UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021
or
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☐ |
TRANSITION REPORT PURSUANT TO Section 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 001-39120
US ECOLOGY, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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84-2421185 |
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(State or other jurisdiction of incorporation or |
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(I.R.S. Employer Identification No.) |
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organization) |
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101 S. Capitol Blvd., Suite 1000 |
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Boise, Idaho |
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83702 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (208) 331-8400
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, par value $0.01 per share |
ECOL |
Nasdaq Global Select Market |
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Warrants to Purchase Common Stock |
ECOLW |
Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer ⌧ |
Accelerated Filer ◻ |
Non-Accelerated Filer ◻ |
Smaller Reporting Company ☐ |
Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
At April 27, 2021, there were 31,512,324 shares of the registrant’s Common Stock outstanding.
US ECOLOGY, INC.
FORM 10-Q
TABLE OF CONTENTS
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3 |
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Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 |
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3 |
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Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 |
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4 |
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Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 |
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5 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 |
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6 |
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Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 |
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7 |
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8 |
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30 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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31 |
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42 |
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43 |
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44 |
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45 |
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46 |
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46 |
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46 |
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46 |
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46 |
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47 |
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48 |
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2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
US ECOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value amount)
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March 31, 2021 |
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December 31, 2020 |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
82,354 |
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$ |
73,848 |
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Receivables, net |
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242,854 |
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241,978 |
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Prepaid expenses and other current assets |
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25,709 |
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28,379 |
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Income taxes receivable |
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17,006 |
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18,279 |
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Total current assets |
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367,923 |
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362,484 |
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Property and equipment, net |
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448,248 |
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456,637 |
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Operating lease assets |
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48,824 |
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51,474 |
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Restricted cash and investments |
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5,784 |
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5,598 |
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Intangible assets, net |
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515,208 |
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523,988 |
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Goodwill |
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413,346 |
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413,037 |
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Other assets |
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23,819 |
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18,065 |
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Total assets |
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$ |
1,823,152 |
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$ |
1,831,283 |
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Liabilities and Stockholders’ Equity |
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Current Liabilities: |
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Accounts payable |
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$ |
44,773 |
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$ |
35,881 |
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Deferred revenue |
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17,524 |
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15,267 |
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Accrued liabilities |
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47,300 |
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59,296 |
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Accrued salaries and benefits |
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27,913 |
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30,918 |
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Income taxes payable |
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888 |
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|
977 |
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Short-term borrowings |
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277 |
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— |
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Current portion of long-term debt |
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3,358 |
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3,359 |
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Current portion of closure and post-closure obligations |
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7,119 |
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6,471 |
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Current portion of operating lease liabilities |
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16,208 |
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17,048 |
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Total current liabilities |
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165,360 |
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169,217 |
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Long-term debt |
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781,644 |
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782,484 |
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Long-term closure and post-closure obligations |
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89,615 |
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89,398 |
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Long-term operating lease liabilities |
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33,362 |
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35,069 |
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Other long-term liabilities |
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20,767 |
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32,201 |
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Deferred income taxes, net |
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119,701 |
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120,983 |
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Total liabilities |
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1,210,449 |
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1,229,352 |
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Commitments and contingencies (See Note 16) |
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Stockholders’ Equity: |
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Common stock $0.01 par value per share, 50,000 authorized; 31,512 shares issued and outstanding |
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315 |
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315 |
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Additional paid-in capital |
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817,818 |
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820,567 |
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Retained deficit |
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(189,249) |
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(188,452) |
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Treasury stock, at cost, 277 and 358 shares, respectively |
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(12,179) |
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(15,841) |
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Accumulated other comprehensive loss |
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(4,002) |
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(14,658) |
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Total stockholders’ equity |
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612,703 |
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601,931 |
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Total liabilities and stockholders’ equity |
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$ |
1,823,152 |
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$ |
1,831,283 |
The accompanying notes are an integral part of these consolidated financial statements.
3
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Revenue |
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$ |
228,619 |
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$ |
240,720 |
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Direct operating costs |
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175,746 |
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178,279 |
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Gross profit |
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52,873 |
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62,441 |
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Selling, general and administrative expenses |
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51,368 |
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52,377 |
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Goodwill impairment charges |
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— |
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300,300 |
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Operating income (loss) |
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1,505 |
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(290,236) |
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Other income (expense): |
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Interest income |
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273 |
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89 |
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Interest expense |
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(7,357) |
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(9,310) |
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Foreign currency (loss) gain |
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(371) |
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937 |
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Other |
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3,710 |
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171 |
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Total other expense |
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(3,745) |
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(8,113) |
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Loss before income taxes |
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(2,240) |
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(298,349) |
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Income tax benefit |
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(1,444) |
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(263) |
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Net loss |
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$ |
(796) |
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$ |
(298,086) |
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Loss per share: |
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Basic |
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$ |
(0.03) |
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$ |
(9.52) |
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Diluted |
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$ |
(0.03) |
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$ |
(9.52) |
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Shares used in loss per share calculation: |
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Basic |
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31,104 |
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31,305 |
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Diluted |
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31,104 |
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31,305 |
The accompanying notes are an integral part of these consolidated financial statements.
4
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Net loss |
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$ |
(796) |
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$ |
(298,086) |
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Other comprehensive income (loss): |
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Foreign currency translation gain (loss) |
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1,439 |
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(8,259) |
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Net changes in interest rate hedge, net of taxes of $2,450 and $(1,621), respectively |
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9,217 |
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(6,098) |
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Comprehensive income (loss), net of tax |
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$ |
9,860 |
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$ |
(312,443) |
The accompanying notes are an integral part of these consolidated financial statements.
5
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(796) |
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$ |
(298,086) |
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Depreciation and amortization of property and equipment |
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18,234 |
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17,978 |
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Amortization of intangible assets |
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9,135 |
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9,441 |
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Accretion of closure and post-closure obligations |
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1,182 |
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1,266 |
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Goodwill impairment charges |
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— |
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300,300 |
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Unrealized foreign currency (gain) loss |
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(315) |
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2,703 |
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Deferred income taxes |
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(3,781) |
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(3,320) |
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Share-based compensation expense |
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1,928 |
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1,564 |
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Share-based payments of business development and integration expenses |
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|
163 |
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181 |
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Unrecognized tax benefits |
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12 |
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52 |
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Net (gain) loss on disposition of assets |
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(221) |
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184 |
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Amortization and write-off of debt issuance costs |
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|
577 |
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298 |
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Amortization and write-off of debt discount |
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40 |
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245 |
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Change in fair value of contingent consideration |
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— |
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(1,127) |
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Change in fair value of minority interest investment |
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|
(3,509) |
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— |
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Changes in assets and liabilities (net of effects of business acquisition): |
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|
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Receivables |
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|
(680) |
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|
13,467 |
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Income taxes receivable |
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|
1,276 |
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|
893 |
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Other assets |
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|
1,114 |
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(2,957) |
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Accounts payable and accrued liabilities |
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|
(3,647) |
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|
(13,618) |
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Deferred revenue |
|
|
2,214 |
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|
7,083 |
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Accrued salaries and benefits |
|
|
(3,028) |
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|
(7,446) |
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Income taxes payable |
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|
(98) |
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|
662 |
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Closure and post-closure obligations |
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|
(337) |
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|
(417) |
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Net cash provided by operating activities |
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|
19,463 |
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|
29,346 |
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Cash flows from investing activities: |
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|
|
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|
|
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Business acquisitions (net of cash acquired) |
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|
— |
|
|
(3,309) |
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Purchases of property and equipment |
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|
(9,614) |
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|
(19,131) |
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Minority interest investment |
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|
(712) |
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— |
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Proceeds from sale of property and equipment |
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|
1,623 |
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|
781 |
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Purchases of restricted investments |
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|
(913) |
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|
(56) |
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Proceeds from sale of restricted investments |
|
|
934 |
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— |
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Net cash used in investing activities |
|
|
(8,682) |
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|
(21,715) |
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Cash flows from financing activities: |
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|
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Proceeds from long-term debt |
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— |
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|
90,000 |
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Payments on long-term debt |
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|
(1,125) |
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|
(1,125) |
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Payments on short-term borrowings |
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|
(2,950) |
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|
(49,871) |
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Proceeds from short-term borrowings |
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|
3,227 |
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|
50,267 |
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Repurchase of common stock |
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|
(465) |
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|
(18,332) |
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Dividends paid |
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— |
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|
(5,667) |
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Payment of equipment financing obligations |
|
|
(1,461) |
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|
(1,525) |
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Net cash (used in) provided by financing activities |
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|
(2,774) |
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|
63,747 |
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|
|
|
|
|
|
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Effect of foreign exchange rate changes on cash |
|
|
708 |
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|
(2,825) |
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|
|
|
|
|
|
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Increase in Cash and cash equivalents and restricted cash |
|
|
8,715 |
|
|
68,553 |
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Cash and cash equivalents and restricted cash at beginning of period |
|
|
75,104 |
|
|
42,140 |
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Cash and cash equivalents and restricted cash at end of period |
|
$ |
83,819 |
|
$ |
110,693 |
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|
|
|
|
|
|
|
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Reconciliation of Cash and cash equivalents and restricted cash |
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|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
73,848 |
|
|
41,281 |
|
Restricted cash at beginning of period |
|
|
1,256 |
|
|
859 |
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Cash and cash equivalents and restricted cash at beginning of period |
|
$ |
75,104 |
|
$ |
42,140 |
|
Cash and cash equivalents at end of period |
|
|
82,354 |
|
|
109,790 |
|
Restricted cash at end of period |
|
|
1,465 |
|
|
903 |
|
Cash and cash equivalents and restricted cash at end of period |
|
$ |
83,819 |
|
$ |
110,693 |
|
Supplemental Disclosures: |
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|
|
|
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|
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Income taxes paid, net of receipts |
|
$ |
1,270 |
|
$ |
1,241 |
|
Interest paid |
|
$ |
6,404 |
|
$ |
7,642 |
|
Non-cash investing and financing activities: |
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|
|
|
|
|
|
Capital expenditures in accounts payable |
|
$ |
4,569 |
|
$ |
3,531 |
|
Restricted stock issued from treasury shares |
|
$ |
4,127 |
|
$ |
— |
The accompanying notes are an integral part of these consolidated financial statements.
