Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2007
Commission File Number: 0-11688
AMERICAN ECOLOGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
| |
|
|
| Delaware
|
|
95-3889638 |
|
|
|
|
| (State of Incorporation)
|
|
(I.R.S. Employer Identification Number) |
| |
|
|
Lakepointe Centre I,
300 E. Mallard, Suite 300 |
|
|
| Boise, Idaho
|
|
83706 |
|
|
|
|
| (Address of Principal Executive Offices)
|
|
(Zip Code) |
(208) 331-8400
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the
preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of October
25, 2007 was 18,231,140.
AMERICAN ECOLOGY CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
|
|
| |
|
2007 |
|
|
December 31, |
|
| |
|
(unaudited) |
|
|
2006 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
9,095 |
|
|
$ |
3,775 |
|
Short-term investments |
|
|
2,190 |
|
|
|
6,120 |
|
Receivables, net |
|
|
28,600 |
|
|
|
27,692 |
|
Prepaid expenses and other current assets |
|
|
4,287 |
|
|
|
2,639 |
|
Income tax receivable |
|
|
— |
|
|
|
650 |
|
Deferred income taxes |
|
|
1,139 |
|
|
|
2,166 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
45,311 |
|
|
|
43,042 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
61,877 |
|
|
|
55,460 |
|
Restricted cash |
|
|
4,841 |
|
|
|
4,691 |
|
Deferred income taxes |
|
|
460 |
|
|
|
848 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
112,489 |
|
|
$ |
104,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,252 |
|
|
$ |
6,866 |
|
Deferred revenue |
|
|
4,324 |
|
|
|
3,612 |
|
Accrued liabilities |
|
|
7,670 |
|
|
|
3,544 |
|
Accrued salaries and benefits |
|
|
2,045 |
|
|
|
1,943 |
|
Customer advances |
|
|
338 |
|
|
|
1,866 |
|
Income tax payable |
|
|
1 |
|
|
|
— |
|
Current portion of closure and post-closure obligations |
|
|
2,017 |
|
|
|
656 |
|
Current portion of long-term debt |
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
20,653 |
|
|
|
18,493 |
|
|
|
|
|
|
|
|
|
|
Long-term closure and post-closure obligations |
|
|
11,176 |
|
|
|
12,160 |
|
Long-term debt |
|
|
19 |
|
|
|
24 |
|
Other long-term liabilities |
|
|
— |
|
|
|
9 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
31,848 |
|
|
|
30,686 |
|
|
|
|
|
|
|
|
|
|
Contingencies and commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock $0.01 par value, 50,000 authorized; 18,231 and
18,174 shares issued and outstanding, respectively |
|
|
182 |
|
|
|
182 |
|
Additional paid-in capital |
|
|
58,483 |
|
|
|
57,532 |
|
Retained earnings |
|
|
21,976 |
|
|
|
15,641 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
80,641 |
|
|
|
73,355 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
112,489 |
|
|
$ |
104,041 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
1
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
39,427 |
|
|
$ |
27,464 |
|
|
$ |
119,658 |
|
|
$ |
78,910 |
|
Transportation costs |
|
|
18,935 |
|
|
|
12,683 |
|
|
|
55,866 |
|
|
|
29,199 |
|
Other direct operating costs |
|
|
10,224 |
|
|
|
7,874 |
|
|
|
30,357 |
|
|
|
22,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
10,268 |
|
|
|
6,907 |
|
|
|
33,435 |
|
|
|
27,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
3,636 |
|
|
|
2,902 |
|
|
|
10,709 |
|
|
|
9,446 |
|
Business interruption insurance claim |
|
|
— |
|
|
|
(704 |
) |
|
|
— |
|
|
|
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
6,632 |
|
|
|
4,709 |
|
|
|
22,726 |
|
|
|
18,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
189 |
|
|
|
215 |
|
|
|
550 |
|
|
|
608 |
|
Interest expense |
|
|
— |
|
|
|
(6 |
) |
|
|
(2 |
) |
|
|
(8 |
) |
Other |
|
|
10 |
|
|
|
— |
|
|
|
62 |
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
|
199 |
|
|
|
209 |
|
|
|
610 |
|
|
|
1,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6,831 |
|
|
|
4,918 |
|
|
|
23,336 |
|
|
|
19,458 |
|
Income tax |
|
|
2,313 |
|
|
|
1,925 |
|
|
|
8,799 |
|
|
|
7,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,518 |
|
|
$ |
2,993 |
|
|
$ |
14,537 |
|
|
$ |
12,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.25 |
|
|
$ |
0.17 |
|
|
$ |
0.80 |
|
|
$ |
0.67 |
|
Dilutive |
|
$ |
0.25 |
|
|
$ |
0.16 |
|
|
$ |
0.80 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in earnings per share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
18,220 |
|
|
|
18,129 |
|
|
|
18,215 |
|
|
|
18,046 |
|
Dilutive |
|
|
18,257 |
|
|
|
18,237 |
|
|
|
18,255 |
|
|
|
18,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share |
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
2
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2007 |
|
|
2006 |
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,537 |
|
|
$ |
12,099 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion |
|
|
7,039 |
|
|
|
5,796 |
|
Deferred income taxes |
|
|
1,415 |
|
|
|
5,579 |
|
Stock-based compensation expense |
|
|
420 |
|
|
|
243 |
|
Accretion of interest income |
|
|
(140 |
) |
|
|
(299 |
) |
Net gain on sale of property and equipment |
|
|
(58 |
) |
|
|
(166 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(908 |
) |
|
|
(5,204 |
) |
Income tax receivable |
|
|
650 |
|
|
|
808 |
|
Insurance receivable |
|
|
— |
|
|
|
157 |
|
Other assets |
|
|
(1,648 |
) |
|
|
133 |
|
Accounts payable and accrued liabilities |
|
|
542 |
|
|
|
(2,120 |
) |
Deferred revenue |
|
|
712 |
|
|
|
1,804 |
|
Accrued salaries and benefits |
|
|
102 |
|
|
|
(1,023 |
) |
Income tax payable |
|
|
1 |
|
|
|
— |
|
Closure and post-closure obligations |
|
|
(416 |
) |
|
|
(947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
22,248 |
|
|
|
16,860 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
(22,700 |
) |
|
|
(24,393 |
) |
Purchases of property and equipment |
|
|
(13,264 |
) |
|
|
(15,731 |
) |
Restricted cash |
|
|
(150 |
) |
|
|
(4,617 |
) |
Maturities of short-term investments |
|
|
26,770 |
|
|
|
38,909 |
|
Proceeds from sale of property and equipment |
|
|
92 |
|
|
|
174 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,252 |
) |
|
|
(5,658 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(8,202 |
) |
|
|
(8,096 |
) |
Proceeds from stock option exercises |
|
|
328 |
|
|
|
1,778 |
|
Tax benefit of common stock options |
|
|
203 |
|
|
|
551 |
|
Other |
|
|
(5 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(7,676 |
) |
|
|
(5,768 |
) |
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
5,320 |
|
|
|
5,434 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
3,775 |
|
|
|
3,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
9,095 |
|
|
$ |
9,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
6,523 |
|
|
$ |
404 |
|
Interest paid |
|
|
2 |
|
|
|
8 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Capital expenditures in accounts payable |
|
|
342 |
|
|
|
2,613 |
|
Acquisition of equipment with capital leases |
|
|
— |
|
|
|
34 |
|
See Notes to Consolidated Financial Statements.
3
AMERICAN ECOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 — GENERAL
Basis of Presentation
The accompanying unaudited consolidated financial statements include the results of operations,
financial position and cash flows of American Ecology Corporation and its wholly-owned subsidiaries
(collectively, “AEC” or “the Company”). All material intercompany balances have been eliminated.
