|
)
|
|
70,192
|
|
|
82,021
|
|
|
(9,015
|
)
|
|
73,006
|
|
Technologyformulae and processes
|
|
|
6,770
|
|
|
(1,305
|
)
|
|
5,465
|
|
|
6,560
|
|
|
(1,054
|
)
|
|
5,506
|
|
Customer backlog
|
|
|
3,652
|
|
|
(926
|
)
|
|
2,726
|
|
|
3,652
|
|
|
(561
|
)
|
|
3,091
|
|
Tradename
|
|
|
4,318
|
|
|
(3,650
|
)
|
|
668
|
|
|
4,318
|
|
|
(2,210
|
)
|
|
2,108
|
|
Developed software
|
|
|
2,907
|
|
|
(994
|
)
|
|
1,913
|
|
|
2,899
|
|
|
(678
|
)
|
|
2,221
|
|
Non-compete agreements
|
|
|
747
|
|
|
(742
|
)
|
|
5
|
|
|
732
|
|
|
(732
|
)
|
|
|
|
Internet domain and website
|
|
|
540
|
|
|
(72
|
)
|
|
468
|
|
|
540
|
|
|
(44
|
)
|
|
496
|
|
Database
|
|
|
387
|
|
|
(118
|
)
|
|
269
|
|
|
385
|
|
|
(85
|
)
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizing intangible assets
|
|
|
214,373
|
|
|
(31,788
|
)
|
|
182,585
|
|
|
210,759
|
|
|
(21,061
|
)
|
|
189,698
|
|
Nonamortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits and licenses
|
|
|
51,645
|
|
|
|
|
|
51,645
|
|
|
49,750
|
|
|
|
|
|
49,750
|
|
Tradename
|
|
|
126
|
|
|
|
|
|
126
|
|
|
123
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
266,144
|
|
$
|
(31,788
|
)
|
$
|
234,356
|
|
$
|
260,632
|
|
$
|
(21,061
|
)
|
$
|
239,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense of amortizing intangible assets was $10.6 million, $12.3 million and $8.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Foreign intangible asset carrying amounts are affected by foreign currency translation. Future amortization expense of amortizing intangible assets is expected to be as follows:
|
|
|
|
|
$s in thousands
|
|
Expected
Amortization
|
|
2017
|
|
$
|
9,848
|
|
2018
|
|
|
9,139
|
|
2019
|
|
|
9,139
|
|
2020
|
|
|
9,139
|
|
2021
|
|
|
9,139
|
|
Thereafter
|
|
|
136,181
|
|
|
|
|
|
|
|
|
$
|
182,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
We maintain the US Ecology, Inc., 401(k) Savings and Retirement Plan ("the Plan") for employees who voluntarily contribute a portion of their
compensation, thereby deferring income for federal income tax purposes. The Plan covers substantially all of our employees in the United States. Participants may contribute a percentage of salary up
to the IRS limitations. The Company contributes a matching
89
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13. EMPLOYEE BENEFIT PLANS (Continued)
contribution
equal to 55% of participant contributions up to 6% of eligible compensation. The Company contributed matching contributions to the Plan of $1.9 million, $2.3 million and
$521,000 in 2016, 2015 and 2014, respectively.
During
2014, EQ sponsored a defined contribution 401(k) plan for its nonunion employees. The plan allowed all eligible employees to make elective pretax contributions in an amount not to exceed limits
established by the IRS. Additionally, EQ made matching contributions to the plan on behalf of the employee in the amount of 50% of the employee's elected contributions, not to exceed 3% of the
employee's compensation. The Company contributed matching contributions to this plan of $649,000, for the post-acquisition period from June 17, 2014 through December 31, 2014. Effective
January 1, 2015,
the EQ defined contribution 401(k) plan was discontinued and all eligible employees were transitioned to the Plan.
We
also maintain the Stablex Canada Inc. Simplified Pension Plan ("the SPP"). This defined contribution plan covers substantially all of our employees at our Blainville, Québec
facility in Canada. Participants receive a Company contribution equal to 5% of their annual salary. The Company contributed $507,000, $515,000 and $510,000 to the SPP in 2016, 2015 and 2014,
respectively.
Multi-Employer Defined Benefit Pension Plans
Certain of the Company's wholly-owned subsidiaries acquired in connection with the acquisition of EQ on June 17, 2014 participate in three
multi-employer defined benefit pension plans under the terms of collective bargaining agreements covering most of the subsidiaries' union employees. Contributions are determined in accordance with the
provisions of negotiated labor contracts and are generally based on stipulated rates per hours worked. Benefits under these plans are generally based on compensation levels and years of service.
The
financial risks of participating in multi-employer plans are different from single employer defined benefit pension plans in the following respects:
-
-
Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
-
-
If a participating employer discontinues contributions to a plan, the unfunded obligations of the plan may be borne by the remaining
participating employers.
-
-
If a participating employer chooses to stop participating in a plan, a withdrawal liability may be created based on the unfunded vested
benefits for all employees in the plan.
Information
regarding significant multi-employer pension benefit plans in which the Company participates is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Protection Act
Certified
Zone Status
|
|
|
Plan Employer
ID Number
|
|
Plan
Number
|
Name of Plan
|
|
2016
|
|
2015
|
Operating Engineers Local 324 Pension Fund
|
|
|
38-1900637
|
|
|
001
|
|
Red
|
|
Red
|
90
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13. EMPLOYEE BENEFIT PLANS (Continued)
The
Company contributed $933,000 and $941,000 to the Operating Engineers Local 324 Pension Fund (the "Local 324 Plan") in 2016 and 2015, respectively. The Company also contributed $229,000 and
$461,000 to other multi-employer plans in 2016 and 2015, respectively, which are excluded from the table above as they are not individually significant.
Based
on information as of April 30, 2016 and 2015, the year end of the Local 324 Plan, the Company's contributions made to the Local 324 Plan represented less than 5% of total contributions
received by the Local 324 Plan during the 2016 and 2015 plan years.
