ecol_10q-033109.htm
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: March 31, 2009 |
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.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
|
|
|
|
Smaller
Reporting Company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
The
number of shares of the registrant’s common stock, $0.01 par value, outstanding
as of April 28, 2009 was 18,304,314.
AMERICAN
ECOLOGY CORPORATION
TABLE
OF CONTENTS
|
|
|
|
|
|
PART
I.
|
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
|
Item
1.
|
|
Financial
Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of March 31, 2009 and December 31, 2008
|
|
1
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the three months ended March
31, 2009 and 2008
|
|
2
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the three months ended March 31, 2009 and
2008
|
|
3
|
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
4
|
|
|
|
|
|
|
|
Item
2.
|
|
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
|
|
10
|
|
|
|
|
|
|
|
Item
3.
|
|
Quantitative and Qualitative
Disclosures About Market Risk
|
|
16
|
|
|
|
|
|
|
|
Item
4.
|
|
Controls and
Procedures
|
|
16
|
|
|
|
|
|
|
|
PART
II.
|
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
|
|
Cautionary
Statement
|
|
17
|
|
|
|
|
|
|
|
Item
1.
|
|
Legal
Proceedings
|
|
17
|
|
|
|
|
|
|
|
Item
1A.
|
|
Risk
Factors
|
|
17
|
|
|
|
|
|
|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
18
|
|
|
|
|
|
|
|
Item
3.
|
|
Defaults
Upon Senior Securities
|
|
18
|
|
|
|
|
|
|
|
Item
4.
|
|
Submission
of Matters to a Vote of Security Holders
|
|
18
|
|
|
|
|
|
|
|
Item
5.
|
|
Other
Information
|
|
18
|
|
|
|
|
|
|
|
Item
6.
|
|
Exhibits
|
|
18
|
|
|
|
|
|
|
|
SIGNATURE
|
|
19
|
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
AMERICAN
ECOLOGY CORPORATION
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except per share data)
(unaudited)
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
24,121 |
|
|
$ |
18,473 |
|
Receivables,
net
|
|
|
25,524 |
|
|
|
30,737 |
|
Prepaid
expenses and other current assets
|
|
|
2,160 |
|
|
|
2,281 |
|
Income
tax receivable
|
|
|
382 |
|
|
|
2,834 |
|
Deferred
income taxes
|
|
|
923 |
|
|
|
684 |
|
Total
current assets
|
|
|
53,110 |
|
|
|
55,009 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
67,878 |
|
|
|
67,987 |
|
Restricted
cash
|
|
|
4,724 |
|
|
|
4,716 |
|
Total
assets
|
|
$ |
125,712 |
|
|
$ |
127,712 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
3,721 |
|
|
$ |
5,400 |
|
Deferred
revenue
|
|
|
5,134 |
|
|
|
4,657 |
|
Accrued
liabilities
|
|
|
3,587 |
|
|
|
4,398 |
|
Accrued
salaries and benefits
|
|
|
1,693 |
|
|
|
2,895 |
|
Current
portion of closure and post-closure obligations
|
|
|
1,003 |
|
|
|
490 |
|
Current
portion of capital lease obligations
|
|
|
11 |
|
|
|
10 |
|
Total
current liabilities
|
|
|
15,149 |
|
|
|
17,850 |
|
|
|
|
|
|
|
|
|
|
Long-term
closure and post-closure obligations
|
|
|
13,603 |
|
|
|
13,972 |
|
Long-term
capital lease obligations
|
|
|
18 |
|
|
|
21 |
|
Deferred
income taxes
|
|
|
4,406 |
|
|
|
3,927 |
|
Total
liabilities
|
|
|
33,176 |
|
|
|
35,770 |
|
|
|
|
|
|
|
|
|
|
Contingencies
and commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock $0.01 par value, 50,000 authorized; 18,304 and 18,304 shares
issued, respectively
|
|
|
183 |
|
|
|
183 |
|
Additional
paid-in capital
|
|
|
61,022 |
|
|
|
60,803 |
|
Retained
earnings
|
|
|
33,921 |
|
|
|
33,544 |
|
Common
stock held in treasury, at cost, 155 and 155, respectively
|
|
|
(2,590 |
) |
|
|
(2,588 |
) |
Total
stockholders’ equity
|
|
|
92,536 |
|
|
|
91,942 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
125,712 |
|
|
$ |
127,712 |
|
See Notes
to Consolidated Financial Statements.
AMERICAN
ECOLOGY CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(unaudited)
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
34,965 |
|
|
$ |
46,219 |
|
Transportation
costs
|
|
|
14,174 |
|
|
|
22,058 |
|
Other
direct operating costs
|
|
|
11,245 |
|
|
|
10,717 |
|
Gross
profit
|
|
|
9,546 |
|
|
|
13,444 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
3,573 |
|
|
|
3,919 |
|
Operating
income
|
|
|
5,973 |
|
|
|
9,525 |
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
48 |
|
|
|
63 |
|
Interest
expense
|
|
|
(1 |
) |
|
|
(1 |
) |
Other
|
|
|
33 |
|
|
|
65 |
|
Total
other income
|
|
|
80 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
6,053 |
|
|
|
9,652 |
|
Income
taxes
|
|
|
2,409 |
|
|
|
3,784 |
|
Net
income
|
|
$ |
3,644 |
|
|
$ |
5,868 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.20 |
|
|
$ |
0.32 |
|
Dilutive
|
|
$ |
0.20 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
Shares
used in earnings per share calculation:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,143 |
|
|
|
18,229 |
|
Dilutive
|
|
|
18,176 |
|
|
|
18,277 |
|
|
|
|
|
|
|
|
|
|
Dividends
paid per share
|
|
$ |
0.18 |
|
|
$ |
0.15 |
|
See Notes
to Consolidated Financial Statements.