In the opinion of management, the accompanying unaudited consolidated financial statements include
all adjustments necessary to present fairly, in all material respects, the results of the Company
for the periods presented. These consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States have been omitted
pursuant to the rules and regulations of the SEC. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and accompanying notes included in
the Company’s 2006 Annual Report on Form 10-K filed with the SEC on March 9, 2007. The results of
operations for the three and nine months ended September 30, 2007 are not necessarily indicative of
results to be expected for the entire fiscal year.
The Company’s Consolidated Balance Sheet as of December 31, 2006 has been derived from the
Company’s audited Consolidated Balance Sheet as of that date.
Use of Estimates
The preparation of the Company’s consolidated financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make estimates and
assumptions. Some of these estimates require difficult, subjective or complex judgments about
matters that are inherently uncertain. As a result, actual results could differ from these
estimates. These estimates and assumptions affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period.
NOTE 2 — EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
EITF 06-3. In June 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). EITF 06-3 provides guidance on
the presentation in the income statement of any tax assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a seller and a customer. EITF 06-3
requires that taxes be presented in the income statement either on a gross basis (included in
revenue and costs) or a net basis (excluded from revenue), and that this accounting policy decision
be disclosed. The Company’s accounting policy is to present the taxes within the scope of EITF 06-3
on a net basis. The adoption of EITF 06-3 in the first quarter of 2007 did not result in a change
to the Company’s accounting policy and, accordingly, did not have a material effect on the
Company’s consolidated financial statements.
FIN 48. In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No.
48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (“FIN
48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial
statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 provides
guidance on the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures, and transition. We adopted FIN
48 effective on January 1, 2007 and this adoption did not impact our consolidated financial
statements. See Note 9 — Income Taxes.
4
SFAS 157. In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS’)
No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework
for measuring fair value under generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 applies under other existing accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. While SFAS 157 does not
require any new fair value measurements, its application may change the current practice for fair
value measurements. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. We are currently
evaluating the impact of this statement on our consolidated financial statements.
FSP EITF 00-19-2. In December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting
for Registration Payment Arrangements (“FSP EITF 00-19-2”). FSP EITF 00-19-2 specifies that the
contingent obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or included as a provision
of a financial instrument or other agreement, should be separately recognized and measured in
accordance with FASB Statement No. 5, Accounting for Contingencies. A registration payment
arrangement is defined in FSP EITF 00-19-2 as an arrangement with both of the following
characteristics: (1) the arrangement specifies that the issuer will endeavor (a) to file a
registration statement for the resale of specified financial instruments and/or for the resale of
equity shares that are issuable upon exercise or conversion of specified financial instruments and
for that registration statement to be declared effective by the SEC within a specified grace
period, and/or (b) to maintain the effectiveness of the registration statement for a specified
period of time (or in perpetuity); and (2) the arrangement requires the issuer to transfer
consideration to the counterparty if the registration statement for the resale of the financial
instrument or instruments subject to the arrangement is not declared effective or if effectiveness
of the registration statement is not maintained. FSP EITF 00-19-2 is effective for registration
payment arrangements and the financial instruments subject to those arrangements that are entered
into or modified subsequent to December 21, 2006. We do not have any registration payment
arrangements as defined by FSP EITF 00-19-2 and as a result the adoption of this standard did not
have any impact on our consolidated financial statements.
SFAS 159. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”) which permits entities to measure many financial
instruments and certain other items at fair value that are not currently required to be measured at
fair value. SFAS 159 will be effective for us on January 1, 2008. We are currently evaluating the
impact of adopting SFAS 159 on our consolidated financial statements.
NOTE 3 — CONCENTRATION AND CREDIT RISK
Major Customers. The following customers represented 10% or more of our revenue during the
three and nine months ended September 30, 2007 and 2006.
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| Customer |
|
September 30, 2007 |
|
|
September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
Honeywell International, Inc. |
|
|
45 |
% |
|
|
52 |
% |
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
Nine Months Ended |
|
| Customer |
|
September 30, 2007 |
|
|
September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
Honeywell International, Inc. |
|
|
40 |
% |
|
|
34 |
% |
U.S. Army Corps of Engineers |
|
|
7 |
% |
|
|
11 |
% |
5
Receivable balances from customers that exceed 10% of our total trade receivables as of September
30, 2007 were as follows:
| |
|
|
|
|
| |
|
% of Trade |
|
| |
|
Accounts Receivable |
|
| Customer |
|
as of September 30, 2007 |
|
|
|
|
|
|
Honeywell International, Inc. |
|
|
48 |
% |
Credit Risk Concentration. We maintain most of our cash and short-term investments with
Wells Fargo Bank. Substantially all balances are uninsured and are not used as collateral for other
obligations. Short-term investments are quasi-governmental debt obligations, such as the Federal
Home Loan Bank or high-grade commercial paper, and currently have a maximum maturity of
approximately 60 days.
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, except for
receivables from Honeywell International, Inc. (“Honeywell”) for which potentially significant
credit risk exists. This risk is partially mitigated by Honeywell’s obligation under a federal
court order to complete the work we are performing for them within specified timeframes. Typically,
we do not require customers to provide collateral to secure their obligations to us.
NOTE 4 — SHORT-TERM INVESTMENTS
Short-term investments, which are accounted for as available-for-sale, were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| (in thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities |
|
|
|
|
|
|
|
|
Commercial paper |
|
$ |
993 |
|
|
$ |
4,122 |
|
Federal Home Loan |
|
|
1,197 |
|
|
|
1,998 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,190 |
|
|
$ |
6,120 |
|
|
|
|
|
|
|
|
NOTE 5 — RECEIVABLES
Receivables were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| (in thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Trade |
|
$ |
27,120 |
|
|
$ |
27,536 |
|
Unbilled revenue |
|
|
1,138 |
|
|
|
237 |
|
Other |
|
|
446 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
28,704 |
|
|
|
27,802 |
|
Allowance for doubtful accounts |
|
|
(104 |
) |
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
$ |
28,600 |
|
|
$ |
27,692 |
|
|
|
|
|
|
|
|
NOTE 6 — PROPERTY AND EQUIPMENT
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| (in thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Cell development costs |
|
$ |
28,366 |
|
|
$ |
28,366 |
|
Land and improvements |
|
|
8,880 |
|
|
|
8,816 |
|
Buildings and improvements |
|
|
26,142 |
|
|
|
18,264 |
|
Railcars |
|
|
17,375 |
|
|
|
17,375 |
|
Vehicles and other equipment |
|
|
19,952 |
|
|
|
17,479 |
|
Construction in progress |
|
|
7,477 |
|
|
|
5,590 |
|
|
|
|
|
|
|
|
|
|
|
108,192 |
|
|
|
95,890 |
|
Accumulated depreciation and amortization |
|
|
(46,315 |
) |
|
|
(40,430 |
) |
|
|
|
|
|
|
|
|
|
$ |
61,877 |
|
|
$ |
55,460 |
|
|
|
|
|
|
|
|
6
Depreciation expense for the three months ended September 30, 2007 and 2006 was $2.1 million and
$1.7 million, respectively. Depreciation expense for the nine months ended September 30, 2007 and
2006 was $6.2 million and $5.0 million, respectively.