6
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
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|
|
|
|
|
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|
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Three Months Ended March 31, |
||||
|
|
|
2021 |
|
2020 |
||
|
Total stockholders' equity, beginning balances |
|
$ |
601,931 |
|
$ |
1,011,380 |
|
|
|
|
|
|
|
|
|
Common stock: |
|
|
|
|
|
|
|
Beginning balances |
|
$ |
315 |
|
$ |
315 |
|
Ending balances |
|
$ |
315 |
|
$ |
315 |
|
|
|
|
|
|
|
|
|
Additional paid-in capital: |
|
|
|
|
|
|
|
Beginning balances |
|
$ |
820,567 |
|
$ |
816,345 |
|
Share-based compensation |
|
|
1,928 |
|
|
1,564 |
|
Share-based payments of business development and integration expenses |
|
|
161 |
|
|
181 |
|
Stock option exercises and issuance of common stock and restricted common stock |
|
|
— |
|
|
(360) |
|
Issuance of restricted common stock and common stock from treasury shares |
|
|
(4,838) |
|
|
— |
|
Ending balances |
|
$ |
817,818 |
|
$ |
817,730 |
|
|
|
|
|
|
|
|
|
Retained (deficit) earnings: |
|
|
|
|
|
|
|
Beginning balances |
|
$ |
(188,452) |
|
$ |
206,574 |
|
Net loss |
|
|
(796) |
|
|
(298,086) |
|
Dividends paid |
|
|
— |
|
|
(5,667) |
|
Other |
|
|
(1) |
|
|
— |
|
Ending balances |
|
$ |
(189,249) |
|
$ |
(97,179) |
|
|
|
|
|
|
|
|
|
Treasury stock: |
|
|
|
|
|
|
|
Beginning balances |
|
$ |
(15,841) |
|
$ |
— |
|
Repurchase of common stock |
|
|
(465) |
|
|
(18,332) |
|
Issuance of restricted common stock and common stock from treasury shares |
|
|
4,127 |
|
|
— |
|
Ending balances |
|
$ |
(12,179) |
|
$ |
(18,332) |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
Beginning balances |
|
$ |
(14,658) |
|
$ |
(11,854) |
|
Other comprehensive income (loss) |
|
|
10,656 |
|
|
(14,357) |
|
Ending balances |
|
$ |
(4,002) |
|
$ |
(26,211) |
|
|
|
|
|
|
|
|
|
Total stockholders' equity, ending balances |
|
$ |
612,703 |
|
$ |
676,323 |
The accompanying notes are an integral part of these consolidated financial statements.
7
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. GENERAL
Basis of Presentation
The accompanying unaudited consolidated financial statements include the results of operations, financial position and cash flows of US Ecology, Inc. and its wholly-owned subsidiaries. All inter-company balances have been eliminated. Throughout these consolidated financial statements words such as “we,” “us,” “our,” “US Ecology” and “the Company” refer to US Ecology, Inc. and its subsidiaries.
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring 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 (“GAAP”) 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2021.
The Company’s consolidated balance sheet as of December 31, 2020 has been derived from the Company’s audited consolidated balance sheet as of that date.
Reclassifications
Effective in the first quarter of 2021, we changed our management structure resulting in the reclassification of certain overhead expenses from our Waste Solutions, Field Services and Energy Waste reportable segments to Corporate. As a result, certain regional overhead costs historically presented within our reportable segments as Direct operating costs were further reclassified to Corporate as Selling, general and administrative expenses to conform to the current period’s presentation. Throughout this Quarterly Report on Form 10-Q, all periods presented have been recast to reflect these changes.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements. As it relates to estimates and assumptions in amortization rates and environmental obligations, significant engineering, operations and accounting judgments are required. We review these estimates and assumptions no less than annually. In many circumstances, the ultimate outcome of these estimates and assumptions will not be known for decades into the future. Actual results could differ materially from these estimates and assumptions due to changes in applicable regulations, changes in future operational plans and inherent imprecision associated with estimating environmental impacts far into the future.
8
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The ASU is currently not expected to have a material impact on our consolidated financial statements.
Effective January 1, 2021, the Company adopted ASU No. 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects of accounting for income taxes by eliminating certain exceptions within Accounting Standards Codification Topic 740, “Income Taxes” and to clarify certain aspects of the current accounting guidance. Adoption of this standard did not materially impact our consolidated statements of financial position, results of operations, or cash flows.
NOTE 2. REVENUES
Effective in the fourth quarter of 2020, we have made changes to the manner in which we manage our business, make operating decisions and assess our performance. Throughout this Quarterly Report on Form 10-Q, all periods presented have been recast to reflect these changes. Our operations are managed in three reportable segments, Waste Solutions, Field Services and Energy Waste, reflecting our internal reporting structure and nature of services offered. See Note 17 for additional information on our operating segments.
The following table presents our revenue disaggregated by our reportable segments and service lines:
9
| (1) | We categorize our treatment and disposal revenue as either “Base Business” or “Event Business” based on the underlying nature of the revenue source. We define Event Business as non-recurring projects that are expected to equal or exceed 1,000 tons, with Base Business defined as all other business not meeting the definition of Event Business. For the three months ended March 31, 2021 and 2020, 24% and 25%, respectively, of our treatment and disposal revenue was derived from Event Business projects. Base Business revenue accounted for 76% and 75% of our treatment and disposal revenue for the three months ended March 31, 2021 and 2020, respectively. |
| (2) | Includes collection and transportation of non-hazardous and hazardous waste. |
| (3) | Includes industrial cleaning and maintenance for refineries, chemical plants, steel and automotive plants, marine terminals and refinery services such as tank cleaning and temporary storage. |
| (4) | Includes retail services, laboratory packing, less-than-truck-load service and household hazardous waste collection. Contracts for Small Quantity Generation may extend beyond one year and a portion of the transaction price can be fixed. |
| (5) | Through our total waste management (“TWM”) program, customers outsource the management of their waste compliance program to us, allowing us to organize and coordinate their waste management disposal activities and environmental compliance. TWM contracts may extend beyond one year and a portion of the transaction price can be fixed. |
| (6) | Includes site assessment, onsite treatment, project management and remedial action planning and execution. Contracts for Remediation may extend beyond one year and a portion of the transaction price can be fixed. |
| (7) | Includes spill response, waste analysis and treatment and disposal planning. |
| (8) | We provide government-mandated, commercial standby oil spill compliance solutions to companies that store, transport, produce or handle petroleum and certain nonpetroleum oils on or near U.S. waters. Our standby services customers pay annual retainer fees under long-term or evergreen contracts for access to our regulatory certifications, specialized assets and highly trained personnel. When a customer with a retainer contract experiences a spill incident, we coordinate and manage the spill response, which results in incremental revenue for the services provided, in addition to the retainer fees. |
| (9) | Includes equipment rental and other miscellaneous services. |
10
We provide services primarily in the United States, Canada and the Europe, Middle East, and Africa (“EMEA”) region. The following table presents our revenue disaggregated by our reportable segments and geographic location where the underlying services were performed:
| (1) | Includes Mexico, Asia Pacific, and Latin America and Caribbean geographical regions. |
Deferred Revenue
We record deferred revenue when cash payments are received, or advance billings are charged, prior to performance of services, such as waste that has been received but not yet treated or disposed. Revenue is recognized when these services are performed. During the three months ended March 31, 2021 and 2020, we recognized $10.7 million and $8.4 million of revenue that was included in the deferred revenue balance at the beginning of each year, respectively.