The
certified zone status in the table above is defined by the Department of Labor and the Pension Protection Act of 2006 and represents the level at which the plan is funded. Plans in the red zone
are less than 65% funded; plans in the yellow zone are less than 80% funded; and plans in the green zone are at least 80% funded. The certified zone status is as of the Local 324 Plan's year end of
April 30, 2016 and 2015.
A
financial improvement or rehabilitation plan, as defined under ERISA, was adopted by the Local 324 Plan on March 17, 2011 and the Rehabilitation Period began May 1, 2013.
As
of December 31, 2016, 137 employees were employed under union collective bargaining agreements with the Local 324 Operating Engineers union. Our three remaining collective bargaining
agreements expire on April 30, 2017, May 31, 2018 and November 30, 2020.
NOTE 14. CLOSURE AND POST-CLOSURE OBLIGATIONS
Our accrued closure and post-closure liability represents the expected future costs, including corrective actions, associated with closure and post-closure of our operating and non-operating disposal
facilities. We record the fair value of our closure and post-closure obligations as a liability in the period in which the regulatory obligation to retire a specific asset is triggered. For our
individual landfill cells, the required closure and post-closure obligations under the terms of our permits and our intended operation of the landfill cell are triggered and recorded when the cell is
placed into service and waste is initially disposed in the landfill cell. The fair value is based on the total estimated costs to close the landfill cell and perform post-closure activities once the
landfill cell has reached capacity and is no longer accepting waste. We perform periodic reviews of both non-operating and operating facilities and revise accruals for estimated closure and
post-closure, remediation or other costs as necessary. Recorded liabilities are based on our best estimates of current costs and are updated periodically to include the effects of existing technology,
presently enacted laws and regulations, inflation and other economic factors.
We
do not presently bear significant financial responsibility for closure and/or post-closure care of the disposal facilities located on state-owned land at our Beatty, Nevada site; Provincial-owned
land in Blainville, Québec; or state-leased federal land on the Department of Energy Hanford Reservation near Richland, Washington. The States of Nevada and Washington and the Province
of Québec collect fees from us based on the waste received on a quarterly or annual basis. Such fees are deposited in dedicated, government-controlled funds to cover the future costs of
closure and post-closure care and maintenance. Such fees are periodically reviewed for adequacy by the governmental authorities. We also maintain a surety bond for closure costs associated with the
Stablex facility. Our lease agreement with the Province of Québec requires that the surety bond be maintained for 25 years after the lease expires. At December 31, 2016 we
had $686,000 in commercial surety bonds dedicated for closure obligations.
91
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. CLOSURE AND POST-CLOSURE OBLIGATIONS (Continued)
In
accounting for closure and post-closure obligations, which represent our asset retirement obligations, we recognize a liability as part of the fair value of future asset retirement obligations and
an associated asset as part of the carrying amount of the underlying asset. This obligation is valued based on our best estimates of current costs and current estimated closure and post-closure costs
taking into account current technology, material and service costs, laws and regulations. These cost estimates are increased by an estimated inflation rate, estimated to be 2.6% at December 31,
2016. Inflated current costs are then discounted using our credit-adjusted risk-free interest rate, which approximates our incremental borrowing rate, in effect at the time the obligation is
established or when there are upward revisions to our estimated closure and post-closure costs. Our weighted-average credit-adjusted risk-free interest rate at December 31, 2016 approximated
5.9%.
Changes
to reported closure and post-closure obligations for the years ended December 31, 2016 and 2015, were as follows:
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
Closure and post-closure obligations, beginning of year
|
|
$
|
71,154
|
|
$
|
72,870
|
|
Accretion expense
|
|
|
3,953
|
|
|
4,584
|
|
Payments
|
|
|
(1,754
|
)
|
|
(5,679
|
)
|
Adjustments
|
|
|
1,697
|
|
|
(349
|
)
|
Foreign currency translation
|
|
|
32
|
|
|
(272
|
)
|
|
|
|
|
|
|
|
|
Closure and post-closure obligations, end of year
|
|
|
75,082
|
|
|
71,154
|
|
Less current portion
|
|
|
(2,256
|
)
|
|
(2,787
|
)
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
72,826
|
|
$
|
68,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
to the obligations represents changes in the expected timing or amount of cash expenditures based upon actual and estimated cash expenditures. The adjustments in 2016 were primarily
attributable to a $1.3 million increase in post-closure obligations for our non-operating facilities due to changes in estimated post-closure costs and a $496,000 increase to the obligation for
our Blainville, Quebec, Canada operating facility associated with a newly-constructed disposal cell. The adjustments in 2015 were primarily attributable to a $945,000 decrease to the obligation for
our Grand View, Idaho facility due to changes in the timing of estimated closure activities, partially offset by a $545,000 increase to the obligation for our Belleville, Michigan facility due to
changes in estimated closure and post-closure costs.