NOTE 7 — LINE OF CREDIT
We have a $15.0 million unsecured line-of-credit agreement with Wells Fargo Bank maturing in June
2008. This line of credit requires monthly interest payments on any outstanding balance based on a
pricing grid under which the interest rate resets based on our ratio of funded debt to earnings
before interest, taxes, depreciation and amortization. We can elect to borrow amounts utilizing the
Prime Rate or the offshore London Inter-Bank Offering Rate (“LIBOR”) plus an applicable margin. The
credit agreement contains quarterly financial covenants including a maximum leverage ratio, a
minimum current ratio, a maximum funded debt ratio and a minimum fixed charge coverage ratio. At
September 30, 2007, we were in compliance with all of the financial covenants in the credit
agreement. At September 30, 2007 and December 31, 2006, we had no borrowings outstanding under the
line of credit. At September 30, 2007, we had $11.0 million available for future borrowings and
$4.0 million issued as a standby letter of credit which is used as collateral for our financial
assurance policies for closure and post-closure obligations.
NOTE 8 — CLOSURE AND POST-CLOSURE OBLIGATIONS
Closure and post-closure obligations are recorded when environmental assessments and/or remedial
efforts are probable and the costs can be reasonably estimated consistent with SFAS No. 5,
Accounting for Contingencies, with the liability calculated in accordance with SFAS No. 143,
Accounting for Asset Retirement Obligations. We perform periodic reviews of both non-operating and
operating facilities and revise accruals for estimated post-closure, remediation and other costs
when necessary. Our recorded liabilities are based on best estimates of future costs and are
updated periodically to reflect existing environmental conditions, current technology, laws and
regulations, permit conditions, inflation and other factors.
Changes to reported closure and post-closure obligations were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| (in thousands) |
|
September 30, 2007 |
|
|
September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
Beginning obligation |
|
$ |
13,071 |
|
|
$ |
12,816 |
|
Accretion expense |
|
|
264 |
|
|
|
793 |
|
Payments |
|
|
(184 |
) |
|
|
(517 |
) |
Adjustments |
|
|
42 |
|
|
|
101 |
|
|
|
|
|
|
|
|
Ending obligation |
|
$ |
13,193 |
|
|
$ |
13,193 |
|
Less current portion |
|
|
(2,017 |
) |
|
|
(2,017 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
$ |
11,176 |
|
|
$ |
11,176 |
|
|
|
|
|
|
|
|
NOTE 9 — INCOME TAXES
On January 1, 2007, we adopted the provisions of FIN 48. This adoption did not have an impact on
our consolidated financial statements. As of January 1, 2007 and at September 30, 2007, we had no
unrecognized tax benefits. We recognize interest assessed by taxing authorities as a component of
interest expense. We recognize any penalties assessed by taxing authorities as a component of
selling, general and administrative expenses. Interest and penalties for the three and nine months
ended September 30, 2007 and 2006 were not material.
Our effective income tax rate for three and nine months ended September 30, 2007 was 33.9% and
37.7%, respectively compared to 39.1% and 37.8% for the three and nine months ended September 30,
2006, respectively. The decrease in the effective tax rate for the three and nine months ended
September 30, 2007 is due primarily to the realization of higher state investment tax credits on
our filed tax returns in the amount of $325,000. A reduction in our estimated annual effective tax
rate from 39.3% to 39.1% also contributed to the decrease. These reductions were partially offset
by a 1% increase in our federal statutory rate in 2007 from 34% to 35% on higher earnings as well
as increases in non-tax-deductible expenses on incentive stock options. During the first quarter of
2007, we utilized the remaining $2.4 million of federal net operating loss carry forwards (“NOLs”)
that were available at December 31, 2006, and began paying our tax obligations from operating cash
flows during the second quarter of 2007.
7
We currently have tax years 2003 through 2006 subject to review or audit by taxing authorities
in certain jurisdictions where we conduct business.
NOTE 10 — COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we are involved in judicial and administrative proceedings
involving federal, state or local governmental authorities. Actions may also be brought by
individuals or groups regarding permitting of facilities, alleged permit violations, or alleged
damages from exposure to hazardous substances purportedly released from our operating or closed
facilities, as well as other litigation. We maintain insurance coverages for property and damage
claims which may be asserted. Periodically, management reviews and may establish reserves for
administrative and legal matters, or fees expected to be incurred on such matters. As of September
30, 2007, we did not have any significant pending or threatened legal action that management
believes would have a material adverse effect on our financial position, results of operations or
cash flows.
NOTE 11 — COMPUTATION OF EARNINGS PER SHARE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
| |
|
2007 |
|
|
2006 |
|
| (in thousands, except per share data) |
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,518 |
|
|
$ |
4,518 |
|
|
$ |
2,993 |
|
|
$ |
2,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding |
|
|
18,220 |
|
|
|
18,220 |
|
|
|
18,129 |
|
|
|
18,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and
restricted stock |
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding |
|
|
|
|
|
|
18,257 |
|
|
|
|
|
|
|
18,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
$ |
0.17 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares
excluded from calculation |
|
|
|
|
|
|
155 |
|
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2007 |
|
|
2006 |
|
| (in thousands, except per share data) |
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,537 |
|
|
$ |
14,537 |
|
|
$ |
12,099 |
|
|
$ |
12,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding |
|
|
18,215 |
|
|
|
18,215 |
|
|
|
18,046 |
|
|
|
18,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and
restricted stock |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding |
|
|
|
|
|
|
18,255 |
|
|
|
|
|
|
|
18,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.80 |
|
|
$ |
0.80 |
|
|
$ |
0.67 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares
excluded from calculation |
|
|
|
|
|
|
157 |
|
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTE 12 — OPERATING SEGMENTS
We operate within two segments, Operating Disposal Facilities and Non-Operating Disposal
Facilities. The Operating Disposal Facilities segment represents facilities currently accepting
waste. The Non-Operating Disposal Facilities segment represents facilities that are no longer
accepting waste or formerly proposed new disposal facilities.
Income taxes are assigned to Corporate, but all other items are included in the segment where they
originated. Intercompany transactions have been eliminated from the segment information and are not
significant between segments.