AMERICAN
ECOLOGY CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
3,644 |
|
|
$ |
5,868 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
amortization and accretion
|
|
|
2,286 |
|
|
|
2,838 |
|
Deferred
income taxes
|
|
|
240 |
|
|
|
(90 |
) |
Stock-based
compensation expense
|
|
|
218 |
|
|
|
201 |
|
Net
gain on sale of property and equipment
|
|
|
(34 |
) |
|
|
(2 |
) |
Accretion
of interest income
|
|
|
- |
|
|
|
(14 |
) |
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
5,213 |
|
|
|
(8,576 |
) |
Income
tax receivable
|
|
|
2,452 |
|
|
|
994 |
|
Other
assets
|
|
|
121 |
|
|
|
(5 |
) |
Accounts
payable and accrued liabilities
|
|
|
(1,722 |
) |
|
|
(1,026 |
) |
Deferred
revenue
|
|
|
477 |
|
|
|
(277 |
) |
Accrued
salaries and benefits
|
|
|
(1,202 |
) |
|
|
(914 |
) |
Income
tax payable
|
|
|
- |
|
|
|
2,874 |
|
Closure
and post-closure obligations
|
|
|
(148 |
) |
|
|
(164 |
) |
Net
cash provided by operating activities
|
|
|
11,545 |
|
|
|
1,707 |
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(2,661 |
) |
|
|
(3,464 |
) |
Proceeds
from sale of property and equipment
|
|
|
42 |
|
|
|
9 |
|
Restricted
cash
|
|
|
(8 |
) |
|
|
63 |
|
Purchases
of short-term investments
|
|
|
- |
|
|
|
(992 |
) |
Maturities
of short-term investments
|
|
|
- |
|
|
|
2,216 |
|
Net
cash used in investing activities
|
|
|
(2,627 |
) |
|
|
(2,168 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(3,267 |
) |
|
|
(2,737 |
) |
Common
stock repurchases
|
|
|
(2 |
) |
|
|
- |
|
Other
|
|
|
(1 |
) |
|
|
(3 |
) |
Proceeds
from stock option exercises
|
|
|
- |
|
|
|
1 |
|
Tax
benefit of common stock options
|
|
|
- |
|
|
|
2 |
|
Net
cash used in financing activities
|
|
|
(3,270 |
) |
|
|
(2,737 |
) |
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
5,648 |
|
|
|
(3,198 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
18,473 |
|
|
|
12,563 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
24,121 |
|
|
$ |
9,365 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures
|
|
|
|
|
|
|
|
|
Income
taxes paid, net of receipts
|
|
$ |
(399 |
) |
|
$ |
4 |
|
Interest
paid
|
|
|
1 |
|
|
|
1 |
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures in accounts payable
|
|
|
128 |
|
|
|
474 |
|
Acquisition
of equipment with capital leases
|
|
|
- |
|
|
|
6 |
|
See Notes
to Consolidated Financial Statements.
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 2008 Annual Report on Form 10-K filed with the SEC on February 25,
2009. The results of operations for the three months ended March 31, 2009 are
not necessarily indicative of results to be expected for the entire fiscal
year.
The
Company’s Consolidated Balance Sheet as of December 31, 2008 has been derived
from the Company’s audited Consolidated Balance Sheet as of that
date.
Use of
Estimates
The
preparation of the Company’s consolidated financial statements, in conformity
with accounting principles generally accepted in the United States, requires
management to make estimates and assumptions. Some of these estimates require
difficult, subjective or complex judgments about matters that are inherently
uncertain. As a result, actual results could differ from these estimates, in
some cases materially. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period.
NOTE
2 – EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS 157. In September 2006,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standard (“SFAS”) 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 to 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. In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No.
157, which delayed the effective date of SFAS 157 for nonfinancial
assets and liabilities to fiscal years beginning after November 15, 2008. The
adoption of SFAS 157 for nonfinancial assets and liabilities in the first
quarter of 2009 had no significant impact on our consolidated financial
statements.
SFAS 141 R. In
December 2007, the FASB issued SFAS 141(revised 2007), Business Combinations (“SFAS
141 R”), which establishes principles and requirements for how an acquirer
recognizes and measures the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree in a business
combination. SFAS 141 R requires that assets and liabilities, including
contingencies, be recorded at the fair value determined on the acquisition date
with changes thereafter reflected in results of operations, as opposed to
goodwill. Additionally, SFAS 141 R modifies the treatment of restructuring costs
associated with a business combination and requires acquisition costs to be
expensed as incurred. The statement also provides guidance on disclosures
related to the nature and financial impact of the business combination. SFAS 141
R is effective for transactions closing after December 15, 2008 and for fiscal
years beginning after December 15, 2008. SFAS 141 R will be adopted for
business combinations, if any, entered into by the Company after December 31,
2008. The impact of this new standard will be dependent on the nature of
acquisitions completed after adoption of SFAS 141 R. Any impact will be
evaluated as part of the economic evaluation of such a business
combination.
SFAS 160. In
December 2007, the FASB issued SFAS 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS
160”). This statement establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. This statement is effective prospectively, except for certain
retrospective disclosure requirements, for fiscal years beginning after
December 15, 2008. This statement was effective for the Company at the
beginning of the first quarter of 2009 and had no impact on our consolidated
financial statements as we have no non-controlling interests in any subsidiaries
and have had no subsidiary deconsolidation.
SFAS 161. In March
2008, the FASB issued SFAS 161, Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133 (“SFAS 161”). SFAS 161 expands quarterly disclosure
requirements in SFAS 133 about an entity’s derivative instruments and hedging
activities. SFAS 161 is effective for fiscal years beginning after
November 15, 2008. This statement was effective for the Company at
the beginning of the first quarter of 2009 and had no impact on our consolidated
financial statements as we currently do not have any derivative instruments or
hedging activities.
SFAS 162. In May
2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”). SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of non-governmental
entities that are presented in conformity with generally accepted accounting
principles in the United States. This statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting
Principles. Although the Company will continue to evaluate the
application of SFAS 162, we do not currently believe that the adoption of SFAS
162 will have a material impact on our consolidated financial
statements.
FSP EITF
03-6-1. In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in computing earnings per share
under the two-class method described in SFAS No. 128, Earnings Per Share. FSP EITF
03-6-1 requires companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividend or dividend equivalents as a separate class
of securities in calculating earnings per share. FSP EITF 03-6-1 was effective
for the Company beginning January 1, 2009. The adoption of FSP EITF 03-6-1
did not have a material impact on our consolidated financial
statements.
NOTE 3 – CONCENTRATION AND CREDIT
RISK
Major
Customers. The Company has a long-term contract with Honeywell
International, Inc. (“Honeywell”) for transportation, treatment and disposal of
hazardous waste from a clean-up site in New Jersey. Work on this site
is presently estimated to be completed in the third quarter of 2009. Revenue
under this bundled service contract represented 44% and 38% of our total revenue
for the three months ended March 31, 2009 and 2008, respectively. No other
customer represented more than 10% of total revenue for the three months ended
March 31, 2009 and 2008, respectively. Receivables from Honeywell represented
49% of our total trade receivables at March 31, 2009 and 43% of total trade
receivables at December 31, 2008. No other customer’s receivable
balances exceeded 10% of our total trade receivables at March 31, 2009 or
December 31, 2008.