Changes
in the reported closure and post-closure asset, recorded as a component of Property and equipment, net, in the consolidated balance sheet, for the years ended December 31, 2016 and 2015
were as follows:
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
Net closure and post-closure asset, beginning of year
|
|
$
|
23,043
|
|
$
|
24,651
|
|
Additions or adjustments to closure and post-closure asset
|
|
|
426
|
|
|
(349
|
)
|
Amortization of closure and post-closure asset
|
|
|
(1,128
|
)
|
|
(836
|
)
|
Foreign currency translation
|
|
|
67
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
Net closure and post-closure asset, end of year
|
|
$
|
22,408
|
|
$
|
23,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
Term loan
|
|
$
|
283,040
|
|
$
|
300,994
|
|
Unamortized discount and debt issuance costs
|
|
|
(5,678
|
)
|
|
(7,254
|
)
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
277,362
|
|
|
293,740
|
|
Current portion of long-term debt
|
|
|
(2,903
|
)
|
|
(3,056
|
)
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
274,459
|
|
$
|
290,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
maturities of long-term debt, excluding unamortized discount and debt issuance costs, as of December 31, 2016 consist of the following:
|
|
|
|
|
$s in thousands
|
|
Maturities
|
|
2017
|
|
$
|
2,903
|
|
2018
|
|
|
2,903
|
|
2019
|
|
|
2,903
|
|
2020
|
|
|
2,903
|
|
2021
|
|
|
271,428
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
283,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
June 17, 2014, in connection with the acquisition of EQ, the Company entered into a new $540.0 million senior secured credit agreement (the "Credit Agreement") with a syndicate of
banks comprised of a $415.0 million term loan (the "Term Loan") with a maturity date of June 17, 2021 and a $125.0 million revolving line of credit (the "Revolving Credit
Facility") with a maturity date of June 17, 2019. Upon entering into the Credit Agreement, the Company terminated its existing credit agreement with Wells Fargo, dated October, 29, 2010, as
amended (the "Former Agreement"). Immediately prior to the termination of the Former Agreement, there were no outstanding borrowings under the Former
Agreement. No early termination penalties were incurred as a result of the termination of the Former Agreement.
Term Loan
The Term Loan provided an initial commitment amount of $415.0 million, the proceeds of which were used to acquire 100% of the outstanding shares of EQ
and pay related transaction fees and expenses. The Term Loan bears interest at a base rate (as defined in the Credit Agreement) plus 2.00% or LIBOR plus 3.00%, at the Company's option. The Term Loan
is subject to amortization in equal quarterly installments in an aggregate annual amount equal to 1.00% of the original principal amount of the Term Loan. At December 31, 2016, the effective
interest rate on the Term Loan, including the impact of our interest rate swap, was 4.76%. Interest only payments are due either monthly or on the last day of any interest period, as applicable. As
set forth in the Credit Agreement, the Company is required to enter into one or more interest rate hedge agreements in amounts sufficient to fix the interest rate on at least 50% of the principal
amount of the $415.0 million Term Loan. In October 2014, the Company entered into an interest rate swap
93
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. DEBT (Continued)
agreement
with Wells Fargo, effectively fixing the interest rate on $210.0 million, or 74%, of the Term Loan principal outstanding as of December 31, 2016.
Revolving Credit Facility
The Revolving Credit Facility provides up to $125.0 million of revolving credit loans or letters of credit with the use of proceeds restricted solely
for working capital and other general corporate purposes. Under the Revolving Credit Facility, revolving loans are available based on a base rate (as defined in the Credit Agreement) 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 consolidated
earnings before interest, taxes, depreciation and amortization (as defined in the Credit Agreement). At December 31, 2016, the effective interest rate on the Revolving Credit Facility was
5.50%. The Company is required to pay a commitment fee of 0.50% per annum on the unused portion of the Revolving Credit Facility, with such commitment fee to be reduced based upon the Company's total
leverage ratio as defined in the Credit Agreement. The
maximum letter of credit capacity under the Revolving Credit Facility is $50.0 million and the Credit Agreement provides for a letter of credit fee equal to the applicable margin for LIBOR
loans under the Revolving Credit Facility. Interest payments are due either monthly or on the last day of any interest period, as applicable. At December 31, 2016, there were
$2.2 million of working capital borrowings outstanding on the Revolving Credit Facility. These borrowings are due "on demand" and presented as short-term debt in the consolidated balance
sheets. As of December 31, 2016, the availability under the Revolving Credit Facility was $116.8 million with $6.0 million of the Revolving Credit Facility issued in the form of
standby letters of credit utilized as collateral for closure and post-closure financial assurance and other assurance obligations.
Except
as set forth below, the Company may prepay the Term Loan or permanently reduce the Revolving Credit Facility commitment under the Credit Agreement at any time without premium or penalty (other
than customary "breakage" costs with respect to the early termination of LIBOR loans). Subject to certain exceptions, the Credit Agreement provides for mandatory prepayment upon certain asset
dispositions, casualty events and issuances of indebtedness. The Credit Agreement is also subject to mandatory annual prepayments commencing in December 2015 if our total leverage (defined as the
ratio of our consolidated funded debt as of the last day of the applicable fiscal year to our adjusted EBITDA for such period) exceeds certain ratios as follows: 50% of our adjusted excess cash flow
(as defined in the Credit Agreement and which takes into account certain adjustments) if our total leverage ratio is greater than 2.50 to 1.00, with step-downs to 0% if our total leverage ratio is
equal to or less than 2.50 to 1.00.
Pursuant
to (i) an unconditional guarantee agreement and (ii) a collateral agreement, each entered into by the Company and its domestic subsidiaries on June 17, 2014, the
Company's obligations under the Credit Agreement are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of the Company's existing and certain future domestic
subsidiaries and the Credit Agreement is secured by substantially all of the Company's and its domestic subsidiaries' assets except the Company's and its domestic subsidiaries' real property.
The
Credit Agreement contains customary restrictive covenants, subject to certain permitted amounts and exceptions, including covenants limiting the ability of the Company to incur additional
indebtedness, pay dividends and make other restricted payments, repurchase shares of our outstanding stock and create certain liens. We may only declare quarterly or annual dividends if on the date of
declaration, no event of
94
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. DEBT (Continued)
default
has occurred and no other event or condition has occurred that would constitute default due to the payment of the dividend.
The
Credit Agreement also contains a financial maintenance covenant, which is a maximum Consolidated Senior Secured Leverage Ratio, as defined in the Credit Agreement, and is only applicable to the
Revolving Credit Facility. Our consolidated senior secured leverage ratio as of the last day of any fiscal quarter may not exceed the ratios indicated below:
|
|
|
|
|
Fiscal Quarters Ending
|
|
Maximum Ratio
|
|
December 31, 2016 through September 30, 2017
|
|
|
3.50 to 1.00
|
|
December 31, 2017 through September 30, 2018
|
|
|
3.25 to 1.00
|
|
December 31, 2018 and thereafter
|
|
|
3.00 to 1.00
|
|
At
December 31, 2016, we were in compliance with all of the financial covenants in the Credit Agreement.