Summarized financial information concerning our reportable segments is shown in the following
tables:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Operating |
|
|
Operating |
|
|
|
|
|
|
|
| |
|
Disposal |
|
|
Disposal |
|
|
|
|
|
|
|
| (in thousands) |
|
Facilities |
|
|
Facilities |
|
|
Corporate |
|
|
Total |
|
Three months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
39,420 |
|
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
39,427 |
|
Transportation costs |
|
|
18,935 |
|
|
|
— |
|
|
|
— |
|
|
|
18,935 |
|
Other direct operating costs |
|
|
10,101 |
|
|
|
123 |
|
|
|
— |
|
|
|
10,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
10,384 |
|
|
|
(116 |
) |
|
|
— |
|
|
|
10,268 |
|
Selling, general
& administration |
|
|
1,288 |
|
|
|
— |
|
|
|
2,348 |
|
|
|
3,636 |
|
Business interruption claim |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
9,096 |
|
|
|
(116 |
) |
|
|
(2,348 |
) |
|
|
6,632 |
|
Interest income, net |
|
|
5 |
|
|
|
— |
|
|
|
184 |
|
|
|
189 |
|
Other income |
|
|
10 |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax |
|
|
9,111 |
|
|
|
(116 |
) |
|
|
(2,164 |
) |
|
|
6,831 |
|
Tax expense |
|
|
— |
|
|
|
— |
|
|
|
2,313 |
|
|
|
2,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,111 |
|
|
$ |
(116 |
) |
|
$ |
(4,477 |
) |
|
$ |
4,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization & accretion |
|
$ |
2,271 |
|
|
$ |
77 |
|
|
$ |
10 |
|
|
$ |
2,358 |
|
Capital expenditures |
|
$ |
4,689 |
|
|
$ |
— |
|
|
$ |
24 |
|
|
$ |
4,713 |
|
Total assets |
|
$ |
91,020 |
|
|
$ |
60 |
|
|
$ |
21,409 |
|
|
$ |
112,489 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Operating |
|
|
Operating |
|
|
|
|
|
|
|
| |
|
Disposal |
|
|
Disposal |
|
|
|
|
|
|
|
| (in thousands) |
|
Facilities |
|
|
Facilities |
|
|
Corporate |
|
|
Total |
|
Three months ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
27,458 |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
27,464 |
|
Transportation costs |
|
|
12,683 |
|
|
|
— |
|
|
|
— |
|
|
|
12,683 |
|
Other direct operating costs |
|
|
7,781 |
|
|
|
93 |
|
|
|
— |
|
|
|
7,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
6,994 |
|
|
|
(87 |
) |
|
|
— |
|
|
|
6,907 |
|
Selling, general
& administration |
|
|
1,353 |
|
|
|
— |
|
|
|
1,549 |
|
|
|
2,902 |
|
Business interruption claim |
|
|
(704 |
) |
|
|
— |
|
|
|
— |
|
|
|
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
6,345 |
|
|
|
(87 |
) |
|
|
(1,549 |
) |
|
|
4,709 |
|
Interest income, net |
|
|
7 |
|
|
|
— |
|
|
|
202 |
|
|
|
209 |
|
Other income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax |
|
|
6,352 |
|
|
|
(87 |
) |
|
|
(1,347 |
) |
|
|
4,918 |
|
Tax expense |
|
|
— |
|
|
|
— |
|
|
|
1,925 |
|
|
|
1,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,352 |
|
|
$ |
(87 |
) |
|
$ |
(3,272 |
) |
|
$ |
2,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization & accretion |
|
$ |
1,852 |
|
|
$ |
89 |
|
|
$ |
8 |
|
|
$ |
1,949 |
|
Capital expenditures |
|
$ |
4,623 |
|
|
$ |
6 |
|
|
$ |
22 |
|
|
$ |
4,651 |
|
Total assets |
|
$ |
74,833 |
|
|
$ |
86 |
|
|
$ |
22,219 |
|
|
$ |
97,138 |
|
9
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Operating |
|
|
Operating |
|
|
|
|
|
|
|
| |
|
Disposal |
|
|
Disposal |
|
|
|
|
|
|
|
| (in thousands) |
|
Facilities |
|
|
Facilities |
|
|
Corporate |
|
|
Total |
|
Nine Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
119,641 |
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
119,658 |
|
Transportation costs |
|
|
55,866 |
|
|
|
— |
|
|
|
— |
|
|
|
55,866 |
|
Other direct operating costs |
|
|
30,017 |
|
|
|
340 |
|
|
|
— |
|
|
|
30,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
33,758 |
|
|
|
(323 |
) |
|
|
— |
|
|
|
33,435 |
|
Selling, general
& administration |
|
|
3,875 |
|
|
|
— |
|
|
|
6,834 |
|
|
|
10,709 |
|
Business interruption claim |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
29,883 |
|
|
|
(323 |
) |
|
|
(6,834 |
) |
|
|
22,726 |
|
Interest income, net |
|
|
12 |
|
|
|
— |
|
|
|
536 |
|
|
|
548 |
|
Gain on litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other income (expense) |
|
|
(4 |
) |
|
|
66 |
|
|
|
— |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax |
|
|
29,891 |
|
|
|
(257 |
) |
|
|
(6,298 |
) |
|
|
23,336 |
|
Tax expense |
|
|
3 |
|
|
|
— |
|
|
|
8,796 |
|
|
|
8,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
29,888 |
|
|
$ |
(257 |
) |
|
$ |
(15,094 |
) |
|
$ |
14,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization & accretion |
|
$ |
6,780 |
|
|
$ |
232 |
|
|
$ |
27 |
|
|
$ |
7,039 |
|
Capital expenditures |
|
$ |
13,232 |
|
|
$ |
5 |
|
|
$ |
27 |
|
|
$ |
13,264 |
|
Total assets |
|
$ |
91,020 |
|
|
$ |
60 |
|
|
$ |
21,409 |
|
|
$ |
112,489 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Operating |
|
|
Operating |
|
|
|
|
|
|
|
| |
|
Disposal |
|
|
Disposal |
|
|
|
|
|
|
|
| (in thousands) |
|
Facilities |
|
|
Facilities |
|
|
Corporate |
|
|
Total |
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
78,894 |
|
|
$ |
16 |
|
|
$ |
— |
|
|
$ |
78,910 |
|
Transportation costs |
|
|
29,199 |
|
|
|
— |
|
|
|
— |
|
|
|
29,199 |
|
Other direct operating costs |
|
|
22,292 |
|
|
|
277 |
|
|
|
— |
|
|
|
22,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
27,403 |
|
|
|
(261 |
) |
|
|
— |
|
|
|
27,142 |
|
Selling, general
& administration |
|
|
3,966 |
|
|
|
1 |
|
|
|
5,479 |
|
|
|
9,446 |
|
Business interruption claim |
|
|
(704 |
) |
|
|
— |
|
|
|
— |
|
|
|
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
24,141 |
|
|
|
(262 |
) |
|
|
(5,479 |
) |
|
|
18,400 |
|
Interest income, net |
|
|
22 |
|
|
|
— |
|
|
|
578 |
|
|
|
600 |
|
Other income (expense) |
|
|
(14 |
) |
|
|
173 |
|
|
|
299 |
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax |
|
|
24,149 |
|
|
|
(89 |
) |
|
|
(4,602 |
) |
|
|
19,458 |
|
Tax expense |
|
|
— |
|
|
|
— |
|
|
|
7,359 |
|
|
|
7,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
24,149 |
|
|
$ |
(89 |
) |
|
$ |
(11,961 |
) |
|
$ |
12,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization & accretion |
|
$ |
5,506 |
|
|
$ |
270 |
|
|
$ |
20 |
|
|
$ |
5,796 |
|
Capital expenditures |
|
$ |
15,596 |
|
|
$ |
59 |
|
|
$ |
76 |
|
|
$ |
15,731 |
|
Total assets |
|
$ |
74,833 |
|
|
$ |
86 |
|
|
$ |
22,219 |
|
|
$ |
97,138 |
|
NOTE 13 — SUBSEQUENT EVENT
On October 1, 2007, we declared a dividend of $0.15 per common share to stockholders of record on
October 12, 2007. The dividend was paid out of cash on hand on October 19, 2007 in an aggregate
amount of $2.7 million.
10
AMERICAN ECOLOGY CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
American Ecology Corporation, through its subsidiaries, is a hazardous, non-hazardous and
radioactive waste services company providing treatment, disposal and transportation services to
commercial and government entities including refineries and chemical production facilities,
electric utilities, steel mills and medical and academic institutions. The majority of our revenue
is derived from fees charged to treat and dispose of waste at our four fixed disposal facilities
located near Grand View, Idaho; Richland, Washington; Beatty, Nevada; and Robstown, Texas. We also
manage transportation to our facilities, which contributes significant revenue. We have been in the
waste services business for 55 years.
A significant portion of our disposal revenue is attributable to discrete waste clean-up projects
(“Event Business”) which vary substantially in size and duration. The one-time nature of Event
Business necessarily creates variability in revenue and earnings. The typically limited advance
notice on smaller Event Business projects limits the precision of forward-looking financial
projections. This variability is also influenced by our provision of rail transportation services
to certain Event Business customers. The types and amounts of waste received from recurring
customers (“Base Business”) also vary quarter to quarter. Service mix variations also cannot be
predicted with precision, and can produce significant quarter-to-quarter differences in revenue,
gross profit, gross margin and operating profit. Our strategy is to continue expanding our Base
Business while securing both short-term and extended-duration Event Business. When Base Business
covers our fixed overhead costs, a significant portion of disposal revenue generated from Event
Business is generally realized as operating income and net income. This strategy takes advantage of
the operating leverage inherent to the largely fixed-cost nature of the waste disposal business.