Receivables
Our receivables include invoiced and unbilled amounts where the Company has an unconditional right to payment.
Principal versus Agent Considerations
The Company commonly contracts with third-parties to perform certain waste-related services that we have promised in our customer contracts. We consider ourselves the principal in these arrangements as we direct the timing, nature and pricing of the services ultimately provided by the third-party to the customer.
Costs to obtain a contract
The Company pays sales commissions to employees, which qualify as costs to obtain a contract. Sales commissions are expensed as incurred as the commissions are earned by the employee and paid by the Company over time as the related revenue is recognized. Other commissions and incremental costs to obtain a contract are not material.
Practical Expedients and Optional Exemptions
Our payment terms may vary based on type of service or customer; however, we do not adjust the promised amount of consideration in our contracts for the time value of money as payment terms extended to our customers do not exceed one year and are not considered a significant financing component in our contracts.
We do not disclose the value of unsatisfied performance obligations as contracts with an original expected length of more than one year and contracts for which we do not recognize revenue at the amount to which we have the right to invoice for services performed is insignificant and the aggregate amount of fixed consideration allocated to unsatisfied performance obligations is not material.
11
NOTE 3. BUSINESS COMBINATIONS
Acquisition of Impact Environmental Services, Inc.
On January 28, 2020, we acquired Impact Environmental Services, Inc., an industrial cleaning and environmental services company based in Romulus, Michigan for $3.3 million. The acquired operations are reported as part of our Field Services segment, however, revenues, net income, earnings per share and total assets are not material to our consolidated financial position or results of operations.
We allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, resulting in $300,000 allocated to goodwill and $900,000 allocated to amortizing intangible assets (primarily customer relationships) to be amortized over a weighted average life of approximately 12 years. All of the goodwill recognized was assigned to our Field Services segment and is expected to be deductible for income tax purposes over a 15-year amortization period.
NOTE 4. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive income (loss) (“AOCI”) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
Unrealized Gain |
|
|
|
||
|
|
|
Currency |
|
(Loss) on Interest |
|
|
|
||
|
$s in thousands |
|
Translation |
|
Rate Hedge |
|
Total |
|||
|
Balance at December 31, 2020 |
|
$ |
(7,870) |
|
$ |
(6,788) |
|
$ |
(14,658) |
|
Other comprehensive income before reclassifications, net of tax |
|
|
1,439 |
|
|
8,323 |
|
|
9,762 |
|
Amounts reclassified out of AOCI, net of tax (1) |
|
|
— |
|
|
894 |
|
|
894 |
|
Other comprehensive income, net |
|
|
1,439 |
|
|
9,217 |
|
|
10,656 |
|
Balance at March 31, 2021 |
|
$ |
(6,431) |
|
$ |
2,429 |
|
$ |
(4,002) |
| (1) | Before-tax reclassifications of $1.1 million ($894,000 after-tax) for the three months ended March 31, 2021, were included in Interest expense in the Company’s consolidated statements of operations. Amounts relate to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made or, for terminated swap agreements, amortized to interest expense over the period from termination to original maturity. Amounts in AOCI expected to be reclassified to interest expense over the next 12 months total approximately $3.3 million ($2.6 million after-tax). |
| (2) | Before-tax reclassifications of $268,000 ($212,000 after-tax) for the three months ended March 31, 2020, were included in Interest expense in the Company’s consolidated statements of operations. Amounts relate to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made. |
12
NOTE 5. CONCENTRATIONS AND CREDIT RISK
Major Customers
No customer accounted for more than 10% of total revenue for the three months ended March 31, 2021 or 2020, respectively. No customer accounted for more than 10% of total trade receivables as of March 31, 2021 or December 31, 2020.
Credit Risk Concentration
We maintain most of our cash and cash equivalents with nationally recognized financial institutions. 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. Credit risk associated with a portion of the Company’s trade receivables is reduced by our ability to submit claims to the Oil Spill Liability Trust Fund (“OSLTF”) for reimbursement of unpaid customer receivables related to services regulated under the provisions of the Oil Pollution Act of 1990 (“OPA 90”). As of March 31, 2021, the Company did not have any trade receivables that are eligible for submission to the OSLTF for reimbursement.
NOTE 6. RECEIVABLES
Receivables consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
||
|
$s in thousands |
|
2021 |
|
2020 |
||
|
Trade |
|
$ |
189,092 |
|
$ |
186,502 |
|
Unbilled revenue |
|
|
52,075 |
|
|
52,858 |
|
Other |
|
|
5,353 |
|
|
5,554 |
|
Total receivables |
|
|
246,520 |
|
|
244,914 |
|
Allowance for credit losses |
|
|
(3,666) |
|
|
(2,936) |
|
Receivables, net |
|
$ |
242,854 |
|
$ |
241,978 |
NOTE 7. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:
| ● | Level 1 - Quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; |
| ● | Level 3 - Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own assumptions that market participants would use to value the asset or liability. |
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash and investments, accounts payable and accrued liabilities, debt, interest rate swap agreements and contingent consideration. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to the short-term nature of these instruments.
In September 2019 and March 2021, the Company invested $7.9 million and $712,000, respectively, in the preferred stock of a privately held company. The investment does not have a readily determinable fair value therefore the investment is
13
valued at cost, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer, if any. In March 2021, in connection with our incremental investment of $712,000, we observed that the fair value of our initial investment of $7.9 million increased by $3.5 million and, accordingly, recognized a gain on our minority interest investment of $3.5 million. The fair value of our minority interest investment is included in Other assets in the Company’s consolidated balance sheets. Changes in the fair value of our minority interest investment are included in Other income in the Company’s consolidated statements of operations.
The Company estimates the fair value of its variable-rate debt using Level 2 inputs, such as interest rates, related terms and maturities of similar obligations. At March 31, 2021, the fair value of the Company’s variable rate term loan was estimated to be $444.7 million, and the carrying value of the Company’s variable-rate revolving credit facility approximates fair value due to the short-term nature of the interest rates.