NOTE 16. INCOME TAXES
The components of the income tax expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
17,866
|
|
$
|
17,818
|
|
$
|
13,767
|
|
State
|
|
|
3,324
|
|
|
2,830
|
|
|
2,492
|
|
Foreign
|
|
|
2,459
|
|
|
3,279
|
|
|
4,521
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
23,649
|
|
|
23,927
|
|
|
20,780
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
(1,790
|
)
|
|
(2,355
|
)
|
|
2,721
|
|
State
|
|
|
(275
|
)
|
|
125
|
|
|
(155
|
)
|
Foreign
|
|
|
(535
|
)
|
|
(453
|
)
|
|
(532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(2,600
|
)
|
|
(2,683
|
)
|
|
2,034
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
21,049
|
|
$
|
21,244
|
|
$
|
22,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation between the effective income tax rate and the applicable statutory federal and state income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Taxes computed at statutory rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Impairment and loss on divestiture
|
|
|
|
|
|
5.7
|
|
|
|
|
State income taxes (net of federal income tax benefit)
|
|
|
3.3
|
|
|
4.0
|
|
|
2.7
|
|
Non-deductible transaction costs
|
|
|
0.2
|
|
|
0.3
|
|
|
1.5
|
|
Foreign rate differential
|
|
|
(1.1
|
)
|
|
(1.8
|
)
|
|
(2.0
|
)
|
Other
|
|
|
0.7
|
|
|
2.1
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.1
|
%
|
|
45.3
|
%
|
|
37.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16. INCOME TAXES (Continued)
The
components of the total net deferred tax assets and liabilities as of December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss, foreign tax credit and capital loss carry forwards
|
|
$
|
3,307
|
|
$
|
5,215
|
|
Accruals, allowances and other
|
|
|
5,269
|
|
|
5,021
|
|
Environmental compliance and other site related costs
|
|
|
12,479
|
|
|
7,924
|
|
Unrealized foreign exchange gains and losses
|
|
|
2,153
|
|
|
2,101
|
|
Unrealized gains and losses on interest rate hedge
|
|
|
1,119
|
|
|
1,637
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
24,327
|
|
|
21,898
|
|
Less: valuation allowance
|
|
|
(3,058
|
)
|
|
(4,645
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
21,269
|
|
|
17,253
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(26,258
|
)
|
|
(23,898
|
)
|
Intangible assets
|
|
|
(74,731
|
)
|
|
(74,451
|
)
|
Other
|
|
|
(1,613
|
)
|
|
(1,526
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(102,602
|
)
|
|
(99,875
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(81,333
|
)
|
$
|
(82,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
consider the undistributed earnings of our foreign subsidiaries as of December 31, 2016 to be indefinitely reinvested. Accordingly, no U.S. income and foreign withholding taxes have been
provided on such earnings. We have not, nor do we anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs; however, in the event that we need to repatriate all or a
portion of our foreign cash to the U.S., we would be subject to additional U.S. income taxes, which could be material. The amount of temporary differences for which no deferred tax liability has been
recognized totaled $36.7 million as of December 31, 2016. We do not believe it is practicable to calculate the potential tax impact of repatriation, as there is a significant amount of
uncertainty around the calculation, including the availability and amount of foreign tax credits at the time of repatriation, tax rates in effect and other indirect tax consequences associated with
repatriation.
As
of December 31, 2016, we have federal net operating loss carry forwards ("NOLs") of approximately $17,000. The NOLs relate to losses incurred by EQ prior to our acquisition of EQ on
June 17, 2014 and expire in 2026. U.S. income tax law limits the amount of losses that we can use on an annual basis. We believe it is more likely than not the entire balance of federal NOLs
will be utilized before expiration.
As
of December 31, 2016, we have approximately $12.7 million in state and local NOLs for which we maintain a valuation allowance on the majority of the balance. We have historically
recorded a valuation allowance for certain deferred tax assets due to uncertainties regarding future operating results and limitations on utilization of state and local NOLs for tax purposes. State
and local NOLs expire between 2019 and 2036. At December 31, 2016 and 2015, we maintained a valuation allowance of approximately $278,000 and $1.9 million, respectively, for state NOLs
that are not expected to be utilizable prior to expiration.
96
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16. INCOME TAXES (Continued)
As
of December 31, 2016, we have foreign tax credit carry forwards of approximately $1.8 million that expire in 2024. As of December 31, 2016, we have capital loss carry forwards
of approximately $2.6 million that expire in 2020. We believe it is more likely than not the foreign tax credit and capital loss carry forwards will not be utilized and therefore maintain a
valuation allowance on the entire balance.
The
domestic and foreign components of Income (loss) before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
Domestic
|
|
|
47,859
|
|
|
36,367
|
|
|
46,017
|
|
Foreign
|
|
|
7,442
|
|
|
10,488
|
|
|
15,033
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
55,301
|
|
$
|
46,855
|
|
$
|
61,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
changes to unrecognized tax benefits (excluding related penalties and interest) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
Unrecognized tax benefits, beginning of year
|
|
$
|
|
|
$
|
|
|
$
|
438
|
|
Gross increases in tax positions in prior periods
|
|
|
|
|
|
|
|
|
|
|
Gross increases during the current period
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
(438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
apply the provisions of ASC 740 related to income tax uncertainties which clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is require to meet
before being recognized in the consolidated financial statements. As of December 31, 2016 we have no material unrecognized tax benefits.