Depending on project-specific needs, transportation services may be offered at or near our cost to
secure additional disposal work. For waste transported by rail from New Jersey (for Honeywell),
Pennsylvania (for Molycorp) and other locations distant from our Grand View, Idaho facility,
transportation-related revenue can account for up to three-fourths (75%) of total project revenue.
While bundling transportation and disposal services reduces overall margin, this value-added
bidding strategy has allowed us to win multiple projects that we could not otherwise have
successfully competed for. Winning these project awards and the increased waste volumes they
provide increases operating leverage and profitability at our disposal sites. While waste
treatment and other variable costs are project-specific, the contribution to profitability from
each new project award generally increases as overall waste volumes increase. Management believes
that maximizing operating leverage is a higher priority than maintaining or increasing margin and
will continue to aggressively bid bundled transportation and disposal opportunities based on an
income growth strategy.
11
Results of Operations
The following table summarizes our results of operations for the three and nine months ended
September 30, 2007 and 2006 in dollars and as a percentage of total revenue.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands, except per |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
| share amounts) |
|
2007 |
|
|
% |
|
|
2006 |
|
|
% |
|
|
2007 |
|
|
% |
|
|
2006 |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
39,427 |
|
|
|
100.0 |
% |
|
$ |
27,464 |
|
|
|
100.0 |
% |
|
$ |
119,658 |
|
|
|
100.0 |
% |
|
$ |
78,910 |
|
|
|
100.0 |
% |
Transportation costs |
|
|
18,935 |
|
|
|
48.0 |
% |
|
|
12,683 |
|
|
|
46.2 |
% |
|
|
55,866 |
|
|
|
46.7 |
% |
|
|
29,199 |
|
|
|
37.0 |
% |
Other direct operating costs |
|
|
10,224 |
|
|
|
26.0 |
% |
|
|
7,874 |
|
|
|
28.7 |
% |
|
|
30,357 |
|
|
|
25.4 |
% |
|
|
22,569 |
|
|
|
28.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
10,268 |
|
|
|
26.0 |
% |
|
|
6,907 |
|
|
|
25.1 |
% |
|
|
33,435 |
|
|
|
27.9 |
% |
|
|
27,142 |
|
|
|
34.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
|
3,636 |
|
|
|
9.2 |
% |
|
|
2,902 |
|
|
|
10.6 |
% |
|
|
10,709 |
|
|
|
8.8 |
% |
|
|
9,446 |
|
|
|
12.0 |
% |
Business interruption
insurance claim |
|
|
— |
|
|
|
0.0 |
% |
|
|
(704 |
) |
|
|
-2.6 |
% |
|
|
— |
|
|
|
0.0 |
% |
|
|
(704 |
) |
|
|
-0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
6,632 |
|
|
|
16.8 |
% |
|
|
4,709 |
|
|
|
17.1 |
% |
|
|
22,726 |
|
|
|
19.1 |
% |
|
|
18,400 |
|
|
|
23.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
189 |
|
|
|
0.5 |
% |
|
|
215 |
|
|
|
0.8 |
% |
|
|
550 |
|
|
|
0.4 |
% |
|
|
608 |
|
|
|
0.8 |
% |
Interest expense |
|
|
— |
|
|
|
0.0 |
% |
|
|
(6 |
) |
|
|
0.0 |
% |
|
|
(2 |
) |
|
|
0.0 |
% |
|
|
(8 |
) |
|
|
0.0 |
% |
Other |
|
|
10 |
|
|
|
0.0 |
% |
|
|
— |
|
|
|
0.0 |
% |
|
|
62 |
|
|
|
0.0 |
% |
|
|
458 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
|
199 |
|
|
|
0.5 |
% |
|
|
209 |
|
|
|
0.8 |
% |
|
|
610 |
|
|
|
0.4 |
% |
|
|
1,058 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6,831 |
|
|
|
17.3 |
% |
|
|
4,918 |
|
|
|
17.9 |
% |
|
|
23,336 |
|
|
|
19.5 |
% |
|
|
19,458 |
|
|
|
24.7 |
% |
Income tax |
|
|
2,313 |
|
|
|
5.8 |
% |
|
|
1,925 |
|
|
|
7.0 |
% |
|
|
8,799 |
|
|
|
7.4 |
% |
|
|
7,359 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,518 |
|
|
|
11.5 |
% |
|
$ |
2,993 |
|
|
|
10.9 |
% |
|
$ |
14,537 |
|
|
|
12.1 |
% |
|
$ |
12,099 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.25 |
|
|
|
|
|
|
$ |
0.17 |
|
|
|
|
|
|
$ |
0.80 |
|
|
|
|
|
|
$ |
0.67 |
|
|
|
|
|
Dilutive |
|
$ |
0.25 |
|
|
|
|
|
|
$ |
0.16 |
|
|
|
|
|
|
$ |
0.80 |
|
|
|
|
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in earnings
per share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
18,220 |
|
|
|
|
|
|
|
18,129 |
|
|
|
|
|
|
|
18,215 |
|
|
|
|
|
|
|
18,046 |
|
|
|
|
|
Dilutive |
|
|
18,257 |
|
|
|
|
|
|
|
18,237 |
|
|
|
|
|
|
|
18,255 |
|
|
|
|
|
|
|
18,215 |
|
|
|
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|
|
Dividends paid per share |
|
$ |
0.15 |
|
|
|
|
|
|
$ |
0.15 |
|
|
|
|
|
|
$ |
0.45 |
|
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$ |
0.45 |
|
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Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
Revenue — Revenue increased 44% to $39.4 million for the third quarter of 2007, up from $27.5
million for the third quarter of 2006. This growth reflected increased revenue from bundled
transportation and disposal projects including the Honeywell and Molycorp contracts and other
rail-served projects. Also contributing to revenue growth for the quarter was a steady flow of
shipments under our multi-year contract with the U.S. Army Corps of Engineers (“USACE”). In the
third quarter of last year, the USACE shipped significantly lower amounts of waste pending
appropriation of funds for the federal government’s new fiscal year. During the third quarter of
2007, we disposed of 269,000 tons of hazardous and low-activity radioactive waste in our landfills,
up 55% from the 173,000 tons disposed in the third quarter of 2006. Our average selling price for
treatment and disposal services (excluding transportation) during the third quarter of 2007 was 9%
below our average selling price in the third quarter of 2006. This decrease reflects changes in
service mix that are inherent to the business.
During the third quarter of 2007, treatment and disposal revenue from recurring, Base Business grew
18% and was 47% of our non-transportation revenue, as compared to 55% of non-transportation revenue
in the third quarter of 2006. Base Business revenue increased as a result of growth in our rate
regulated, broker and refinery business areas. Event Business revenue in the third quarter of 2007
increased 66% over the same quarter in 2006 and represented 53% of our non-transportation revenue
during the third quarter of 2007. As discussed in greater detail below, this primarily reflects the
Molycorp project and a steady flow of shipments under our USACE contract. These increases more than
offset the effect of a large, non-rate regulated project at our Richland, Washington facility that
was completed in August of 2006.
12
The following table summarizes our third quarter 2007 revenue growth (both Base and Event Business)
by industry customer type as compared with the third quarter of 2006.
| |
|
|
|
|
| |
|
Treatment and Disposal Revenue Growth |
| |
|
Three months ended September 30, 2007 vs. |
| |
|
Three months ended September 30, 2006 |
|
|
|
|
|
Federal cleanup |
|
|
290 |
% |
Refinery |
|
|
109 |
% |
Rate regulated |
|
|
81 |
% |
Private cleanup |
|
|
69 |
% |
Steel |
|
|
2 |
% |
Broker |
|
|
-4 |
% |
Other industry |
|
|
-22 |
% |
The 290% growth in revenue from our federal government customers reflects a steady flow of
shipments from USACE clean-up projects. The USACE contributed 7% of total revenue for the third
quarter of 2007, or $2.9 million as compared to 2% in the same quarter last year, or $485,000. The
higher third quarter 2007 USACE revenue is consistent with the range of revenue historically
experienced under this ongoing, multi-year contract. USACE significantly curtailed shipments in the
third quarter of 2006 pending appropriation of funds for the federal government’s new fiscal year.