The Company estimates the fair value of its contingent consideration liabilities using Level 3 inputs, including both observable and unobservable inputs. As a result, unrealized gains and losses may include changes in fair value that are attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following:
| (1) | We invest a portion of our Restricted cash and investments in fixed-income securities, including U.S. Treasury and U.S. agency securities. We measure the fair value of U.S. Treasury securities using quoted prices for identical assets in active markets. We measure the fair value of U.S. agency securities using observable market activity for similar assets. The fair value of our fixed-income securities approximates our cost basis in the investments. |
| (2) | We invest portions of our Cash and cash equivalents and Restricted cash and investments in money market funds. We measure the fair value of these money market fund investments using quoted prices for identical assets in active markets. The portion of Restricted cash and investments that is invested in money market funds is considered restricted |
14
| cash for purposes of reconciling the beginning-of-period and end-of-period amounts presented in the Company’s consolidated statements of cash flows. |
| (3) | In order to manage interest rate exposure, we entered into an interest rate swap agreement in March 2020 that effectively converts a portion of our variable-rate debt to a fixed interest rate. The swap is designated as a highly-effective cash flow hedge, with gains and losses deferred in other comprehensive income to be recognized as an adjustment to interest expense in the same period that the hedged interest payments affect earnings. The interest rate swap has an effective date of March 31, 2020 in an initial notional amount of $500.0 million. The fair value of the interest rate swap agreement represents the difference in the present value of cash flows calculated (i) at the contracted interest rates and (ii) at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments. The fair value of the interest rate swap agreement is included in Other assets and Other long-term liabilities in the Company’s consolidated balance sheets as of March 31, 2021 and December 31, 2020. |
| (4) | Our contingent consideration liabilities represent the estimated fair value of potential future payments the Company may be required to remit under the terms of historical purchase agreements entered into by NRC prior to the NRC Merger. The payments are contingent on the acquired businesses’ achievement of annual earnings targets in certain years and other events considered in the purchase agreements. The fair value of our contingent consideration liabilities is calculated using either a Monte Carlo simulation or modified Black-Scholes analyses based on earnings projections for the respective earn-out periods, corresponding earnings thresholds, and approximate timing of payments as outlined in the purchase agreements. The analyses utilize the following assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate; and (iv) expected volatility of earnings. Estimated payments, as determined through the respective models, are discounted by a credit spread assumption to account for credit risk. The fair value of our contingent consideration liability as of both March 31, 2021 and December 31, 2020 was $2.2 million and is included in Accrued liabilities in the Company’s consolidated balance sheet. We revalue our contingent consideration payments each period and any increases or decreases to fair value are included in Selling, general and administrative expenses in our consolidated statements of operations. Fair values may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement. |
NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
||
|
$s in thousands |
|
2021 |
|
2020 |
||
|
Cell development costs |
|
$ |
193,496 |
|
$ |
186,170 |
|
Land and improvements |
|
|
72,605 |
|
|
65,953 |
|
Buildings and improvements |
|
|
130,693 |
|
|
128,206 |
|
Railcars |
|
|
17,299 |
|
|
17,299 |
|
Vehicles, vessels and other equipment |
|
|
331,632 |
|
|
331,167 |
|
Construction in progress |
|
|
37,284 |
|
|
44,840 |
|
Total property and equipment |
|
|
783,009 |
|
|
773,635 |
|
Accumulated depreciation and amortization |
|
|
(334,761) |
|
|
(316,998) |
|
Property and equipment, net |
|
$ |
448,248 |
|
$ |
456,637 |
15
Depreciation and amortization expense for the three months ended March 31, 2021 and 2020 was $18.2 million and $18.0 million, respectively.
NOTE 9. LEASES
We lease certain facilities, office space, land and equipment. Our lease payments are primarily fixed, but also include variable payments that are based on usage of the leased asset. Initial lease terms range from one to 15 years, and may include one or more options to renew, with renewal terms extending a lease up to 40 years. None of our renewal options are considered reasonably certain to be exercised. Provisions for residual value guarantees exist in some of our equipment leases, however, amounts associated with these provisions are not material. Our leases do not include any material restrictive covenants.
Leases with an initial term of 12 months or less are not recorded on the balance sheet and expense is recognized on a straight-line basis over the lease term. We combine lease and non-lease components in our leases. We use the rate implicit in the lease, when available, to discount lease payments to present value. However, many of our leases do not provide a readily determinable implicit rate and we estimate our incremental borrowing rate to discount payments based on information available at lease commencement.
Lease assets and liabilities consisted of the following:
| (1) | Included in Operating lease assets in the Company’s consolidated balance sheets. |
| (2) | Included in Property and equipment, net in the Company’s consolidated balance sheets. Finance right-of-use assets are recorded net of accumulated amortization of $9.3 million and $8.0 million as of March 31, 2021 and December 31, 2020, respectively. |
| (3) | Included in Current portion of operating lease liabilities in the Company’s consolidated balance sheets. |
| (4) | Included in Accrued liabilities in the Company’s consolidated balance sheets. |
| (5) | Included in Long-term operating lease liabilities in the Company’s consolidated balance sheets. |
| (6) | Included in Other long-term liabilities in the Company’s consolidated balance sheets. |
16
Lease expense consisted of the following:
| (1) | Included in Direct operating costs and Selling, general, and administrative expenses in the Company’s consolidated statements of operations. Operating lease cost includes short-term leases, excluding expenses relating to leases with a term of one month or less, which are not material. Operating lease cost excludes variable lease costs which are not material. |
| (2) | Included in Direct operating costs in the Company’s consolidated statements of operations. |
| (3) | Included in Interest expense in the Company’s consolidated statements of operations. |
Supplemental cash flow information related to our leases is as follows:
NOTE 10. GOODWILL AND INTANGIBLE ASSETS
Changes in goodwill for the three months ended March 31, 2021 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waste Solutions |
|
Field Services |
|
Energy Waste |
|
|
|
||||||||||||
|
|
|
|
|
Accumulated |
|
|
|
Accumulated |
|
|
|
Accumulated |
|
|
|
||||||
|
$s in thousands |
|
Gross |
|
Impairment |
|
Gross |
|
Impairment |
|
Gross |
|
Impairment |
|
Total |
|||||||
|
Balance at December 31, 2020 |
|
$ |
166,863 |
|
$ |
(6,870) |
|
$ |
237,341 |
|
$ |
(19,900) |
|
$ |
399,503 |
|
$ |
(363,900) |
|
$ |
413,037 |
|
Foreign currency translation |
|
|
215 |
|
|
— |
|
|
94 |
|
|
— |
|
|
— |
|
|
— |
|
|
309 |
|
Balance at March 31, 2021 |
|
$ |
167,078 |
|
$ |
(6,870) |
|
$ |
237,435 |
|
$ |
(19,900) |
|
$ |
399,503 |
|
$ |
(363,900) |
|
$ |
413,346 |
17
Intangible assets, net consisted of the following:
During the three months ended March 31, 2020, the Company acquired Impact Environmental Services, Inc. and recorded $300,000 of goodwill and $900,000 of amortizing intangible assets (consisting primarily of customer relationships). See Note 3 for additional information.
Amortization expense for the three months ended March 31, 2021 and 2020 was $9.1 million and $9.4 million, respectively.
NOTE 11. DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
||
|
$s in thousands |
|
2021 |
|
2020 |
||
|
Revolving credit facility |
|
$ |
347,277 |
|
$ |
347,000 |
|
Term loan |
|
|
444,375 |
|
|
445,500 |
|
Unamortized term loan discount and debt issuance costs |
|
|
(6,373) |
|
|
(6,657) |
|
Total debt |
|
|
785,279 |
|
|
785,843 |
|
Current portion of long-term debt |
|
|
(3,635) |
|
|
(3,359) |
|
Long-term debt |
|
$ |
781,644 |
|
$ |
782,484 |
Future Maturities of long-term debt, excluding unamortized discount and debt issuance costs, as of March 31, 2021 consisted of the following:
|
|
|
|
|
|
$s in thousands |
|
Maturities |
|
|
2021 (excluding the three months ended March 31, 2021) |
|
$ |
3,652 |
|
2022 |
|
|
4,500 |
|
2023 |
|
|
4,500 |
|
2024 |
|
|
351,500 |
|
2025 |
|
|
4,500 |
|
Thereafter |
|
|
423,000 |
|
|
|
$ |
791,652 |
18
Credit Agreement
On April 18, 2017, US Ecology Holdings, Inc. (f/k/a US Ecology, Inc.) (“Predecessor US Ecology”), now a wholly-owned subsidiary of the Company, entered into a new senior secured credit agreement (as amended, restated, supplemented or otherwise modified through the date hereof, the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent for the lenders, swingline lender and issuing lender, and Bank of America, N.A., as an issuing lender, that provides for a $500.0 million, five-year revolving credit facility (the “Revolving Credit Facility”), including a $75.0 million sublimit for the issuance of standby letters of credit and a $40.0 million sublimit for the issuance of swingline loans used to fund short-term working capital requirements. The Credit Agreement also contains an accordion feature whereby Predecessor US Ecology may request up to $200.0 million of additional funds through an increase to the Revolving Credit Facility, through incremental term loans, or some combination thereof. As described below, the Credit Agreement was amended in November 2019 in connection with the NRC Merger and further amended on June 26, 2020 pursuant to the Third Amendment (as defined below).
The Revolving Credit Facility provides up to $500.0 million of revolving credit loans or letters of credit with the use of proceeds restricted solely for working capital and other general corporate purposes (including acquisitions and capital expenditures). Except as modified by the Third Amendment as described below, under the Revolving Credit Facility, revolving credit loans are available based on a base rate (as defined in the Credit Agreement) or the London Inter-Bank Offered Rate (“LIBOR”), at the Company’s option, plus an applicable margin which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to consolidated earnings before interest, taxes, depreciation and amortization (as defined in the Credit Agreement), as set forth in the table below:
During the three months ended March 31, 2021, the effective interest rate on the Revolving Credit Facility, after giving effect to the impact of our interest rate swap and the amortization of the loan discount and debt issuance costs, was 4.06%. Interest only payments are due either quarterly or on the last day of any interest period, as applicable.