We
file a consolidated U.S. federal income tax return with the IRS as well as income tax returns in various states and Canada. During 2016, the US Ecology, Inc. IRS examination for the
2012 tax year concluded with no material changes. US Ecology, Inc. is subject to examination by the IRS for tax years 2013 through 2016. During 2016, the EQ IRS examination for the 2013 tax
year concluded with no material changes, however, the statute of limitations remains open. EQ is also subject to examination by the IRS for the 2014 tax year. We may be subject to examinations by the
Canada Revenue Agency as well as various state and local taxing jurisdictions for tax years 2012 through 2016. We are currently not aware of any other examinations by taxing authorities.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Litigation and Regulatory Proceedings
In the ordinary course of business, we are involved in judicial and administrative proceedings involving federal, state, provincial or local governmental
authorities, including regulatory agencies that oversee and enforce compliance with permits. Fines or penalties may be assessed by our regulators for non-compliance. Actions may also be brought by
individuals or groups in connection with permitting of planned facilities, modification or alleged violations of existing permits, or alleged damages suffered from exposure to
97
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17. COMMITMENTS AND CONTINGENCIES (Continued)
hazardous
substances purportedly released from our operated 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 and administrative matters, or other fees expected to be incurred in relation to these matters.
We
are not currently a party to any material pending legal proceedings and are not aware of any other claims that could, individually or in the aggregate, have a materially adverse effect on our
financial position, results of operations or cash flows.
Operating Leases
Lease agreements primarily cover railcars, the disposal site at our Stablex facility and corporate office space. Future minimum lease payments on
non-cancellable operating leases as of December 31, 2016 are as follows:
|
|
|
|
|
$s in thousands
|
|
Payments
|
|
2017
|
|
$
|
6,189
|
|
2018
|
|
|
3,897
|
|
2019
|
|
|
2,349
|
|
2020
|
|
|
303
|
|
2021
|
|
|
127
|
|
Thereafter
|
|
|
329
|
|
|
|
|
|
|
|
|
$
|
13,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
expense under operating leases was $7.8 million, $8.2 million and $3.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.
NOTE 18. EQUITY
Stock Repurchase Program
On June 1, 2016, the Company's Board of Directors authorized the repurchase of $25.0 million of the Company's outstanding common stock.
Repurchases may be made from time to time in the open market or through privately negotiated transactions. The timing of any repurchases will be based upon prevailing market conditions and other
factors. The Company did not repurchase any shares of common stock under the repurchase program during 2016. The repurchase program will remain in effect until June 2, 2018, unless extended by
our Board of Directors.
Omnibus Incentive Plan
On May 27, 2015, our stockholders approved the Omnibus Incentive Plan ("Omnibus Plan"), which was approved by our Board of Directors on April 7,
2015. The Omnibus Plan was developed to provide additional incentives through equity ownership in US Ecology and, as a result, encourage employees and directors to contribute to our success. The
Omnibus Plan provides, among other things, the ability for the Company to grant restricted stock, performance stock, options, stock appreciation rights, restricted stock units, performance stock units
("PSUs") and other stock-based awards or cash awards to officers, employees, consultants and non-employee directors. Subsequent to the approval of the Omnibus Plan in
98
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18. EQUITY (Continued)
May
2015, we stopped granting equity awards under our 2008 Stock Option Incentive Plan and our 2006 Restricted Stock Plan ("Previous Plans"), and the Previous Plans will remain in effect solely for
the settlement of awards granted under the Previous Plans. No shares that are reserved but unissued under the Previous Plans or that are outstanding under the Previous Plans and reacquired by the
Company for any reason will be available for issuance under the Omnibus Plan. The Omnibus Plan expires on April 7, 2025 and authorizes 1,500,000 shares of common stock for grant over the life
of the Omnibus Plan. As of December 31, 2016, 1,266,624 shares of common stock remain available for grant under the Omnibus Plan.
Performance Stock Units
On January 4, 2016 and May 27, 2015, the Company granted 16,000 PSUs and 6,929 PSUs, respectively, to certain employees. Each PSU represents the
right to receive, on the settlement date, one share of the Company's common stock. The total number of PSUs each participant is eligible to earn ranges from 0% to 200% of the target number of PSUs
granted. The actual number of PSUs that will vest and be settled in shares is determined at the end of a three-year performance period beginning January 1, 2015 for the May 27, 2015
granted PSUs and January 1, 2016 for the January 4, 2016 granted PSUs, based on total stockholder return relative to a set of peer companies. The fair value of the 2016 and 2015 PSUs
estimated on the grant date using a Monte Carlo simulation were $41.22 and $65.78 per unit, respectively. Compensation expense is recorded over the awards' vesting period.
Assumptions
used in the Monte Carlo simulation to calculate the fair value of the PSUs granted in 2016 and 2015 are as follows:
|
|
|
|
|
|
|
2016
|
|
2015
|
Stock price on grant date
|
|
$35.05
|
|
$46.89
|
Expected term
|
|
3.0 years
|
|
2.6 years
|
Expected volatility
|
|
29%
|
|
29%
|
Risk-free interest rate
|
|
1.3%
|
|
0.9%
|
Expected dividend yield
|
|
2.1%
|
|
1.5%
|
Stock Options
We have stock option awards outstanding under the 1992 Stock Option Plan for Employees ("1992 Employee Plan") and the 2008 Stock Option Incentive Plan ("2008
Stock Option Plan"). Subsequent to the approval of the Omnibus Plan in May 2015, we stopped granting equity awards under the 2008 Stock Option Plan. The 2008 Stock Option Plan will remain in effect
solely for the settlement of awards previously granted. In April 2013, the 1992 Employee Plan expired and was cancelled except for options then outstanding. Stock options expire ten years from the
date of grant
and vest over a period ranging from one to three years from the date of grant. Vesting requirements for non-employee directors are contingent on attending a minimum of 75% of regularly scheduled board
meetings during the year. Upon the exercise of stock options, common stock is issued from treasury stock or, when depleted, from new stock issuances.