Treatment and disposal revenue from refinery customers grew approximately 109% reflecting the
continued strong demand for these services consistent with refinery production levels.
Rate-regulated business at our Richland, Washington low-level radioactive waste facility serving
the Northwest Compact business increased 81% during the third quarter of 2007 as compared with the
same quarter in 2006. This increase reflects timing on recognition of our state-approved annual
revenue requirement.
Treatment and disposal revenue from private clean-up customers grew approximately 69% during the
third quarter of 2007 over the same period last year. The Honeywell Jersey City project was the
primary source of this growth, contributing 45%
of total revenue (including transportation services), or $17.9 million. The Honeywell Jersey City
project contributed 52% of total revenue (including transportation services), or $14.3 million, for
the third quarter of 2006. Also contributing to our private clean-up revenue growth for the third
quarter of 2007 was our bundled transportation and disposal contract with Molycorp. This project
contributed an additional 8% of total revenue, or $3.2 million.
Both the Honeywell and Molycorp contracts generate significant revenue from the transportation
component of our services. Since transportation is generally provided at little or no profit and
can account for up to three-fourths of total project revenue, overall project margins are
substantially lower than projects that do not include transportation revenue. Contribution to
earnings is also significantly affected by the type of waste disposed. The Honeywell Jersey City
chromite ore waste is a metals-bearing hazardous waste requiring treatment prior to disposal.
Treatment of metals-bearing waste streams is a commoditized service with lower margins than waste
streams that require no treatment prior to disposal or higher margin niche treatment services such
as thermal desorption and chemical oxidation of waste streams containing organic chemical
compounds.
Treatment and disposal revenue from our steel mill customers grew 2% in the third quarter of 2007
over the same period last year. Third-party broker business declined 4% during the third quarter
of 2007 over the same period in 2006. This decline was a result of multiple small Event projects
shipped by brokers in the third quarter of 2006 that were not replaced in the third quarter of
2007.
Other industry revenue declined 22%. This decline was primarily due to a large non-rate regulated
clean-up project served by our Richland, Washington facility that was completed in August 2006.
Management believes the changes in these business lines reflect normal variations in quarterly
service mix.
13
Gross Profit. Gross profit for the third quarter of 2007 increased by 49% to $10.3 million, up from
$6.9 million in the third quarter of 2006. This increase reflects the higher volume of waste
disposed during the third quarter of 2007 as compared to the same period last year. Gross profit as
a percentage of total revenue (“Gross Margin Percentage”) increased to 26% during the third quarter
of 2007 as compared to 25% in the third quarter of 2006. This increase is the result of service mix
as well as higher operating leverage delivered by the significant increase in volume during the
third quarter of 2007 as compared to the same quarter last year. These factors were partially
offset by a five week interruption in shipments from the Molycorp Pennsylvania project during the
third quarter of 2007, which reduced our rail fleet utilization rate and negatively impacted gross
margin for the quarter. This project interruption was due to changes in excavating and loading
procedures performed by third party contractors to the customer. Shipments under the Molycorp
project resumed in September 2007.
Selling, General and Administrative (“SG&A”). As a percentage of total revenue, SG&A expense
declined to 9% in the third quarter of 2007 as compared to 11% for the third quarter of 2006. In
total dollars, SG&A expenses increased 25% to $3.6 million, up from $2.9 million for the third
quarter of 2006. The growth in SG&A expense was due primarily to increased business activity,
higher stock-based compensation expense, sales commissions, incentive compensation and
administrative costs in support of the increased waste volumes received. SG&A expense for the
quarter also included a $198,000 charge related to the write-off of engineering costs previously
capitalized for a New Jersey rail transload facility. Development of the planned New Jersey rail
facility site was cancelled based on increased construction and operating cost estimates and
improved economic terms under our existing shipping arrangements. The Company may evaluate other
New Jersey rail service options as future project opportunities arise.
2006 Business Interruption Insurance Claim Settlement. During the third quarter of 2006, we
received $704,000 from the final settlement of a business interruption claim stemming from a July
2004 fire at our Robstown, Texas facility.
Interest income. During the third quarter of 2007, we earned $189,000 of interest income as
compared with $215,000 in the third quarter of 2006. This decrease was due to lower average
balances of cash equivalents and short-term investments in the third quarter of 2007 compared to
the same period of 2006, partially offset by a higher average rate of interest earned on
investments.
Other expense/income. Other expense/income records business activities not included in current year
ordinary and usual revenue and expenses. In the third quarter of 2007 we recognized approximately
$10,000 in net loss on the disposal of assets.
Income tax expense. Our effective income tax rate for third quarter of 2007 and 2006 was 33.9% and
39.1%, respectively. The decrease in the effective tax rate for the third quarter of 2007 is due to
realization of higher state investment tax credits on our filed tax returns in the amount of
$325,000 and a reduction in our estimated annual effective tax rate from 39.3% to 39.1%. Excluding
the impact of the $325,000 benefit from state investment tax credits and future one-time tax
adjustments, we expect our annual effective tax rate to be 39.1%.
On January 1, 2007, we adopted FIN 48. The adoption had no impact on our consolidated financial
statements. At January 1, 2007 and September 30, 2007, we had no unrecognized tax benefits. We
recognize interest assessed by taxing authorities as a component of interest expense. We recognize
any penalties assessed by taxing authorities as a component of selling, general and administrative
expenses. Interest and penalties for the three months ended September 30, 2007 and 2006 were not
material.
Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
Revenue — Revenue increased 52% to $119.7 million for the nine months ended September 30, 2007, up
from $78.9 million for the nine months ended September 30, 2006. This increase reflects increased
revenue from bundled rail transportation and disposal contracts as well as higher revenue at our
Idaho, Nevada, and Texas operations. Our Beatty, Nevada facility delivered improved revenue growth
in the first nine months of 2007 aided by two large clean-up projects that were substantially
completed in the first quarter. Growth during the first nine months of 2007 more than offset a
large non-rate regulated project at our Richland, Washington facility that was completed in August
2006. During the nine months ended September 30, 2007, we disposed of 812,000 tons of hazardous and
radioactive waste in our landfills, up 43% from the 569,000 tons disposed in the same period last
year. Our average selling price for treatment and disposal services (excluding transportation) in
the first nine months of 2007 was 1% lower than our average selling price in the first nine months
of 2006. Management believes this reflects changes in service mix that are inherent to the
business.
14
During the first nine months of 2007, treatment and disposal revenue from recurring, Base Business
grew 18% and was 45% of non-transportation revenue, as compared to 48% of non-transportation
revenue in the first nine months of 2006. Base Business revenue increased during the first nine
months of 2007 as a result of strong growth in our third-party broker and refinery and rate
regulated business areas. Event Business revenue was 37% higher in the first nine months of 2007
than the same period in 2006, and was 55% of our non-transportation revenue. Event Business growth
was due to higher disposal revenue from the Honeywell Jersey City project (which did not ship in
the first quarter of 2006), two clean-up projects shipped to our Beatty, Nevada facility that were
largely completed in the first quarter of 2007, disposal revenue from the Molycorp Pennsylvania
project and steady waste shipments from multiple sites under our USACE contract.