Except as modified by the Third Amendment as described below, Predecessor US Ecology is required to pay a commitment fee ranging from 0.175% to 0.35% on the average daily unused portion of the Revolving Credit Facility, with such commitment fee to be based upon Predecessor US Ecology’s total net leverage ratio (as defined in the Credit Agreement). The maximum letter of credit capacity under the Revolving Credit Facility is $75.0 million and the Credit Agreement provides for a letter of credit fee equal to the applicable margin for LIBOR loans under the Revolving Credit Facility. At March 31, 2021, there were $347.0 million of revolving credit loans outstanding on the Revolving Credit Facility. These revolving credit loans are due upon the earliest to occur of (i) November 1, 2024 (or, with respect to any lender, such later date as requested by us and accepted by such lender), (ii) the date of termination of the entire revolving credit commitment (as defined in the Credit Agreement) by us, and (iii) the date of termination of the revolving credit commitment and are presented as long-term debt in the consolidated balance sheets.
Predecessor US Ecology has entered into a sweep arrangement whereby day-to-day cash requirements in excess of available cash balances are advanced to the Company on an as-needed basis with repayments of these advances automatically made from subsequent deposits to our cash operating accounts (the “Sweep Arrangement”). Total advances outstanding under the Sweep Arrangement are subject to the $40.0 million swingline loan sublimit under the Revolving Credit Facility. Predecessor US Ecology’s revolving credit loans outstanding under the Revolving Credit Facility are not subject to repayment through the Sweep Arrangement. As of March 31, 2021, there were $277,000 in borrowings
19
outstanding subject to the Sweep Arrangement, which are presented as Short-term borrowings in the consolidated balance sheet.
As of March 31, 2021, the availability under the Revolving Credit Facility was $142.9 million, with $9.8 million of the Revolving Credit Facility issued in the form of standby letters of credit utilized as collateral for closure and post-closure financial assurance and other assurance obligations.
Predecessor US Ecology may at any time and from time to time prepay revolving credit loans and swingline loans, in whole or in part, without premium or penalty, subject to the obligation to indemnify each of the lenders against any actual loss or expense (including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain a LIBOR rate loan (as defined in the Credit Agreement) or from fees payable to terminate the deposits from which such funds were obtained) with respect to the early termination of any LIBOR rate loan. The Credit Agreement provides for mandatory prepayment at any time if the revolving credit outstanding exceeds the revolving credit commitment (as such terms are defined in the Credit Agreement), in an amount equal to such excess. Subject to certain exceptions, the Credit Agreement provides for mandatory prepayment upon certain asset dispositions, casualty events and issuances of indebtedness.
Pursuant to (i) an unconditional guarantee agreement and (ii) a collateral agreement, each entered into by Predecessor US Ecology and its domestic subsidiaries on April 18, 2017, Predecessor US Ecology’s obligations under the Credit Agreement are (or will be) jointly and severally and fully and unconditionally guaranteed on a senior basis by all of the Company’s existing and certain future domestic subsidiaries and are secured by substantially all of the assets of Predecessor US Ecology and the Company’s existing and certain future domestic subsidiaries (subject to certain exclusions), including 100% of the equity interests of the Company’s domestic subsidiaries and 65% of the voting equity interests of the Company’s directly owned foreign subsidiaries (and 100% of the non-voting equity interests of the Company’s directly owned foreign subsidiaries).
The Credit Agreement contains customary restrictive covenants, subject to certain permitted amounts and exceptions, including covenants limiting the ability of the Company to incur additional indebtedness, pay dividends and make other restricted payments, repurchase shares of our outstanding stock and create certain liens. Upon the occurrence of an event of default (as defined in the Credit Agreement), among other things, amounts outstanding under the Credit Agreement may be accelerated and the commitments may be terminated.
The Credit Agreement also contains financial maintenance covenants, a maximum consolidated total net leverage ratio and a consolidated interest coverage ratio (as such terms are defined in the Credit Agreement). Except as further modified by the Third Amendment as described below, our consolidated total net leverage ratio as of the last day of the respective fiscal quarter, may not exceed the maximum consolidated total net leverage ratios set forth in the table below, subject to certain exceptions:
|
Fiscal Quarter(s) |
Consolidated Total Net Leverage Ratio |
|
Fiscal Quarters ending June 30, 2017 through September 30, 2019 |
3.50:1.00 |
|
Fiscal Quarters ending December 31, 2019 and thereafter |
4.00:1.00 |
Our consolidated interest coverage ratio as of the last day of any fiscal quarter, commencing with the fiscal quarter ending June 30, 2017, may not be less than 3.00 to 1.00.
Amendments to the Credit Agreement
On August 6, 2019, Predecessor US Ecology entered into the first amendment (the “First Amendment”) to the Credit Agreement, by and among Predecessor US Ecology, the subsidiaries of Predecessor US Ecology party thereto, the lenders referred to therein and Wells Fargo, as issuing lender, swingline lender and administrative agent. Effective November 1, 2019, the First Amendment, among other things, extended the expiration of the Revolving Credit Facility to November 1, 2024, permitted the issuance of a $400.0 million incremental term loan to be used to refinance the indebtedness of NRC
20
and pay related transaction expenses in connection with the NRC Merger, modified the accordion feature allowing Predecessor US Ecology to request up to the greater of (x) $250.0 million and (y) 100% of consolidated EBITDA plus certain additional amounts, increased the sublimit for the issuance of swingline loans to $40.0 million and increased the maximum consolidated total net leverage ratio to 4.00 to 1.00.
On November 1, 2019, Predecessor US Ecology entered into the lender joinder agreement and second amendment (the “Second Amendment”) to the Credit Agreement. Effective November 1, 2019, the Second Amendment, among other things, amended the Credit Agreement to increase the capacity for incremental term loans by $50.0 million and provided for Wells Fargo lending $450.0 million in incremental term loans to Predecessor US Ecology to pay off the existing debt of NRC in connection with the NRC Merger, to pay certain fees, costs and expenses incurred in connection with the NRC Merger and to repay outstanding borrowings under the Revolving Credit Facility. The seven-year incremental term loan matures November 1, 2026, requires principal repayment of 1% annually, and bears interest at LIBOR plus 2.25% or a base rate plus 1.25% (with a step-up to LIBOR plus 2.50% or a base rate plus 1.50% in the event that US Ecology credit ratings are not BB (with a stable or better outlook) or better from S&P and Ba2 (with a stable or better outlook) or better from Moody’s). During the three months ended March 31, 2021, the effective interest rate on the term loan, including the impact of the amortization of debt issuance costs, was 2.89%.
On June 26, 2020, Predecessor US Ecology entered into the third amendment (the “Third Amendment”) to the Credit Agreement. Among other things, the Third Amendment amended the Credit Agreement to provide a covenant relief period through the earlier of March 31, 2022 and the date Predecessor US Ecology elects to end such covenant relief period pursuant to the terms therein. During the covenant relief period, the Third Amendment increased Predecessor US Ecology’s consolidated total net leverage ratio requirement as of the end of each fiscal quarter to certain ratios above the 4.00 to 1.00 ratio in effect immediately before giving effect to the Third Amendment, subject to compliance with certain restrictions on restricted payments and permitted acquisitions during such covenant relief period. Furthermore, during the covenant relief period, under the Revolving Credit Facility, revolving credit loans are available based on a base rate (as defined in the Credit Agreement) or LIBOR, at the Company’s option, plus an applicable margin which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to consolidated earnings before interest, taxes, depreciation and amortization (as defined in the Credit Agreement), as set forth in the table below:
Additionally, during the covenant relief period, Predecessor US Ecology is required to pay a commitment fee ranging from 0.175% to 0.40% on the average daily unused portion of the Revolving Credit Facility, with such commitment fee to be based upon Predecessor US Ecology’s total net leverage ratio (as defined in the Credit Agreement).
At March 31, 2021, we were in compliance with all of the financial covenants in the Credit Agreement.
Interest Rate Swap
In March 2020, the Company entered into an interest rate swap agreement with Wells Fargo, effectively fixing the interest rate on $470.0 million, or approximately 59%, of the Revolving Credit Facility and term loan borrowings outstanding as of March 31, 2021. In connection with our entry into the March 2020 interest rate swap, we terminated our existing interest rate swap prior to its scheduled maturity date of June 2021. As the original hedged forecasted transaction (periodic interest
21
payments on our variable-rate debt) remains probable, the $1.8 million net loss related to the terminated swap reported in AOCI at the termination date will be amortized as additional interest expense over its original maturity.