Credit
Risk Concentration. We maintain most of our cash with Wells Fargo Bank.
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, except for receivables from
Honeywell for which significant credit risk exists. We believe that
credit risk on Honeywell receivables is partially mitigated by federal court
orders requiring that Honeywell perform activities covered by our contract.
Typically, we have not required customers to provide collateral for such
obligations.
NOTE 4 – CASH AND CASH
EQUIVALENTS
Cash and
cash equivalents include funds held in managed money market funds with Wells
Fargo & Company and Fidelity Investments. The fair value of these
money market funds, using level 1 inputs, was $16.6 million at March 31,
2009.
NOTE
5 - RECEIVABLES
Receivables
were as follows:
|
|
|
March
31,
|
|
|
December
31,
|
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$ |
23,405 |
|
|
$ |
27,324 |
|
|
Unbilled
revenue
|
|
|
2,156 |
|
|
|
3,536 |
|
|
Other
|
|
|
165 |
|
|
|
226 |
|
|
|
|
|
25,726 |
|
|
|
31,086 |
|
|
Allowance
for doubtful accounts
|
|
|
(202 |
) |
|
|
(349 |
) |
|
|
|
$ |
25,524 |
|
|
$ |
30,737 |
|
NOTE 6 – PROPERTY AND
EQUIPMENT
|
|
|
March
31,
|
|
|
December
31,
|
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Cell
development costs
|
|
$ |
45,377 |
|
|
$ |
42,432 |
|
|
Land
and improvements
|
|
|
9,158 |
|
|
|
9,158 |
|
|
Buildings
and improvements
|
|
|
29,742 |
|
|
|
29,721 |
|
|
Railcars
|
|
|
17,375 |
|
|
|
17,375 |
|
|
Vehicles
and other equipment
|
|
|
22,722 |
|
|
|
22,065 |
|
|
Construction
in progress
|
|
|
2,659 |
|
|
|
4,473 |
|
|
|
|
|
127,033 |
|
|
|
125,224 |
|
|
Accumulated
depreciation and amortization
|
|
|
(59,155 |
) |
|
|
(57,237 |
) |
|
|
|
$ |
67,878 |
|
|
$ |
67,987 |
|
Depreciation
expense for the three months ended March 31, 2009 and 2008 was $2.0 million and
$2.5 million, respectively.
NOTE
7 – RESTRICTED CASH
Restricted
cash balances of $4.7 million at both March 31, 2009 and December 31, 2008
are held in third-party managed trust accounts as collateral for our financial
assurance policies for closure and post-closure obligations. These
restricted cash balances are maintained by third-party trustees and are invested
in money market accounts.
NOTE 8 – LINE OF CREDIT
We have a
$15.0 million unsecured revolving line of credit (the “Revolving Credit
Agreement”) with Wells Fargo Bank, National Association (“Wells
Fargo”). This Revolving Credit Agreement expires on June 15,
2010. Monthly interest-only payments are paid 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 utilizing the offshore London Inter-Bank Offering Rate
(“LIBOR”) plus an applicable spread or the prime rate. The Revolving Credit
Agreement contains quarterly financial covenants including a maximum leverage
ratio, a maximum funded debt ratio and a minimum required tangible net
worth. Pursuant to our Revolving Credit Agreement, we may only
declare quarterly or annual dividends if on the date of declaration, no event of
default has occurred, or no other event or condition has occurred that would
constitute an event of default after giving effect to the payment of the
dividend. At March 31, 2009, we were in compliance with all of the financial
covenants in the Revolving Credit Agreement.
At March
31, 2009 and December 31, 2008, we had no amounts outstanding on the revolving
line of credit. At March 31, 2009 and December 31, 2008, the availability under
the line of credit was $11.0 million. An additional $4.0 million of
the line of credit has been issued in the form of a standby letter of credit
that provides collateral for closure and post-closure financial
assurance.
NOTE
9 – CLOSURE AND POST-CLOSURE OBLIGATIONS
Closure
and post-closure obligations are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably estimated
consistent with SFAS 5, Accounting for Contingencies
and with the liability calculated in accordance with SFAS 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:
|
(in
thousands)
|
|
Three
Months Ended
March
31, 2009
|
|
|
|
|
|
|
|
Beginning
obligation
|
|
$ |
14,462 |
|
|
Accretion
expense
|
|
|
292 |
|
|
Payments
|
|
|
(148 |
) |
|
Adjustments
|
|
|
- |
|
|
Ending
obligation
|
|
|
14,606 |
|
|
Less
current portion
|
|
|
(1,003 |
) |
|
Long-term
portion
|
|
$ |
13,603 |
|
NOTE 10 – INCOME TAXES
As of
March 31, 2009 and December 31, 2008, we had no significant unrecognized tax
benefits. We recognize interest assessed by taxing authorities as a component of
interest expense. We recognize any penalties assessed by taxing authorities as a
component of selling, general and administrative expenses. Interest and penalties for
the three months ended March 31, 2009 and 2008 were not material.
Our
effective tax rate for the first quarter 2009 was 39.8% compared to 39.2% in the
first quarter of 2008. This increase is primarily due to lower pre-tax earnings
in the current year increasing the impact non-tax-deductible expenses have on
the effective tax rate.
We file
U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as
well as income tax returns in various states. We may be subject to examination
by the IRS for tax years 2005 through 2008. Additionally, we may be subject to
examinations by various state taxing jurisdictions for tax years 2004 through
2008. We are not currently under examination by the IRS or any state taxing
jurisdictions.