99
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18. EQUITY (Continued)
A
summary of our stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$s in thousands, except per share amounts
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Outstanding as of December 31, 2015
|
|
|
336,417
|
|
$
|
35.83
|
|
|
|
|
|
|
|
Granted
|
|
|
147,660
|
|
|
37.83
|
|
|
|
|
|
|
|
Exercised
|
|
|
(13,939
|
)
|
|
23.25
|
|
|
|
|
|
|
|
Cancelled, expired or forfeited
|
|
|
(23,640
|
)
|
|
43.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
446,498
|
|
$
|
36.49
|
|
$
|
5,651
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2016
|
|
|
153,535
|
|
$
|
33.33
|
|
$
|
2,430
|
|
|
6.5
|
|
The
weighted average grant date fair value of all stock options granted during 2016, 2015 and 2014 was $8.19, $11.83 and $9.78 per share, respectively. The total intrinsic value of stock options
exercised during 2016, 2015 and 2014 was $307,000, $2.0 million and $3.5 million, respectively. During 2016, option holders exercised 7,873 options via net share settlement.
The
fair value of each stock option is estimated as of the date of grant using the Black-Scholes option-pricing model. Expected volatility is estimated based on an average of actual historical
volatility and implied volatility corresponding to the stock option's estimated expected term. We believe this approach to determine volatility is representative of future stock volatility. The
expected term of a stock option is estimated based on analysis of stock options already exercised and foreseeable trends or changes in behavior. The risk-free interest rates are based on the U.S.
Treasury securities maturities as of each applicable grant date. The dividend yield is based on analysis of actual historical dividend yield.
The
significant weighted-average assumptions relating to the valuation of each option grant are as follows:
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected life
|
|
3.8 years
|
|
3.6 years
|
|
3.6 years
|
Expected volatility
|
|
31%
|
|
35%
|
|
36%
|
Risk-free interest rate
|
|
1.1%
|
|
1.2%
|
|
0.8%
|
Expected dividend yield
|
|
1.7%
|
|
1.6%
|
|
2.0%
|
Restricted Stock
We have restricted stock awards outstanding under the 2006 Restricted Stock Plan and the Omnibus Plan. Subsequent to the approval of the Omnibus Plan in May
2015, we stopped granting equity awards under the 2006 Restricted Stock Plan. The 2006 Restricted Stock Plan will remain in effect solely for the settlement of awards previously granted. Generally,
restricted stock awards vest annually over a three-year period. Vesting of restricted stock awards to non-employee directors is contingent on the non-employee director attending a minimum of 75% of
regularly scheduled board meetings and 75% of the meetings of each committee of which the non-employee
director is a member during the year. Upon the vesting of restricted stock awards, common stock is issued from treasury stock or, when depleted, from new stock issuances.
100
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18. EQUITY (Continued)
A
summary of our restricted stock plan activity is as follows:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding as of December 31, 2015
|
|
|
59,413
|
|
$
|
42.67
|
|
Granted
|
|
|
55,130
|
|
|
38.35
|
|
Vested
|
|
|
(32,279
|
)
|
|
37.83
|
|
Cancelled, expired or forfeited
|
|
|
(7,133
|
)
|
|
40.33
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
75,131
|
|
$
|
41.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
total fair value of restricted stock vested during 2016, 2015 and 2014 was $1.4 million, $1.4 million and $975,000, respectively.
Treasury Stock
During 2016, the Company issued 10,412 shares of restricted stock, under the Omnibus Plan, from our treasury stock at an average cost of $39.82 per share and
repurchased 6,589 shares of the Company's common stock in connection with the net share settlement of employee equity awards at an average cost of $40.95 per share.
Share-Based Compensation Expense
All share-based compensation is measured at the grant date based on the fair value of the award, and is recognized as an expense in earnings over the
requisite service period. The components of pre-tax share-based compensation expense (primarily included in Selling, general and administrative expenses in our consolidated statements of operations)
and related tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
Share-based compensation from:
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
1,123
|
|
$
|
808
|
|
$
|
442
|
|
Restricted stock
|
|
|
1,488
|
|
|
1,375
|
|
|
808
|
|
Performance stock units
|
|
|
314
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
|
2,925
|
|
|
2,297
|
|
|
1,250
|
|
Income tax benefit
|
|
|
(1,113
|
)
|
|
(1,041
|
)
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation, net of tax
|
|
$
|
1,812
|
|
$
|
1,256
|
|
$
|
783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized Share-Based Compensation Expense
As of December 31, 2016, there was $3.9 million of unrecognized compensation expense related to unvested share-based awards granted under our
share-based award plans. The expense is expected to be recognized over a weighted average remaining vesting period of approximately two years.
101
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19. EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
$s and shares in thousands, except per share amounts
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Net income
|
|
$
|
34,252
|
|
$
|
34,252
|
|
$
|
25,611
|
|
$
|
25,611
|
|
$
|
38,236
|
|
$
|
38,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
21,704
|
|
|
21,704
|
|
|
21,637
|
|
|
21,637
|
|
|
21,537
|
|
|
21,537
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
85
|
|
|
|
|
|
96
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
|
|
|
21,789
|
|
|
|
|
|
21,733
|
|
|
|
|
|
21,655
|
|
Earnings per share
|
|
$
|
1.58
|
|
$
|
1.57
|
|
$
|
1.18
|
|
$
|
1.18
|
|
$
|
1.78
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from calculation
|
|
|
|
|
|
249
|
|
|
|
|
|
192
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 20. SEGMENT REPORTING
Financial Information by Segment
Our operations are managed in two reportable segments reflecting our internal reporting structure and nature of services offered as follows:
Environmental Services
This segment provides a broad range of hazardous material management services including transportation, recycling,
treatment and disposal of hazardous and non-hazardous waste at Company-owned landfill, wastewater and other treatment facilities.
Field & Industrial Services
This segment provides packaging and collection of hazardous waste and total waste management solutions at
customer sites and through our 10-day transfer facilities. Services include on-site management, waste characterization, transportation and disposal of non-hazardous and hazardous waste. This segment
also provides specialty services such as high-pressure cleaning, tank cleaning, decontamination, remediation, transportation, spill cleanup and emergency response and other services to commercial and
industrial facilities and to government entities.