NOTE 12. CLOSURE AND POST-CLOSURE OBLIGATIONS
Our accrued closure and post-closure liability represents the expected future costs, including corrective actions, associated with closure and post-closure of our operating and non-operating disposal facilities. We record the fair value of our closure and post-closure obligations as a liability in the period in which the regulatory obligation to retire a specific asset is triggered. For our individual landfill cells, the required closure and post-closure obligations under the terms of our permits and our intended operation of the landfill cell are triggered and recorded when the cell is placed into service and waste is initially disposed in the landfill cell. The fair value is based on the total estimated costs to close the landfill cell and perform post-closure activities once the landfill cell has reached capacity and is no longer accepting waste. We perform periodic reviews of both non-operating and operating facilities and revise accruals for estimated closure and post-closure, remediation or other costs as necessary. Recorded liabilities are based on our best estimates of current costs and are updated periodically to include the effects of existing technology, presently enacted laws and regulations, inflation and other economic factors.
Changes to closure and post-closure obligations consisted of the following:
NOTE 13. INCOME TAXES
We account for our provision for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the Annual Effective Tax Rate (“AETR”) for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year. The provision for income taxes represents federal, foreign, state, and local income taxes. During the year, management regularly updates forecasted annual pretax results for the various countries in which we operate based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of pre-tax income or loss by jurisdiction; changes in enacted tax laws and regulations, and interpretations thereof, including with respect to tax credits and state and local income taxes; developments in tax audits and other matters; and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change. To the extent that actual 2021 pretax results for U.S. and foreign income or loss vary from estimates, the actual income tax expense recognized in 2021 could be different from the forecasted amount used to estimate the income tax expense for the three months ended March 31, 2021.
Income tax benefit for the three months ended March 31, 2021 was $1.4 million, resulting in an effective tax rate of 64.5%. Income tax benefit for the three months ended March 31, 2020 was $263,000, resulting in an effective tax rate of 0.1%. The increase in our effective tax rate for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily due to non-deductible goodwill impairment charges incurred during the three months ended March 31, 2020, and lower pre-tax earnings for the three months ended March 31, 2021 which resulted in a tax benefit from the year-to-date loss of our US operations, partially offset by foreign tax expense from the year-to-date earning of our foreign operations.
22
Gross unrecognized tax benefits, included in Other long-term liabilities in the consolidated balance sheets, were $252,000 and $239,000 as of March 31, 2021 and December 31, 2020, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $252,000 to the provision for income taxes. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Accrued interest and penalties related to unrecognized tax benefits are recorded in Interest expense and Selling, general and administrative expenses, respectively. The total accrued interest related to unrecognized tax benefits as of March 31, 2021 and December 31, 2020 were not significant. There is no accrual for penalties.
The Company files income tax returns in the U.S. federal and various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns are subject to examination by the Internal Revenue Service for tax years beginning in 2017. For tax years beginning in 2016, our state tax returns are subject to examination by state tax authorities. Stablex Canada, Inc. is currently under examination by the Canadian Revenue Agency for years 2018 through 2020. Tax years 2016 through 2020 remain subject to examination in our significant foreign jurisdictions. The Company does not anticipate any material change as a result of any current examinations in progress.
NOTE 14. LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
||||||||||
|
|
|
2021 |
|
2020 |
||||||||
|
$s and shares in thousands, except per share amounts |
|
Basic |
|
Diluted |
|
Basic |
|
Diluted |
||||
|
Net loss |
|
$ |
(796) |
|
$ |
(796) |
|
$ |
(298,086) |
|
$ |
(298,086) |
|
Weighted average basic shares outstanding |
|
|
31,104 |
|
|
31,104 |
|
|
31,305 |
|
|
31,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of share-based awards and warrants |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
Weighted average diluted shares outstanding |
|
|
|
|
|
31,104 |
|
|
|
|
|
31,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
$ |
(0.03) |
|
$ |
(0.03) |
|
$ |
(9.52) |
|
$ |
(9.52) |
|
Anti-dilutive shares excluded from calculation |
|
|
|
|
|
4,369 |
|
|
|
|
|
4,131 |
NOTE 15. EQUITY
Stock Repurchase Program
On June 6, 2020, the Company’s Board of Directors’ authorization to repurchase the Company’s outstanding shares of common stock and warrants under the share repurchase program expired. In the future, the Board of Directors may consider reauthorizing the repurchase program at any time, and the timing of any future repurchases of common stock or warrants will be based upon prevailing market conditions and other factors. The Company may from time to time also consider other options for repurchasing some or all of its warrants, including but not limited to a tender offer for all of the outstanding warrants.
Omnibus Incentive Plan
On May 27, 2015, the stockholders of Predecessor US Ecology approved the Omnibus Incentive Plan (as amended, “Pre-Merger Omnibus Plan”), which was approved by Predecessor US Ecology’s Board of Directors on April 7, 2015. In connection with the closing of the NRC Merger, the Company assumed the Pre-Merger Omnibus Plan, amended and restated such plan and renamed it the Amended and Restated US Ecology, Inc. Omnibus Incentive Plan (the “Omnibus Plan”) for the purpose of issuing replacement awards to award recipients under the Omnibus Plan pursuant to the NRC Merger Agreement and for the issuance of additional awards in the future.
The Omnibus Plan was developed to provide additional incentives through equity ownership in US Ecology and, as a result, encourage employees, consultants and non-employee directors to contribute to our success. The Omnibus Plan provides, among other things, the ability for the Company to grant restricted stock, performance stock, options, stock
23
appreciation rights, restricted stock units, performance stock units and other share-based awards or cash awards to employees, consultants and non-employee directors.
The Omnibus Plan expires on April 7, 2025 and authorizes 1,500,000 shares of common stock for grant over the life of the Omnibus Plan. As of March 31, 2021, 260,273 shares of common stock remain available for grant under the Omnibus Plan.
Subsequent to the approval of the Pre-Merger Omnibus Plan by Predecessor US Ecology in May 2015, we stopped granting equity awards under the American Ecology Corporation 2008 Stock Option Incentive Plan (“Pre-Merger 2008 Stock Option Plan”). However, in connection with the closing of the NRC Merger, the Company assumed the Pre-Merger 2008 Stock Option Plan, amended and restated such plan and renamed it in the Amended and Restated US Ecology, Inc. 2008 Stock Option Incentive Plan (the “2008 Stock Option Plan”) solely for the purpose of issuing replacement awards to award recipients thereunder and remains in effect solely for the settlement of awards granted under such plan and no future grants may be made under such plan. No shares that are reserved but unissued under the 2008 Stock Option Plan or that are outstanding under the 2008 Stock Option Plan and reacquired by the Company for any reason will be available for issuance under the Omnibus Plan.
In addition, in connection with the closing of the NRC Merger, the Company assumed the NRC Group Holdings Corp. 2018 Equity Incentive Plan previously maintained by NRC by adopting the Amended and Restated US Ecology, Inc. 2018 Equity and Incentive Compensation Plan solely for the purpose of issuing replacement awards to award recipients thereunder pursuant to the NRC Merger Agreement, and no future grants may be made under such plan.
PSUs, RSUs and Restricted Stock
A summary of our PSU, restricted stock and RSU activity for the three months ended March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs |
|
Restricted Stock |
|
RSUs |
|||||||||
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
Weighted |
|||
|
|
|
|
|
Average |
|
|
|
Average |
|
|
|
Average |
|||
|
|
|
|
|
Grant Date |
|
|
|
Grant Date |
|
|
|
Grant Date |
|||
|
|
|
Shares |
|
Fair Value |
|
Shares |
|
Fair Value |
|
Shares |
|
Fair Value |
|||
|
Outstanding as of December 31, 2020 |
|
86,070 |
|
$ |
49.45 |
|
72,766 |
|
$ |
51.47 |
|
147,243 |
|
$ |
39.92 |
|
Granted |
|
— |
|
|
— |
|
58,700 |
|
|
35.33 |
|
62,759 |
|
|
39.33 |
|
Vested |
|
(14,100) |
|
|
63.56 |
|
(24,402) |
|
|
56.99 |
|
(52,468) |
|
|
39.99 |
|
Cancelled, expired or forfeited |
|
— |
|
|
— |
|
— |
|
|
— |
|
(1,531) |
|
|
46.38 |
|
Outstanding as of March 31, 2021 |
|
71,970 |
|
$ |
46.69 |
|
107,064 |
|
$ |
41.37 |
|
156,003 |
|
$ |
39.60 |
During the three months ended March 31, 2021, 14,100 PSUs vested and PSU holders earned zero shares of the Company’s common stock.