NOTE 11 – COMMITMENTS AND
CONTINGENCIES
In the
ordinary course of conducting business, we are periodically involved in judicial
and administrative proceedings involving federal, state or local governmental
authorities. Actions may also be brought by individuals or groups in connection
with permit modifications or proposed new facilities, alleged violations of
existing permits, or alleged damages suffered from exposure to hazardous
substances purportedly released from our operating sites or non-operating sites,
as well as other litigation. We maintain insurance intended to cover property
and damage claims asserted as a result of our operation. Periodically,
management reviews and may establish reserves for legal and administrative
matters, or fees expected to be incurred in connection therewith. As of March
31, 2009, we did not have any ongoing, 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
12 – COMPUTATION OF EARNINGS PER SHARE
|
(in
thousands, except per share data)
|
|
Three
Months Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Net
income
|
|
$ |
3,644 |
|
|
$ |
3,644 |
|
|
$ |
5,868 |
|
|
$ |
5,868 |
|
|
Weighted
average common shares outstanding
|
|
|
18,143 |
|
|
|
18,143 |
|
|
|
18,229 |
|
|
|
18,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock options and restricted stock
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
48 |
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
18,176 |
|
|
|
|
|
|
|
18,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
0.32 |
|
|
$ |
0.32 |
|
|
Anti-dilutive
shares excluded from calculation
|
|
|
|
|
|
|
264 |
|
|
|
|
|
|
|
144 |
|
NOTE
13 – OPERATING SEGMENTS
We
operate within two segments, Operating Disposal Facilities and Non-Operating
Disposal Facilities. The Operating Disposal Facilities segment represents
facilities currently accepting waste. The Non-Operating Disposal Facilities
segment represents facilities that are no longer accepting waste.
Income
taxes are assigned to Corporate. All other items are included in the segment of
origin. Intercompany transactions have been eliminated from the segment
information and are not significant between segments.
Summarized
financial information concerning our reportable segments is shown in the
following tables:
|
(in
thousands)
|
|
Operating
Disposal Facilities
|
|
|
Non-Operating
Disposal Facilities
|
|
|
Corporate
|
|
|
Total
|
|
|
Three months ended
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
34,961 |
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
34,965 |
|
|
Transportation
costs
|
|
|
14,174 |
|
|
|
- |
|
|
|
- |
|
|
|
14,174 |
|
|
Other
direct operating costs
|
|
|
11,189 |
|
|
|
56 |
|
|
|
- |
|
|
|
11,245 |
|
|
Gross
profit
|
|
|
9,598 |
|
|
|
(52 |
) |
|
|
- |
|
|
|
9,546 |
|
|
Selling,
general & administration
|
|
|
1,108 |
|
|
|
- |
|
|
|
2,465 |
|
|
|
3,573 |
|
|
Operating
income (loss)
|
|
|
8,490 |
|
|
|
(52 |
) |
|
|
(2,465 |
) |
|
|
5,973 |
|
|
Interest,
net
|
|
|
(1 |
) |
|
|
- |
|
|
|
48 |
|
|
|
47 |
|
|
Other
income
|
|
|
33 |
|
|
|
- |
|
|
|
- |
|
|
|
33 |
|
|
Income
(loss) before income taxes
|
|
|
8,522 |
|
|
|
(52 |
) |
|
|
(2,417 |
) |
|
|
6,053 |
|
|
Income
taxes
|
|
|
- |
|
|
|
- |
|
|
|
2,409 |
|
|
|
2,409 |
|
|
Net
income (loss)
|
|
$ |
8,522 |
|
|
$ |
(52 |
) |
|
$ |
(4,826 |
) |
|
$ |
3,644 |
|
|
Depreciation,
amortization & accretion
|
|
$ |
2,221 |
|
|
$ |
54 |
|
|
$ |
11 |
|
|
$ |
2,286 |
|
|
Capital
expenditures
|
|
$ |
2,656 |
|
|
$ |
- |
|
|
$ |
5 |
|
|
$ |
2,661 |
|
|
Total
assets
|
|
$ |
94,243 |
|
|
$ |
57 |
|
|
$ |
31,412 |
|
|
$ |
125,712 |
|
|
(in
thousands)
|
|
Operating
Disposal Facilities
|
|
|
Non-Operating
Disposal Facilities
|
|
|
Corporate
|
|
|
Total
|
|
|
Three months ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
46,215 |
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
46,219 |
|
|
Transportation
costs
|
|
|
22,058 |
|
|
|
- |
|
|
|
- |
|
|
|
22,058 |
|
|
Other
direct operating costs
|
|
|
10,645 |
|
|
|
72 |
|
|
|
- |
|
|
|
10,717 |
|
|
Gross
profit
|
|
|
13,512 |
|
|
|
(68 |
) |
|
|
- |
|
|
|
13,444 |
|
|
Selling,
general & administration
|
|
|
1,322 |
|
|
|
- |
|
|
|
2,597 |
|
|
|
3,919 |
|
|
Operating
income (loss)
|
|
|
12,190 |
|
|
|
(68 |
) |
|
|
(2,597 |
) |
|
|
9,525 |
|
|
Interest,
net
|
|
|
(1 |
) |
|
|
- |
|
|
|
63 |
|
|
|
62 |
|
|
Other
income
|
|
|
65 |
|
|
|
- |
|
|
|
- |
|
|
|
65 |
|
|
Income
(loss) before income taxes
|
|
|
12,254 |
|
|
|
(68 |
) |
|
|
(2,534 |
) |
|
|
9,652 |
|
|
Income
taxes
|
|
|
- |
|
|
|
- |
|
|
|
3,784 |
|
|
|
3,784 |
|
|
Net
income (loss)
|
|
$ |
12,254 |
|
|
$ |
(68 |
) |
|
$ |
(6,318 |
) |
|
$ |
5,868 |
|
|
Depreciation,
amortization & accretion
|
|
$ |
2,755 |
|
|
$ |
72 |
|
|
$ |
11 |
|
|
$ |
2,838 |
|
|
Capital
expenditures
|
|
$ |
3,419 |
|
|
$ |
9 |
|
|
$ |
36 |
|
|
$ |
3,464 |
|
|
Total
assets
|
|
$ |
103,400 |
|
|
$ |
60 |
|
|
$ |
17,958 |
|
|
$ |
121,418 |
|
NOTE 14 – SUBSEQUENT EVENT
On April
1, 2009, we declared a quarterly dividend of $0.18 per common share to
stockholders of record on April 17, 2009. The dividend was paid using cash on
hand on April 24, 2009 in an aggregate amount of $3.3 million.
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, Polychlorinated
biphenyl (“PCB”), non-hazardous and radioactive waste services company providing
treatment, disposal and transportation services to commercial and government
entities including oil refineries, chemical production facilities,
manufacturers, electric utilities, steel mills, biotechnology companies, waste
broker aggregators and medical and academic institutions. The
majority of the waste received at our facilities is produced in the United
States. We generate revenue 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 arrange
transportation of waste to our facilities, which has contributed significant
revenue in recent years. We or our predecessor companies have been in the waste
business since 1952.