The
operations not managed through our two reportable segments are recorded as "Corporate." Corporate selling, general and administrative expenses include typical corporate items such as legal,
accounting and other items of a general corporate nature. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have
been eliminated from the segment information and are not significant between segments.
Effective
January 1, 2016, we changed our internal reporting structure by moving the financial results of our Sulligent, Alabama and Tampa, Florida facilities from our Environmental Services
segment to our Field & Industrial Services segment. The purpose of this change is to align our internal reporting structure with how we manage our business based on the primary service offering
of each facility. Throughout this Annual Report on Form 10-K, our segment results for all periods presented have been recast to reflect this change.
102
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 20. SEGMENT REPORTING (Continued)
Summarized
financial information of our reportable segments for the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$s in thousands
|
|
Environmental
Services
|
|
Field &
Industrial
Services
|
|
Corporate
|
|
Total
|
|
Treatment & Disposal Revenue
|
|
$
|
275,236
|
|
$
|
12,582
|
|
$
|
|
|
$
|
287,818
|
|
Services Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and Logistics(1)
|
|
|
62,535
|
|
|
17,839
|
|
|
|
|
|
80,374
|
|
Industrial Cleaning(2)
|
|
|
|
|
|
21,021
|
|
|
|
|
|
21,021
|
|
Technical Services(3)
|
|
|
|
|
|
74,191
|
|
|
|
|
|
74,191
|
|
Remediation(4)
|
|
|
|
|
|
11,600
|
|
|
|
|
|
11,600
|
|
Other(5)
|
|
|
|
|
|
2,661
|
|
|
|
|
|
2,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
337,771
|
|
$
|
139,894
|
|
$
|
|
|
$
|
477,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
$
|
33,839
|
|
$
|
5,481
|
|
$
|
512
|
|
$
|
39,832
|
|
Capital expenditures
|
|
$
|
30,098
|
|
$
|
2,572
|
|
$
|
3,026
|
|
$
|
35,696
|
|
Total assets
|
|
$
|
599,300
|
|
$
|
119,198
|
|
$
|
57,902
|
|
$
|
776,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
$s in thousands
|
|
Environmental
Services
|
|
Field &
Industrial
Services(6)
|
|
Corporate
|
|
Total
|
|
Treatment & Disposal Revenue
|
|
$
|
291,062
|
|
$
|
12,911
|
|
$
|
|
|
$
|
303,973
|
|
Services Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and Logistics(1)
|
|
|
67,978
|
|
|
29,060
|
|
|
|
|
|
97,038
|
|
Industrial Cleaning(2)
|
|
|
|
|
|
85,783
|
|
|
|
|
|
85,783
|
|
Technical Services(3)
|
|
|
|
|
|
67,479
|
|
|
|
|
|
67,479
|
|
Remediation(4)
|
|
|
|
|
|
6,734
|
|
|
|
|
|
6,734
|
|
Other(5)
|
|
|
|
|
|
2,063
|
|
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
359,040
|
|
$
|
204,030
|
|
$
|
|
|
$
|
563,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
$
|
34,870
|
|
$
|
9,425
|
|
$
|
527
|
|
$
|
44,822
|
|
Capital expenditures
|
|
$
|
29,823
|
|
$
|
7,513
|
|
$
|
2,034
|
|
$
|
39,370
|
|
Total assets
|
|
$
|
586,561
|
|
$
|
124,127
|
|
$
|
61,299
|
|
$
|
771,987
|
|
103
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 20. SEGMENT REPORTING (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
$s in thousands
|
|
Environmental
Services
|
|
Field &
Industrial
Services(6)
|
|
Corporate
|
|
Total
|
|
Treatment & Disposal Revenue
|
|
$
|
252,471
|
|
$
|
6,859
|
|
$
|
|
|
$
|
259,330
|
|
Services Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and Logistics(1)
|
|
|
59,015
|
|
|
24,585
|
|
|
|
|
|
83,600
|
|
Industrial Cleaning(2)
|
|
|
|
|
|
49,823
|
|
|
|
|
|
49,823
|
|
Technical Services(3)
|
|
|
|
|
|
37,415
|
|
|
|
|
|
37,415
|
|
Remediation(4)
|
|
|
|
|
|
16,410
|
|
|
|
|
|
16,410
|
|
Other(5)
|
|
|
|
|
|
833
|
|
|
|
|
|
833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
311,486
|
|
$
|
135,925
|
|
$
|
|
|
$
|
447,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
$
|
28,130
|
|
$
|
6,843
|
|
$
|
303
|
|
$
|
35,276
|
|
Capital expenditures
|
|
$
|
19,656
|
|
$
|
7,870
|
|
$
|
908
|
|
$
|
28,434
|
|
Total assets
|
|
$
|
618,524
|
|
$
|
219,815
|
|
$
|
71,708
|
|
$
|
910,047
|
|
-
(1)
-
Includes
such services as collection, transportation and disposal of non-hazardous and hazardous waste. Prior to the acquisition of EQ on June 17, 2014,
services within Environmental Services included transportation services.
-
(2)
-
Includes
such services as industrial cleaning and maintenance for refineries, chemical plants, steel and automotive plants, and refinery services such as tank
cleaning and temporary storage.
-
(3)
-
Includes
such services as Total Waste Management ("TWM") programs, retail services, laboratory packing, less-than-truck-load ("LTL") service and
Household Hazardous Waste ("HHW") collection.
-
(4)
-
Includes
such services as site assessment, onsite treatment, project management and remedial action planning and execution.
-
(5)
-
Includes
such services as emergency response and marine.
-
(6)
-
Financial
data includes the operations of our Allstate business. We completed the divestiture of Allstate on November 1, 2015.