24
Stock Options
A summary of our stock option activity for the three months ended March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
Shares |
|
Price |
|
|
Outstanding as of December 31, 2020 |
|
357,033 |
|
$ |
49.93 |
|
Granted |
|
205,800 |
|
|
35.30 |
|
Outstanding as of March 31, 2021 |
|
562,833 |
|
$ |
44.58 |
|
Exercisable as of March 31, 2021 |
|
299,568 |
|
$ |
48.29 |
Treasury Stock
During the three months ended March 31, 2021, the Company repurchased 12,788 shares of the Company’s common stock in connection with the net share settlement of employee equity awards at an average cost of $36.33.
Warrants
At March 31, 2021, there were a total of 3,772,753 warrants outstanding. Each warrant entitles the holder thereof to purchase one share of common stock at a price of $58.67 per share, subject to certain adjustments. The warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will expire at 5:00 p.m. New York City time on October 17, 2023, or earlier upon redemption or liquidation. The warrants are listed on the Nasdaq Capital Market under the symbol “ECOLW”. The Company may call the warrants for redemption, in whole and not in part, at a price of $0.01 per warrant, upon not less than 30 days’ prior written notice of redemption to each warrant holder, if, and only if, the reported last sale price of Common Stock equals or exceeds $91.84 per share on each of 20 trading days within the 30 trading-day period ending on the business day prior to the date on which notice of the redemption is given and provided that there is an effective registration statement covering the shares of Common Stock issuable on exercise of the warrants and subject to the satisfaction of certain other requirements. The warrants were determined to be equity classified in accordance with ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity.
Dividends
On March 31, 2020, the Board of Directors approved a plan to suspend quarterly cash dividends, beginning with the second quarter of 2020. The Company did not pay dividends during the three months ended March 31, 2021 and paid dividends of $0.18 per common share during the three months ended March 31, 2020.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Litigation and Regulatory Proceedings
In the ordinary course of business, we are involved in judicial and administrative proceedings involving federal, state, provincial or local governmental authorities, including regulatory agencies that oversee and enforce compliance with permits. Fines or penalties may be assessed by our regulators for non-compliance. Actions may also be brought by individuals or groups in connection with permitting of planned facilities, modification or alleged violations of existing permits, or alleged damages suffered from exposure to hazardous substances purportedly released from our operated sites, as well as other litigation. We maintain insurance intended to cover property and damage claims asserted as a result of our operations. Periodically, management reviews and may establish reserves for legal and administrative matters, or other fees expected to be incurred in relation to these matters.
In December 2010, National Response Corporation, a subsidiary of NRC acquired by the Company in the NRC Merger, was named as one of many “Dispersant Defendants” in multi-district litigation, arising out of the explosion of the BP
25
Deepwater Horizon (“BP”) oil rig, filed in the U.S. District Court for the Eastern District of Louisiana (“In re Deepwater Horizon” or the “MDL”). The claims against National Response Corporation, and other “Dispersant Defendants,” were brought by workers and others who alleged injury arising from post-explosion clean–up efforts, including particularly the use of certain chemical dispersants. In January 2013, the Court approved a Medical Benefits Class Action Settlement, which, among other things, provided for a “class wide” settlement as well as a release of claims against Dispersant Defendants, including National Response Corporation. Further, National Response Corporation successfully moved the court to dismiss all claims against it based on derivative immunity, as it was acting at the direction of the U.S. Government. In early 2018, BP began asserting an alleged contractual right of indemnity against National Response Corporation and others in post-settlement lawsuits brought by persons who had either chosen not to participate in the class-wide agreement or whose injuries were allegedly manifest after the period covered by the claim submission process. The Company advised BP that it considers the attempt to bring National Response Corporation back into previously settled litigation to be improper and moved for a declaratory judgment that it owes no indemnity or contribution to BP, raising various arguments, including BP’s own actions and conduct over the preceding nine years with respect to these claims (including its failure to seek indemnity) and the resultant prejudice to National Response Corporation, BP’s waiver of any indemnity, and the court’s prior finding that National Response Corporation is entitled to derivative immunity. In response, BP asserted counterclaims against National Response Corporation for a declaratory judgment that National Response Corporation must indemnify BP under certain circumstances and for unjust enrichment. National Response Corporation successfully moved to dismiss the unjust enrichment claim. The parties filed simultaneous judgment on the pleadings briefs in February 2020, and all oppositions were filed on March 16, 2020. On May 4, 2020, the court found in favor of National Response Corporation, and held that the Company is not liable to BP or any back end litigation plaintiffs for any damages related to the Deepwater Horizon oil spill. BP timely appealed the ruling on June 11, 2020. The Company is currently unable to estimate the range of possible losses associated with this proceeding. However, the Company also believes that, were it deemed to have liability arising out of or related to BP’s indemnity claims, such liability would be covered by an indemnity by SEACOR Holdings Inc., the former owner of National Response Corporation, in favor of National Response Corporation and its affiliates.
On November 17, 2018, an explosion occurred at our Grand View, Idaho facility, resulting in one employee fatality and injuries to other employees. The incident severely damaged the facility’s primary waste-treatment building as well as surrounding waste handling, waste storage, maintenance and administrative support structures, resulting in the closure of the entire facility that remained in effect through January 2019. In addition to initiating and conducting our own investigation into the incident, we fully cooperated with the Idaho Department of Environmental Quality, the U.S. Environmental Protection Agency and the Occupational Safety and Health Administration (“OSHA”) to support their comprehensive and independent investigations of the incident. On January 10, 2020, we entered into a settlement agreement with OSHA settling a complaint made by OSHA relating to the incident for $50,000. On January 28, 2020, the Occupational Safety and Health Review Commission issued an order terminating the proceeding relating to such OSHA complaint. We maintain workers’ compensation insurance, business interruption insurance and liability insurance for personal injury, property and casualty damage. We believe that any potential third-party claims associated with the explosion in excess of our deductibles are expected to be resolved primarily through our insurance policies. Although we carry business interruption insurance, a disruption of our business caused by a casualty event, including the full and partial closure of our Grand View, Idaho facility, may result in the loss of business, profits or customers during the time of such closure. Accordingly, our insurance policies may not fully compensate us for these losses. In November 2020, we commenced a lawsuit against the generator and broker of the waste, the treatment of which we believe contributed to the Grand View explosion, seeking damages in connection with the losses suffered as a result of the incident. The Company is actively working with its insurance companies on comprehensive property and business interruption insurance claims related to the incident at our Grand View, Idaho facility.
Other than as described above, during the period covered by this Quarterly Report on Form 10-Q, we have not been a party to any material legal proceedings.
26
NOTE 17. OPERATING SEGMENTS
Financial Information by Segment
Effective in the fourth quarter of 2020, we made changes to the manner in which we manage our business, make operating decisions and assess our performance. The energy waste business that was acquired through the NRC Merger now comprises our Energy Waste segment. Prior to this change, the energy waste business was included in the Waste Solutions segment (formerly “Environmental Services”). Throughout this Quarterly Report on Form 10-Q, all periods presented have been recast to reflect these changes. Under our new structure our operations are managed in three reportable segments reflecting our internal management reporting structure and nature of services offered as follows:
Waste Solutions (formerly “Environmental Services”) - This segment provides safe and compliant specialty waste management services including treatment, disposal, beneficial re-use, and recycling of hazardous, non-hazardous, and other specialty waste at Company-owned treatment, storage, and disposal facilities, excluding the services within our Energy Waste segment.
Field Services (formerly “Field & Industrial Services”) - This segment provides safe and compliant logistics and response solutions focusing on “in-field’ service offerings through our network of 10-day transfer facilities. Our logistics solutions include specialty waste packaging, collection, transportation, and total waste management. Our response solutions include land and marine based emergency response, OSRO standby compliance, remediation, and industrial services. The Field Services segment completes our vertically integrated model and serves to increase waste volumes into our Waste Solutions segment.
Energy Waste - This segment provides safe and compliant energy waste management and critical support services to up-stream oil and gas customers in the Permian and Eagle Ford basins primarily operating in Texas. Services include spill containment and site remediation, equipment cleaning and maintenance services, specialty equipment rental, including tanks, pumps and containment, safety monitoring and management and transportation and disposal. This segment includes all of the energy waste business of the legacy NRC operations and none of the legacy US Ecology operations.