Our
customers may be divided into categories to better evaluate period-to-period
changes in our treatment and disposal revenue based on service mix and type of
business (recurring “Base” or “Event” clean-up). Each of these
categories is described in the table below, along with information on the
percentage of total treatment and disposal revenues for each category for the
three months ended March 31, 2009 and 2008.
Customer
Category
|
|
Description
|
|
%
of Treatment and Disposal Revenue (1)
for the Three Months ended
March 31, 2009
|
|
%
of Treatment and Disposal Revenue (1)
for the Three Months ended
March 31, 2008
|
Broker
|
|
Companies
that collect and aggregate waste from their direct customers, comprised of
both base and event clean-up business.
|
|
33%
|
|
28%
|
Private
Clean-up
|
|
Private
sector clean-up project waste, typically event business.
|
|
21%
|
|
27%
|
Government
|
|
Federal
and State government clean-up project waste, comprised of both base
business and event clean-up business.
|
|
14%
|
|
19%
|
Refinery
|
|
Petroleum
refinery customers, comprised of both base and event clean-up
business.
|
|
13%
|
|
4%
|
Other
industry
|
|
Electric
utilities, chemical manufacturers and other industrial customers not
included in other categories, comprised of both recurring base business
and event clean-up business.
|
|
11%
|
|
13%
|
Rate
regulated
|
|
Northwest
and Rocky Mountain Compact customers paying rate-regulated disposal fees
set by the State of Washington, predominantly base
business.
|
|
7%
|
|
6%
|
Steel
|
|
Steel
mill customers, comprised of both base and event clean-up
business.
|
|
1%
|
|
3%
|
(1)
Excludes all transportation service revenue
|
|
|
|
A
significant portion of our disposal revenue is attributable to discrete Event
Business projects which vary widely in size, duration and unit pricing.
Approximately 48% and 52% of our treatment and disposal revenue was derived from
Event Business projects for the three months ended March 31, 2009 and 2008,
respectively. The one-time nature of Event Business, diverse spectrum of waste
types received and widely varying unit pricing necessarily creates variability
in revenue and earnings. This variability may be influenced by funding
availability, changes in laws and regulations, government enforcement actions,
public controversy, litigation, weather, real estate redevelopment project
timing, government appropriation cycles and other factors. The types and amounts
of waste received from Base Business also vary from
quarter-to-quarter. As a result of this variability, we can
experience significant quarter-to-quarter and year-to-year differences in
revenue, gross profit, gross margin, operating income and net income. Also,
while many large projects are pursued months or years in advance of work
performance, both large and small clean-up project opportunities routinely arise
with little prior notice. This uncertainty, which is inherent to the hazardous
and radioactive waste disposal business, is factored into our projections and
externally communicated business outlook statements. Our projections combine
historical experience with identified sales pipeline opportunities and new or
expanded service line projections. Management believes that the
significant adverse economic conditions emerging in late 2008 and continuing in
2009 exacerbate the uncertainty inherent to projecting future
results.
Depending
on project-specific customer needs and competitive economics, transportation
services may be offered at or near our cost to help secure new business. For
waste transported by rail from the east coast (e.g. Honeywell Jersey
City project) and other locations distant from our Grand View, Idaho facility,
transportation-related revenue can account for as much as three-fourths (75%) of
total project revenue. While bundling transportation and disposal services
reduces overall gross profit as a percentage of total revenue (“gross margin”),
this value-added service has allowed us to win multiple projects that management
believes we could not otherwise have competed for successfully. Our
investment in a Company-owned railcar fleet to supplement rail cars obtained
under operating leases has reduced transportation expenses incurred when we
relied solely on operating leases and short-term rentals.
The
increased waste volumes resulting from projects won through this bundling
strategy have taken advantage of our operating leverage and increased
profitability. While waste treatment and other variable costs are
project-specific, the contribution to profitability from the individual projects
performed generally increases as overall disposal volumes
increase. Management believes that maximizing operating income and
earnings per share is a higher priority than maintaining or increasing gross
margin. We plan to continue aggressively bidding bundled
transportation and disposal services based on this income growth
strategy.
We serve
oil refineries, chemical production plants, steel mills, waste
broker-aggregators serving small manufacturers and other customers that are, or
may be, affected by adverse economic conditions and a tight credit environment.
Such conditions may cause our customers to curtail operations resulting in lower
waste production and/or delayed spending on off-site waste shipments,
maintenance, waste clean-up projects and other work. Factors that can
impact general economic conditions and the level of spending by our customers
include, but are not limited to, consumer and industrial spending, increases in
fuel and energy costs, conditions in the real estate and mortgage markets, labor
and healthcare costs, access to credit, consumer confidence and other economic
factors affecting spending behavior. Market forces may also induce
customers to reduce or cease operations, declare bankruptcy, liquidate or
relocate to other countries, any of which could adversely affect our
business. To the extent our business is either government funded or
driven by government regulations or enforcement actions, we believe it is less
susceptible to general economic conditions. However, spending by
government agencies may also be reduced due to declining tax revenues resulting
from a weak economy.
Adverse
economic trends arising in the second half of 2008 and continuing in 2009 have
resulted in a decrease in near-term demand for our services from industrial
production and manufacturing activities. These conditions also
adversely impact spending on market-driven real estate “brownfield”
redevelopment projects and other discretionary industry clean-up
projects. We have tightened our credit standards in response to these
trends, which may also impact our business. Demand for our services
may benefit from greater emphasis on enforcement by the new federal
administration as well as increased federal funding for environmental
remediation, including funds specifically appropriated for remediation by the
recently enacted American Recovery and Reinvestment Act of
2009.
Results
of Operations
The
following table summarizes our results of operations for the three months ended
March 31, 2009 and 2008 in dollars and as a percentage of total
revenue.