The following table summarizes our the first nine months of 2007 revenue growth (both Base and
Event Business) by industry customer type as compared with the same period in 2006.
| |
|
|
|
|
| |
|
Treatment and Disposal Revenue Growth |
| |
|
Nine months ended September 30, 2007 vs. |
| |
|
Nine months ended September 30, 2006 |
|
|
|
|
|
Private cleanup |
|
|
133 |
% |
Refinery |
|
|
63 |
% |
Federal cleanup |
|
|
43 |
% |
Rate regulated |
|
|
19 |
% |
Steel |
|
|
14 |
% |
Broker |
|
|
13 |
% |
Other industry |
|
|
-41 |
% |
Treatment and disposal revenue from private cleanup customers grew approximately 133% during the
first nine months of 2007 over the same period last year. The Honeywell Jersey City project was the
primarily responsible for this growth, contributing 40% of total revenue (including
transportation), or $48.4 million. This compares to 34% of total revenue
(including transportation) for the first nine months of 2006, or $26.8 million. Honeywell did not
ship waste in the first quarter of 2006. Other contributors include a private Brownfield
redevelopment project completed in April 2007 and the Molycorp Pennsylvania project. Each of these
projects included a significant bundled truck and/or rail transportation component.
Treatment and disposal revenue from our refinery customers grew 63% during the first nine months of
2007 over the same period in 2006.
Our government business revenue increased 43% during the first nine months of 2007 compared to the
same period last year. This reflects increased shipments from a military base clean-up project
shipped to our Beatty, Nevada facility, as well as a steady flow of shipments under our Grand View,
Idaho facility’s USACE contract. Event Business clean-up work under the USACE contract contributed
7% of total revenue for the first nine months of 2007, or $8.9 million, as compared to 11% in the
same period last year, or $9.1 million. Other federal government agencies such as the Environmental
Protection Agency utilize our USACE contract to streamline procurement and expedite clean-up of
contaminated sites. Revenue generated by USACE FUSRAP (Formerly Utilized Sites Remedial Action
Program) projects increased approximately 34% in the first nine months of 2007 as compared to the
first nine months of 2006. The increase in revenue from the USACE in the first nine months of 2007
reflects the significantly fewer shipments of waste received in the third quarter of 2006 pending
appropriation of funds for the federal government’s new fiscal year. Rate-regulated business at
our Richland, Washington low-level radioactive waste facility increased 19% during the first nine
months of 2007 as compared to the first nine months of 2006. This increase reflects timing on
recognition of our state-approved annual revenue requirement.
Treatment and disposal revenue from our steel mill customers grew 14% during the first nine months
of 2007 over the same period in 2006 as a result of an event clean-up project and steady Base
Business shipments. Our broker business increased 13% through the first nine months of 2007 over
the same period in 2006, reflecting continued execution of our partnering strategy with third-party
brokers who do not compete for disposal business.
Our other industry revenue declined 41% during the first nine months of 2007 as compared with the
first nine months of 2006. This decline was primarily due to a large non-rate regulated project
shipping to our Richland, Washington facility completed in August 2006.
15
Gross Profit. Gross profit for the nine months ended September 30, 2007 increased by 23% to $33.4
million, up from $27.1 million in the nine months ended September 30, 2006. This increase reflects
the higher volume of waste disposed in the first nine months of 2007 as compared to the same period
last year. Gross Margin Percentage decreased to 28% during the first nine months of 2007 as
compared to 34% in the first nine months of 2006. This decrease reflects increased rail and truck
transportation services on the Honeywell Jersey City and Molycorp Pennsylvania projects shipping to
our Grand View, Idaho facility, a large Brownfield redevelopment project trucked to our Beatty,
Nevada facility and other work awarded to us based on our ability to cost-effectively deliver
bundled rail and/or truck transportation services on distant projects.
The mix of waste received in the first nine months of 2007 also contributed to the lower Gross
Margin Percentage. The Honeywell Jersey City chromite ore waste is a metals-bearing hazardous waste
requiring treatment prior to disposal. Treatment of metals-bearing waste streams is a commoditized
service with lower margins than waste streams that require no treatment prior to disposal or higher
margin niche treatment services such as thermal desorption and chemical oxidation of waste streams
containing organic chemical compounds. The Gross Margin Percentage during the first nine months of
2006 also benefited from a large, non rate-regulated direct disposal project (i.e. no added
treatment expense) at our Richland Washington facility completed in August 2006.
SG&A. SG&A expense declined to 9% of revenue in the first nine months of 2007, down from 12% for
same period in 2006, based on increased revenue. In total dollars, SG&A expense increased 13% to
$10.7 million, up from $9.4 million for the first nine months of 2006. This increase in SG&A
expense was due primarily to increased business activity, higher stock-based compensation expense,
sales commissions, provisions for bad debts and administrative costs in support of the record waste
volumes received. Additionally, SG&A expense included a $198,000 charge related to the write-off
of engineering costs previously capitalized for a New Jersey rail transload facility previously
planned for the Honeywell Jersey City project and other work. Development of the New Jersey
facility site was cancelled based on increased construction and operating cost estimates and
improved economic terms under our existing shipping arrangements. The Company may evaluate other
New Jersey rail service options as future project opportunities arise.
Interest income. During the first nine months of 2007, we earned $550,000 of interest income as
compared with $608,000 in the nine months ended September 30, 2006. This decrease was due to lower
average balances of cash equivalents and short-term investments for the nine months ended September
30, 2007 compared to the same period last year, partially offset by a higher average rate of
interest earned on investments.
Other expense / income. Other expense/income is used to record business activities that are not a
part of our current year ordinary and usual revenue and expenses. Other income for the nine months
ended September 30, 2007 and 2006 are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| (in thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Net gain on sale of property and equipment |
|
$ |
58 |
|
|
$ |
166 |
|
Reimbursement of legal expenses |
|
|
— |
|
|
|
299 |
|
Other |
|
|
4 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
$ |
62 |
|
|
$ |
458 |
|
|
|
|
|
|
|
|
Income tax expense. Our effective income tax rate for the first nine months of 2007 and 2006 was
37.7% and 37.8%, respectively. This decrease is due primarily to higher state investment tax
credits on our filed tax returns in the third quarter of 2007 in the amount of $325,000. A
reduction in our estimated annual effective tax rate from 39.3% to 39.1% also contributed to the
reduction. Excluding the impact of the $325,000 benefit from state investment tax credits and
future one-time tax adjustments, we expect our annual effective tax rate to be 39.1%.
Critical Accounting Policies
Financial statement preparation requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets
and liabilities. The accompanying consolidated financial statements are prepared using the same
critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2006.
16
On January 1, 2007 we adopted FIN 48 to account for uncertain tax positions. As discussed in Note 2
and Note 9 to the accompanying consolidated financial statements, adoption of FIN 48 had no impact
on our financial position, results of operations or cash flows. The application of income tax law
is inherently complex. Tax laws and regulations are voluminous and at times ambiguous, and
interpretations of and guidance regarding income tax laws and regulations change over time. This
requires us to make many subjective assumptions and judgments regarding our income tax exposures.
Changes in our assumptions and judgments can materially affect our financial position, results of
operations and cash flows.
Liquidity and Capital Resources
Our principal source of cash is from operations. The $11.3 million in cash and short-term
investments at September 30, 2007 was comprised of $2.2 million in short-term investments, which
were not required for operations, and $9.1 million in cash immediately available for operations.
We have a $15.0 million unsecured line-of-credit agreement that matures in June 2008 to supplement
daily working capital as needed. Monthly interest-only payments are required on outstanding debt
levels based on a pricing grid, under which the interest rate decreases or increases based on our
ratio of funded debt to earnings before interest, taxes, depreciation and amortization. We can
elect to borrow monies utilizing the Prime Rate or LIBOR, plus an applicable spread. We have a
standby letter of credit to support our closure and post-closure obligation of $4 million that
expires in September 2007. At September 30, 2007, we had a borrowing capacity of $11.0 million
after deducting the outstanding letter of credit, with no borrowings outstanding.