The
primary financial measure used by management to assess segment performance is Adjusted EBITDA. Adjusted EBITDA is defined as net income before interest expense, interest income, income tax
expense, depreciation, amortization, stock based compensation, accretion of closure and post-closure liabilities, foreign currency gain/loss, non-cash impairment charges, loss on divestiture and other
income/expense. 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 or as an alternative to, or substitute for, net income, cash
flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or
liquidity. Adjusted EBITDA has limitations
104
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 20. SEGMENT REPORTING (Continued)
as
an analytical tool and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP. Some of the limitations
are:
-
-
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
-
-
Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt;
-
-
Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes;
-
-
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; and
-
-
Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced
in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
A
reconciliation of Net Income to Adjusted EBITDA for the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
Net income
|
|
$
|
34,252
|
|
$
|
25,611
|
|
$
|
38,236
|
|
Income tax expense
|
|
|
21,049
|
|
|
21,244
|
|
|
22,814
|
|
Interest expense
|
|
|
17,317
|
|
|
23,370
|
|
|
10,677
|
|
Interest income
|
|
|
(96
|
)
|
|
(65
|
)
|
|
(107
|
)
|
Foreign currency loss
|
|
|
138
|
|
|
2,196
|
|
|
1,499
|
|
Loss (gain) on divestiture
|
|
|
(2,034
|
)
|
|
542
|
|
|
|
|
Other income
|
|
|
(597
|
)
|
|
(1,267
|
)
|
|
(669
|
)
|
Impairment charges
|
|
|
|
|
|
6,700
|
|
|
|
|
Depreciation and amortization of plant and equipment
|
|
|
25,304
|
|
|
27,931
|
|
|
24,413
|
|
Amortization of intangibles
|
|
|
10,575
|
|
|
12,307
|
|
|
8,207
|
|
Stock-based compensation
|
|
|
2,925
|
|
|
2,297
|
|
|
1,250
|
|
Accretion and non-cash adjustment of closure & post-closure liabilities
|
|
|
3,953
|
|
|
4,584
|
|
|
2,656
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
$
|
112,786
|
|
$
|
125,450
|
|
$
|
108,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA, by operating segment, for the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Environmental Services
|
|
$
|
139,698
|
|
$
|
150,067
|
|
$
|
123,086
|
|
Field & Industrial Services
|
|
|
16,342
|
|
|
21,388
|
|
|
8,638
|
|
Corporate
|
|
|
(43,254
|
)
|
|
(46,005
|
)
|
|
(22,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,786
|
|
$
|
125,450
|
|
$
|
108,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 20. SEGMENT REPORTING (Continued)
Revenue and Long-Lived Assets Outside of the United States
We provide services in the United States and Canada. Revenues by geographic location where the underlying services were performed for the years ended
December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
$
|
428,778
|
|
$
|
521,092
|
|
$
|
388,084
|
|
Canada
|
|
|
48,887
|
|
|
41,978
|
|
|
59,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
477,665
|
|
$
|
563,070
|
|
$
|
447,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets, comprised of property and equipment and intangible assets net of accumulated depreciation and amortization, by geographic location as of December 31, 2016 and 2015 are as
follows:
|
|
|
|
|
|
|
|
$s in thousands
|
|
2016
|
|
2015
|
|
United States
|
|
$
|
405,767
|
|
$
|
400,320
|
|
Canada
|
|
|
54,826
|
|
|
49,585
|
|
|
|
|
|
|
|
|
|
|
|
$
|
460,593
|
|
$
|
449,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 21. QUARTERLY FINANCIAL DATA (unaudited)
The unaudited consolidated quarterly results of operations for 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended
|
|
|
|
$s and shares in thousands, except per share amounts
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Year
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
113,318
|
|
$
|
122,351
|
|
$
|
124,824
|
|
$
|
117,172
|
|
$
|
477,665
|
|
Gross profit
|
|
|
35,208
|
|
|
36,906
|
|
|
39,354
|
|
|
36,127
|
|
|
147,595
|
|
Operating income
|
|
|
15,783
|
|
|
17,087
|
|
|
20,915
|
|
|
16,244
|
|
|
70,029
|
|
Net income
|
|
|
7,517
|
|
|
8,938
|
|
|
10,114
|
|
|
7,683
|
|
|
34,252
|
|
Earnings per sharediluted(1)
|
|
$
|
0.35
|
|
$
|
0.41
|
|
$
|
0.46
|
|
$
|
0.35
|
|
$
|
1.57
|
|
Weighted average common shares outstanding used in the diluted earnings per share calculation
|
|
|
21,745
|
|
|
21,790
|
|
|
21,804
|
|
|
21,814
|
|
|
21,789
|
|
Dividends paid per share
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.72
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
136,651
|
|
$
|
139,732
|
|
$
|
148,414
|
|
$
|
138,273
|
|
$
|
563,070
|
|
Gross profit
|
|
|
39,844
|
|
|
41,470
|
|
|
45,940
|
|
|
44,156
|
|
|
171,410
|
|
Operating income
|
|
|
14,951
|
|
|
12,095
|
|
|
22,433
|
|
|
22,152
|
|
|
71,631
|
|
Net income
|
|
|
5,865
|
|
|
2,138
|
|
|
9,904
|
|
|
7,704
|
|
|
25,611
|
|
Earnings per sharediluted(1)
|
|
$
|
0.27
|
|
$
|
0.10
|
|
$
|
0.46
|
|
$
|
0.35
|
|
$
|
1.18
|
|
Weighted average common shares outstanding used in the diluted earnings per share calculation
|
|
|
21,689
|
|
|
21,748
|
|
|
21,749
|
|
|
21,748
|
|
|
21,733
|
|
Dividends paid per share
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.72
|
|
-
(1)
-
Diluted
earnings per common share for each quarter presented above are based on the respective weighted average number of common shares for the respective quarter.
The dilutive potential common shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year diluted earnings per common share amount.
106
Table of Contents
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 22. SUBSEQUENT EVENT
On January 3, 2017 the Company declared a dividend of $0.18 per common share for stockholders of record on January 20, 2017. The dividend was paid from cash on hand on January 27,
2017 in an aggregate amount of $3.9 million.
107
Table of Contents