(in thousands,
except per share
amounts)
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
34,965 |
|
|
|
100.0% |
|
|
$ |
46,219 |
|
|
|
100.0% |
|
Transportation
costs
|
|
|
14,174 |
|
|
|
40.5% |
|
|
|
22,058 |
|
|
|
47.7% |
|
Other
direct operating costs
|
|
|
11,245 |
|
|
|
32.2% |
|
|
|
10,717 |
|
|
|
23.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
9,546 |
|
|
|
27.3% |
|
|
|
13,444 |
|
|
|
29.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
3,573 |
|
|
|
10.2% |
|
|
|
3,919 |
|
|
|
8.5% |
|
Operating
income
|
|
|
5,973 |
|
|
|
17.1% |
|
|
|
9,525 |
|
|
|
20.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
48 |
|
|
|
0.1% |
|
|
|
63 |
|
|
|
0.1% |
|
Interest
expense
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Other
|
|
|
33 |
|
|
|
0.1% |
|
|
|
65 |
|
|
|
0.2% |
|
Total
other income
|
|
|
80 |
|
|
|
0.2% |
|
|
|
127 |
|
|
|
0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
6,053 |
|
|
|
17.3% |
|
|
|
9,652 |
|
|
|
20.9% |
|
Income
taxes
|
|
|
2,409 |
|
|
|
6.9% |
|
|
|
3,784 |
|
|
|
8.2% |
|
Net
income
|
|
$ |
3,644 |
|
|
|
10.4% |
|
|
$ |
5,868 |
|
|
|
12.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.20 |
|
|
|
|
|
|
$ |
0.32 |
|
|
|
|
|
Dilutive
|
|
$ |
0.20 |
|
|
|
|
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,143 |
|
|
|
|
|
|
|
18,229 |
|
|
|
|
|
Dilutive
|
|
|
18,176 |
|
|
|
|
|
|
|
18,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid per share
|
|
$ |
0.18 |
|
|
|
|
|
|
$ |
0.15 |
|
|
|
|
|
Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
Revenue -
Revenue decreased 24% to $35.0 million for the first quarter of 2009, down from
$46.2 million for the first quarter of 2008. This reflects lower treatment and
disposal revenue as well as lower transportation revenue in the first quarter of
2009 compared to the first quarter of 2008, which we believe was significantly
influenced by adverse economic conditions. In the first quarter of 2009, we
disposed of 213,000 tons of waste, down 38% from the 343,000 tons disposed in
the first quarter of 2008. This volume decline was partially offset
by a 42% increase in average selling price for treatment and disposal services
(excluding transportation) in the first quarter of 2009 over the same quarter
last year. This increase in average selling price primarily reflects
pricing for the thermal desorption and recycling service introduced at our
Robstown, TX facility in the second half of 2008.
During
the first quarter of 2009, treatment and disposal revenue from recurring Base
Business was 5% lower than the first quarter of 2008 and comprised 52% of
non-transportation revenue. This compared to 48% of
non-transportation Base Business revenue in the first quarter of 2008. This
decrease primarily reflects Base Business declines in our broker and steel
customer categories. Event Business revenue in the first quarter of
2009 decreased 19% over the same quarter in 2008 and comprised 48% of
non-transportation revenue during the quarter. This compared to 52%
of non-transportation Event Business in the first quarter of 2008. As
discussed further below, this reflects decreased treatment and disposal revenue
from both private and government clean-up projects.
The
following table summarizes our first quarter 2009 revenue growth (both Base and
Event Business) by customer type as compared with the first quarter of
2008.
|
|
Treatment
and Disposal Revenue Growth
Three
Months Ended March 31, 2009 vs. Three Months Ended March 31,
2008
|
|
|
|
Refinery
|
|
158%
|
Rate
regulated
|
|
11%
|
Broker
|
|
3%
|
Other
industry
|
|
-28%
|
Private
|
|
-31%
|
Government
|
|
-36%
|
Steel
|
|
-65%
|
Treatment
and disposal revenue from our refinery customers increased 158% in the first
quarter of 2009 compared to the same quarter in 2008. This increase is primarily
due to the introduction of thermal desorption recycling services at our
Robstown, Texas facility in the second half of 2008.
Rate-regulated
business at our Richland, Washington low-level radioactive waste facility
increased 11% in the first quarter of 2009 compared to the first quarter of
2008. Our Richland facility operates under a State-approved revenue
requirement. This increase reflects the timing of revenue recognition
for the rate-regulated portion of the business.
Our
broker business increased 3% in the first quarter of 2009 compared to the same
quarter in 2008. This reflects growth in waste brokered to us for
thermal desorption and recycling services at our Robstown, Texas facility in the
first quarter of 2009, partially offset by decreased business for other brokered
wastes. We believe that the decrease in business for other brokered
waste reflects reduced industrial production in the United States.
Our other
industry revenue decreased 28% in the first quarter of 2009 compared to the
first quarter of 2008. This decrease was due primarily to a large clean-up
project for an electric utility customer which, was shipped to our Grand View,
Idaho site in the first quarter of 2008 and was not replaced in the first
quarter of 2009.
Treatment
and disposal revenue from private clean-up customers decreased approximately 31%
in the first quarter of 2009 as compared to the same period last year. This
decline reflects decreased shipments from the Molycorp, Honeywell Jersey City
and other smaller projects in the first quarter of 2009 compared to the same
period in 2008. We believe that fewer new clean-up opportunities were
identified and more previously identified projects were delayed in the first
quarter of 2009 than the same quarter last year as a result of the adverse
economic conditions which emerged in the second half of 2008 and continued in
2009. The Honeywell Jersey City project contributed 44% of total revenue
(including transportation) in the first quarter of 2009 and 38% of total revenue
(including transportation) in the first quarter of 2008, or $15.4 million and
$17.3 million, respectively. Shipments under our bundled
transportation and disposal contract with Chevron/Molycorp which is near
completion contributed 4% of total revenue (including transportation) in the
first quarter of 2009, or $1.5 million, compared to 8% of total revenue
(including transportation) or $3.5 million in the first quarter of
2008.
Government
clean-up business revenue decreased 36% in the first quarter of 2009 compared to
the first quarter of 2008. This decline reflects a decrease in Event Business
under our contract with the U.S. Army Corps of Engineers (“USACE”), which
contributed $2.2 million or 6% of total revenue in the first quarter of 2009,
compared to $3.8 million or 8% of total revenue in the first quarter of 2008.
This quarterly decrease reflects completion of a major project phase at one site
in the first quarter of 2008, partially offset by shipments from two other
projects sites in the first quarter of 2009. This variability is
consistent with project-specific timing at the multiple USACE clean-up sites we
serve. Each such site typically is remediated over multiple years in
discretely funded project phases. These phases vary by amount of
waste received and duration. No USACE projects served by the Company
were cancelled or awarded to competitors during the quarter. We
believe timing of USACE work in the first quarter of 2009 was also affected by
delayed enactment of full-year funding for the fiscal year 2009 federal
budget.