We believe that cash on hand and cash flow from operations, augmented if needed by periodic
borrowings under our existing line of credit, will be sufficient to meet our operating cash needs
during the next 12 months.
Operating Activities — For the nine months ended September 30, 2007, net cash provided by operating
activities was $22.2 million. This was primarily attributable to net income of $14.5 million,
changes in deferred taxes of $1.4 million, increases in deferred revenue and accounts payable, and
utilization of our income tax receivable. Partially offsetting these sources of cash were increases
in other assets and receivables. The increase in net income is discussed above under Results of
Operations. During the first nine months of 2007, we fully utilized our federal NOLs and began
using cash to pay our tax obligations. The increase in accounts receivable is directly tied to
higher disposal and transportation revenue in the first nine months of 2007 as compared to the same
period in 2006. Longer billing cycles for our largest customers contributed to the increase in
accounts receivable for the first nine months of 2007, during which days sales outstanding
increased to 65 days as of September 30, 2007, compared to 64 days at December 31, 2006 and 62 days
at September 30, 2006.
For the nine months ended September 30, 2006, net cash from operating activities was $16.9 million.
This was primarily due to net income of $12.1 million and changes in deferred taxes of $5.6
million, partially offset by increases in receivables (net of deferred revenue) of $5.2 million and
a decrease in accounts payable and accrued liabilities of $2.1 million.
Investing Activities — For the nine months ended September 30, 2007, net cash used in investing
activities was $9.3 million. Significant transactions affecting cash used in investing activities
during the first nine months of 2007 include capital expenditures of $13.3 million. Capital
expenditures were primarily for construction of a new treatment and storage building at our Beatty,
Nevada facility; a new storage building and waste testing laboratory at our Robstown, Texas
facility; construction of additional disposal space at our Texas and Idaho facilities and equipment
purchases at our three hazardous waste facilities. Partially offsetting cash outflows for capital
expenditures were net maturities of short-term investments totaling $4.1 million.
For the nine months ended September 30, 2006, net cash used in investing activities was $5.7
million. During the same period last year, we invested $15.7 million in capital expenditures,
transferred $4.6 million of cash to restricted trust accounts used as collateral for our closure
and post-closure obligations and received $14.5 million of cash from maturities of short-term
investments, net of purchases. Major capital projects in the first nine months of 2006 included the
purchase of new railcars, construction of rail transload facilities in Idaho and Texas and
construction of additional disposal space at our Texas facility.
Financing Activities — For the nine months ended September 30, 2007 and 2006, net cash used in
financing activities was $7.7 million and $5.8 million, respectively. This was primarily
attributable to payment of dividends, partially offset by proceeds from stock option exercises and
associated tax benefits related to those exercises.
17
Contractual Obligations and Guarantees
For information on contractual obligations and guarantees, see our Annual Report on Form 10-K for
the fiscal year ended December 31, 2006. There have not been any material changes in our
contractual obligations and guarantees during the first nine months of 2007, except for the
following:
On April 26, 2007 we renewed our lease with the State of Nevada modifying a lease of real
property under which we operate our Beatty, Nevada hazardous waste facility. The terms of the
amendment provide for continuance of the lease as a year-to-year periodic tenancy until (i)
the site reaches full capacity and can no longer accept waste (presently estimated at
approximately 20 years); (ii) the lease is terminated by us at our option; or (iii) the lessor
terminates the lease in accordance with the violation provisions of the lease. All other terms
of the Lease, including those relating to rents and fees, were unchanged.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not maintain equities, commodities, derivatives or any other instruments for trading or any
other purposes, and do not enter into transactions denominated in currencies other than the U.S.
dollar.
We have minimal interest rate risk on investments or other assets. At September 30, 2007,
approximately $11.3 million was held in cash or short-term investments at terms ranging from
overnight to sixty days. Together, these items earn interest at the rate of approximately 5% per
year.
We are exposed to market risks primarily from changes in interest rates. We do not engage in
financial transactions for trading or speculative purposes.
Item 4. Controls and Procedures
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer of
the Company, have evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of September 30, 2007.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures, including the accumulation and communication of
disclosures to the Company’s Chief Executive Officer and Chief Financial Officer as appropriate to
allow timely decisions regarding required disclosure, are effective to provide reasonable assurance
that information required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the SEC.
There were no changes in our internal control over financial reporting that occurred during the
most recently completed fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
18
PART II. OTHER INFORMATION
Cautionary Statement for Purposes of “Safe Harbor Provisions” of the Private Securities
Litigation Reform Act of 1995
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the
federal securities laws. Statements that are not historical facts, including statements about the
Company’s beliefs and expectations, are forward-looking statements. Forward-looking statements
include statements preceded by, followed by or that include the words “may,” “could,” “would,”
“should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and
similar expressions. These statements include, among others, statements regarding our financial and
operating results, strategic objectives and means to achieve those objectives, the amount and
timing of capital expenditures, the amount and timing of interest expense, the likelihood of our
success in expanding our business, financing plans, budgets, working capital needs and sources of
liquidity.
Forward-looking statements are only predictions and are not guarantees of performance. These
statements are based on management’s beliefs and assumptions, which in turn are based on currently
available information. Important assumptions include, among others, those regarding demand for
Company services, expansion of service offerings geographically or through new service lines, the
timing and cost of planned capital expenditures, competitive conditions and general economic
conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known
and unknown risks and uncertainties, which could cause actual results to differ materially from
those contained in any forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, changes in key personnel,
compliance with and changes in applicable laws and regulations, exposure to litigation, access to
insurance and financial assurances, emergence of new technologies, potential loss of major
contracts, access to cost effective transportation services, our ability to meet contractual
commitments, impact of general economic trends on our business, and competition.
Except as required by applicable law, including the securities laws of the United States and the
rules and regulations of the SEC, we are under no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise. You
should not place undue reliance on our forward-looking statements. Although we believe that the
expectations reflected in forward-looking statements are reasonable, we cannot guarantee future
results or performance. Before you invest in our common stock, you should be aware that the
occurrence of the events described in the “Risk Factors” section in Section 1A of Part II Other
Information in this Form 10-Q and filed in our Annual Report on Form 10-K could harm our business,
prospects, operating results, and financial condition. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results or
performance.
Investors should also be aware that while we do, from time to time, communicate with securities
analysts, it is against our policy to disclose to them any material non-public information or other
confidential commercial information. Accordingly, stockholders should not assume that we agree with
any statement or report issued by any analyst irrespective of the content of the statement or
report. Furthermore, we have a policy against issuing or confirming financial forecasts or
projections issued by others. Thus, to the extent that reports issued by securities analysts
contain any projections, forecasts or opinions, such reports are not the responsibility of American
Ecology Corporation.
Item 1. Legal Proceedings
We are not currently a party to any material pending legal proceedings and are not aware of any
claims that could have a materially adverse effect on our financial position, results of operations
or cash flows.
Item 1A. Risk Factors.
There have been no material changes in our risk factors from those disclosed in Item 1A of Part I
of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
19
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
| |
31.1 |
|
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| |
31.2 |
|
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| |
32 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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American Ecology Corporation |
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(Registrant) |
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Date: October 26, 2007
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/s/ Jeffrey R. Feeler |
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Jeffrey R. Feeler |
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Vice President and
Chief Financial Officer |
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EXHIBIT INDEX
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| Exhibit |
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| No. |
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Description |
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31.1
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Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2
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Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32
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Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
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