Treatment
and disposal revenue from our steel mill customers decreased 65% in the first
quarter of 2009 compared to the first quarter of 2008. This reflects business
lost to zinc recyclers offering a cost-effective alternative to land disposal as
well as reduced steel production levels in the first quarter of 2009 at mills
served by the Company.
Gross
Profit. Gross profit for the first quarter of 2009 decreased by 29% to
$9.5 million, down from $13.4 million in the first quarter of 2008. This
decrease primarily reflects lower volumes of waste disposed in the first quarter
of 2009 compared to the same period in 2008.
Gross
margin was 27% in the first quarter of 2009, down from 29% in the first quarter
of 2008. This decrease reflects lower treatment and disposal waste
volumes partially offset by a decrease in transportation revenue. Disposal gross
margins (excluding transportation revenue and costs) were 46% in the first
quarter of 2009 as compared to 55% in the first quarter of 2008. This decrease reflects
reduced operating leverage caused by lower waste volumes and a greater
percentage of waste requiring treatment (and therefore higher costs) prior to
disposal.
Selling, General
and Administrative (“SG&A”). As a percentage of total
revenue, SG&A expenses for the first quarter of 2009 and 2008 were 10% and
9%, respectively. SG&A expenses decreased 9% to $3.6 million,
down from $3.9 million for the first quarter of 2008. The decline in SG&A
expense was due primarily to lower incentive compensation and business
development costs, partially offset by higher professional service
fees.
Interest
income. During the first
quarter of 2009, we earned $48,000 of interest income, down from $63,000 in the
first quarter of 2008. This decrease reflects a lower average rate of interest
earned on investments.
Other
expense/income. Other
expense/income includes business activities not included in current year
ordinary and usual revenue and expenses. In the first quarter of 2009, we
recognized $33,000 in other income. This primarily reflects royalty
income from a previously sold municipal waste landfill in Texas, partially
offset by foreign currency transaction losses. Other income in the
first quarter of 2008 was $65,000, primarily from the Texas royalty
income.
Income tax
expense. Our effective tax rate for the first quarter 2009 was 39.8%
compared to 39.2% in the first quarter of 2008. This increase is primarily due
to lower pre-tax earnings in the current year increasing the impact
non-tax-deductible expenses have on the effective tax rate.
At March
31, 2009 and December 31, 2008, we had no unrecognized tax benefits. We
recognize interest assessed by taxing authorities as interest expense. We
recognize any penalties assessed by taxing authorities as SG&A expense. Interest and penalties for
the three months ended March 31, 2009 and 2008 were not material.
Critical
Accounting Policies
Financial
statement preparation requires management to make estimates and judgments that
affect reported assets, liabilities, revenue and expenses and disclosure of
contingent assets and liabilities. The accompanying consolidated financial
statements are prepared using the same critical accounting policies discussed in
our Annual Report on Form 10-K for the fiscal year ended December 31,
2008.
Liquidity and Capital
Resources
Our
principal source of cash is from operations. The $24.1 million in cash at March
31, 2009 was comprised of cash and cash equivalents immediately available for
operations.
We have a
$15.0 million unsecured revolving line of credit (the “Revolving Credit
Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”) expiring
on June 15, 2010. This unsecured line-of-credit is available to supplement daily
working capital if 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 LIBOR plus an applicable spread or the prime rate. The Revolving
Credit Agreement contains quarterly financial covenants, including a maximum
leverage ratio, a maximum funded debt ratio and a minimum required tangible net
worth. Pursuant to our Revolving Credit Agreement, we may only declare quarterly
or annual dividends if on the date of declaration, no event of default has
occurred, or no other event or condition has occurred that would constitute an
event of default after giving effect to the payment of the dividend. At March
31, 2009 we were in compliance with all financial covenants in the Revolving
Credit Agreement. We have a standby letter of credit to support our closure and
post-closure obligation of $4.0 million that expires in September 2009. At March
31, 2009, we had a borrowing capacity of $11.0 million after deducting the
outstanding letter of credit, with no borrowings outstanding.
On
October 28, 2008, our Board of Directors authorized management to repurchase up
to 600,000 shares, or approximately 3%, of our outstanding common stock. On
December 11, 2008, the program was extended until February 28, 2009. On February
23, 2009, the program was extended through December 31, 2009 unless extended,
canceled or modified by our Board of Directors. This authorization does not
obligate the Company to acquire any particular amount of common stock and is to
be executed at management’s discretion within Board-established stock price
limits. Through March 31, 2009, the Company had purchased 155,315 shares under
the plan at an average price of $16.68 per share using cash on
hand. We anticipate that any future repurchases would be funded with
cash on hand.
We
believe that cash on hand and cash flow from operations will be sufficient to
meet our operating cash needs, including future dividends as may be approved by
our Board of Directors and potential expenditures for the Board-approved stock
repurchase plan, if any, during the next 12 months.
Operating
Activities - For the three months ended March 31, 2009, net cash provided
by operating activities was $11.5 million. This reflects net income of $3.6
million, decreases in receivables of $5.2 million, a $2.5 million decrease in
income tax receivable and depreciation, amortization and accretion of $2.3
million. Partially offsetting these sources of cash were decreases in
accounts payable and accrued liabilities of $1.7 million and decreases in
accrued salaries and benefits of $1.2 million. Impacts on net income
are due to the factors discussed above under Results of Operations. The decrease
in receivables is primarily attributable to a decline in revenue in the first
quarter of 2009 as compared with the same quarter in 2008. Days sales
outstanding was 64 days as of March 31, 2009, compared to 66 days at December
31, 2008 and 74 days at March 31, 2008. The decrease in income tax receivable
reflects application of prior year over-payments to current year tax liabilities
generated during the quarter as well as tax refunds received in the first
quarter of 2009. The decrease in accounts payable and accrued liabilities is
primarily attributable to lower waste disposal volumes in the first quarter of
2009. The decrease in accrued salaries and benefits reflects
incentive compensation earned for 2008 performance and paid in the first quarter
of 2009.
For the
three months ended March 31, 2008, net cash provided by operating activities was
$1.7 million. This reflects net income of $5.9 million, an increase
in income tax payable of $2.9 million and depreciation, amortization and
accretion of $2.8 million. Partially offsetting these sources of cash
were increases in receivables of $8.6 million and decreases in accounts payable
and accrued liabilities of $1.0 million.
Investing
Activities - For
the three months ended March 31, 2009, net cash used in investing activities was
$2.6 million. Significant transactions affecting cash used in investing
activities during the first three months of 2009 include capital expenditures of
$2.6 million. Significant capital projects included equipment
purchases at all four operating disposal facilities as well as construction of
additional disposal capacity at our Robstown, Texas site.
For the
three months ended March 31, 2008, net cash used in investing activities was
$2.2 million, including capital expenditures of $3.5
million. Partially offsetting cash outflows for capital expenditures
were net maturities of short-term investments totaling $1.2
million.
Financing
Activities - For
the three months ended March 31, 2009 and 2008, net cash used in financing
activities was $3.3 million and $2.7 million, respectively. This primarily
reflects payment of dividends partially offset by proceeds from stock option
exercises and tax benefits associated with those exercises.
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, 2008 filed on February 25,
2009. There were no material changes in the amounts of our contractual
obligations and guarantees during the three months ended March 31,
2009.
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.
We have
minimal interest rate risk on investments or other assets. At March 31, 2009,
approximately $24.1 million was held in cash and cash equivalents primarily
invested in money market accounts. Interest earned on these investments is
approximately 1% 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 March 31, 2009. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures, including the accumulation and communication
of disclosures to the Company’s Chief Executive Officer and Chief Financial
Officer as appropriate to allow timely decisions regarding required disclosure,
are effective to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified by the rules and forms of the SEC.
There
were no changes in our internal control over financial reporting that occurred
during the most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART
II. OTHER INFORMATION
Cautionary Statement for
Purposes of “Safe Harbor Provisions” of the Private Securities Litigation Reform
Act of 1995
This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of the federal securities laws. Statements that are not historical
facts, including statements about the Company’s beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words "may," "could," "would,"
"should," "believe," "expect," "anticipate," "plan," "estimate," "target,"
"project," "intend" and similar expressions. These statements include, among
others, statements regarding our financial and operating results, strategic
objectives and means to achieve those objectives, the amount and timing of
capital expenditures, repurchases of its stock under approved stock repurchase
plans, the amount and timing of interest expense, the likelihood of our success
in expanding our business, financing plans, budgets, working capital needs and
sources of liquidity.
Forward-looking
statements are only predictions and are not guarantees of performance. These
statements are based on management's beliefs and assumptions, which in turn are
based on currently available information. Important assumptions include, among
others, those regarding demand for Company services, expansion of service
offerings geographically or through new or expanded service lines, the timing
and cost of planned capital expenditures, competitive conditions and general
economic conditions. These assumptions could prove inaccurate. Forward-looking
statements also involve known and unknown risks and uncertainties, which could
cause actual results to differ materially from those contained in any
forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, a loss of a
major customer, compliance with and changes to applicable laws and regulations,
access to cost effective transportation services, access to insurance and other
financial assurances, loss of key personnel, lawsuits, labor disputes, adverse
economic conditions including a tightened credit market, government funding or
competitive pressures, incidents or adverse weather conditions that could limit
or suspend specific operations, implementation of new technologies production
rates for the thermal desorption service at our Texas and Nevada
facilities, market conditions and pricing for recycled materials, our ability to
perform under required contracts, our ability to permit and contract for timely
construction of new or expanded disposal cells, our willingness or ability to
pay dividends, our willingness or ability to repurchase our own common stock
under approved stock repurchase plans, and our ability to integrate any
potential acquisitions.
Except
as required by applicable law, including the securities laws of the United
States and the rules and regulations of the SEC, we are under no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. You should not place undue reliance
on our forward-looking statements. Although we believe that the expectations
reflected in forward-looking statements are reasonable, we cannot guarantee
future results or performance. Before you invest in our common stock, you
should be aware that the occurrence of the events described in the "Risk
Factors" section in our 2008 Annual Report on Form 10-K filed with
the SEC on February 25, 2009 could harm our business, prospects, operating
results, and financial condition.
Investors
should also be aware that while we do, from time to time, communicate with
securities analysts, it is against our policy to disclose to them any material
non-public information or other confidential commercial information.
Accordingly, stockholders should not assume that we agree with any statement or
report issued by any analyst irrespective of the content of the statement or
report. Furthermore, we have a policy against issuing or confirming financial
forecasts or projections issued by others. Thus, to the extent that reports
issued by securities analysts contain any projections, forecasts or opinions,
such reports are not the responsibility of 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, 2008.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
The
following table sets forth the Company’s purchases of American Ecology common
stock made during the three months ended March 31, 2009:
Period
(1)
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Program
|
|
|
Maximum
Number of Shares That May Yet Be Purchased Under the Program (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2009 to January 31, 2009
|
|
|
- |
|
|
$ |
- |
|
|
|
155,175 |
|
|
|
444,825 |
|
February
1, 2009 to February 28, 2009
|
|
|
140 |
|
|
$ |
16.02 |
|
|
|
155,315 |
|
|
|
444,685 |
|
March
1, 2009 to March 31, 2009
|
|
|
- |
|
|
$ |
- |
|
|
|
155,315 |
|
|
|
444,685 |
|
Total
|
|
|
140 |
|
|
$ |
16.02 |
|
|
|
155,315 |
|
|
|
444,685 |
|
|
(1)
|
The
reported periods conform to our fiscal calendar. The first
quarter of fiscal 2009 began on January 1, 2009 and ended on March 31,
2009.
|
|
(2)
|
On
October 28, 2008, our Board of Directors authorized a program to
repurchase up to 600,000 shares of the Company’s outstanding common stock
through December 31, 2008. On December 11, 2008, the program
was extended from December 31, 2008 to February 28, 2009. On February 23,
2009, the program was extended from February 28, 2009 to December 31,
2009. Stock repurchases under the program may be made in the open market
or through privately negotiated transactions at times and in such amounts
as the Company deems to be
appropriate.
|
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
Item
5. Other Information
None.
Item
6. Exhibits
|
10.56
|
*Management
Incentive Plan Effective January 1, 2009
|
|
|
|
|
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
|
|
|
|
*
Identifies management contracts or compensatory plans or arrangements
required to be filed as an exhibit
hereto.
|
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.
|
American
Ecology Corporation
|
|
(Registrant)
|
Date: April
30, 2009
|
/s/
Jeffrey R. Feeler
|
|
Jeffrey
R. Feeler
Vice
President and
Chief
Financial Officer
|
19