The operations not managed through our three reportable segments are recorded as “Corporate.” Corporate selling, general and administrative expenses include typical corporate items of a general nature such as certain labor, information technology, legal, accounting and other expenses not associated with a specific reportable segment. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have been eliminated from the segment information and are not significant between segments.
27
Summarized financial information of our reportable segments is as follows:
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)
Management uses Adjusted EBITDA as a financial measure to assess segment performance. Adjusted EBITDA is defined as net income before interest expense, interest income, income tax expense, depreciation, amortization, share-based compensation, accretion of closure and post-closure liabilities, foreign currency gain/loss, non-cash goodwill impairment charges, business development and integration expenses and other income/expense. Adjusted EBITDA is a complement to results provided in accordance with GAAP and we believe that such information provides additional useful information to analysts, stockholders and other users to understand the Company’s operating performance. Since Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP. Some of the limitations are:
| ● | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| ● | Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt; |
| ● | Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes; |
| ● | Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| ● | Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and |
| ● | Adjusted EBITDA does not reflect our business development and integration expenses. |
28
A reconciliation of Net loss to Adjusted EBITDA is as follows:
Adjusted EBITDA, by operating segment, is as follows:
Property and Equipment and Intangible Assets Outside of the United States
We provide services primarily in the United States, Canada and the EMEA region. Long-lived assets, comprised of property and equipment and intangible assets net of accumulated depreciation and amortization, by geographic location are as follows:
| (1) | Includes Mexico, Asia Pacific, and Latin America and Caribbean geographical regions. |
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of US Ecology, Inc.
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of US Ecology, Inc. and subsidiaries (the “Company”) as of March 31, 2021, the related consolidated statements of operations, comprehensive income, and stockholders’ equity, and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
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/s/ Deloitte & Touche LLP |
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Boise, Idaho |
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May 3, 2021 |
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report words such as “we,” “us,” “our,” “US Ecology” and “the Company” refer to US Ecology, Inc. and its subsidiaries.
OVERVIEW
US Ecology is a leading provider of environmental services to commercial and governmental entities. The Company addresses the complex waste management and response needs of its customers, offering treatment, disposal and recycling of hazardous, non-hazardous and radioactive waste, leading emergency response and standby services, and a wide range of complementary field and industrial services. US Ecology’s focus on safety, environmental compliance and best-in-class customer service enables us to effectively meet the needs of our customers and to build long-lasting relationships.
We have a network of fixed facilities and service centers operating primarily in the United States, Canada, the United Kingdom and Mexico. Our fixed facilities include five RCRA subtitle C hazardous waste landfills, three landfills serving waste streams regulated by the RRC and one LLRW landfill. We also have various other treatment, storage and disposal facilities (“TSDF”) located throughout the United States. These facilities generate revenue from fees charged to transport, recycle, treat and dispose of waste and to perform various field and industrial services for our customers.
Effective in the fourth quarter of 2020, we made changes to the manner in which we manage our business, make operating decisions and assess our performance. The energy waste business that was acquired through the NRC Merger now comprises our Energy Waste segment. Prior to this change, the energy waste business was included in the Waste Solutions segment (formerly “Environmental Services”). Throughout this Quarterly Report on Form 10-Q, all periods presented have been recast to reflect these changes. Under our new structure our operations are managed in three reportable segments reflecting our internal management reporting structure and nature of services offered as follows:
Waste Solutions (formerly “Environmental Services”) - This segment provides safe and compliant specialty waste management services including treatment, disposal, beneficial re-use, and recycling of hazardous, non-hazardous, and other specialty waste at Company-owned treatment, storage, and disposal facilities, excluding the services within our Energy Waste segment.
Field Services (formerly “Field & Industrial Services”) - This segment provides safe and compliant logistics and response solutions focusing on “in-field’ service offerings through our network of 10-day transfer facilities. Our logistics solutions include specialty waste packaging, collection, transportation, and total waste management. Our response solutions include land and marine based emergency response, OSRO standby compliance, remediation, and industrial services. The Field Services segment completes our vertically integrated model and serves to increase waste volumes into our Waste Solutions segment.
Energy Waste - This segment provides safe and compliant energy waste management and critical support services to up-stream oil and gas customers in the Permian and Eagle Ford basins primarily operating in Texas. Services include spill containment and site remediation, equipment cleaning and maintenance services, specialty equipment rental, including tanks, pumps and containment, safety monitoring and management and transportation and disposal. This segment includes all of the energy waste business of the legacy NRC operations and none of the legacy US Ecology operations.
The operations not managed through our three reportable segments are recorded as “Corporate.” Corporate selling, general and administrative expenses include typical corporate items of a general nature such as certain labor, information technology, legal, accounting and other expenses not associated with a specific reportable segment. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have been eliminated from the segment information and are not significant between segments.
31
Effective in the first quarter of 2021, we changed our management structure resulting in the reclassification of certain overhead expenses from our Waste Solutions, Field Services and Energy Waste reportable segments to Corporate. As a result, certain regional overhead costs historically presented within our reportable segments as Direct operating costs were further reclassified to Corporate as Selling, general and administrative expenses to conform to the current period’s presentation. Throughout this Quarterly Report on Form 10-Q, all periods presented have been recast to reflect these changes.
In order to provide insight into the underlying drivers of our waste volumes and related treatment and disposal (“T&D”) revenues, we evaluate period-to-period changes in our T&D revenue for our Waste Solutions segment based on the industry of the waste generator, based on North American Industry Classification System (“NAICS”) codes.
The composition of the Waste Solutions segment T&D revenues by waste generator industry for the three months ended March 31, 2021 and 2020 were as follows:
| (1) | Excludes all transportation service revenue. |
| (2) | Includes retail and wholesale trade, rate regulated, construction and other industries. |
We also categorize our Waste Solutions T&D revenue as either “Base Business” or “Event Business” based on the underlying nature of the revenue source.
Base Business consists of waste streams from ongoing industrial activities and tends to be recurring in nature. We define Event Business as non-recurring projects that are expected to equal or exceed 1,000 tons, with Base Business defined as all other business not meeting the definition of Event Business. The duration of Event Business projects can last from a several-week cleanup of a contaminated site to a multiple year cleanup project.
For the three months ended March 31, 2021, Base Business revenue decreased 3% compared to the three months ended March 31, 2020. For the three months ended March 31, 2021, approximately 76% of our total T&D revenue was derived from our Base Business, up from 75% for the three months ended March 31, 2020. Our business is highly competitive and no assurance can be given that we will maintain these revenue levels or increase our market share.
A significant portion of our disposal revenue is attributable to discrete Event Business projects which vary widely in size, duration and unit pricing. For the three months ended March 31, 2021, approximately 24% of our total T&D revenue was derived from Event Business projects, down from 25% for the three months ended March 31, 2020. For the three months ended March 31, 2021, Event Business revenue decreased 9% compared to the three months ended March 31, 2020. The one-time nature of Event Business, diverse spectrum of waste types received and widely varying unit pricing necessarily creates variability in revenue and earnings. This variability may be influenced by general and industry-specific economic conditions, funding availability, changes in laws and regulations, government enforcement actions or court orders, public controversy, litigation, weather, commercial real estate, closed military bases and other project timing, government appropriation and funding cycles and other factors. The types and amounts of waste received from Base Business also vary from quarter to quarter.
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This variability can also cause significant quarter-to-quarter and year-to-year differences in revenue, gross profit, gross margin, operating income and net income. While we pursue many projects months or years in advance of work performance, cleanup project opportunities routinely arise with little or no prior notice. These market dynamics are inherent to the waste disposal business and are factored into our projections and externally communicated business outlook statements. Our projections combine historical experience with identified sales pipeline opportunities, new or expanded service line projections and prevailing market conditions.
We serve oil refineries, chemical production plants, steel mills, waste brokers/aggregators serving small manufacturers and other industrial customers that are generally affected by the prevailing economic conditions and credit environment. Adverse conditions may cause our customers as well as those they serve to curtail operations, resulting in lower waste production and/or delayed spending on off-site waste shipments, maintenance, waste cleanup projects and other work. Factors that can impact general economic conditions and the level of spending by 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 global economic factors affecting spending behavior. Market forces may also induce customers to reduce or cease operations, declare bankruptcy, liquidate or relocate to other countries, any of which could adversely affect our business. To the extent business is either government funded or driven by government regulations or enforcement actions, we believe it is less susceptible to general economic conditions. Spending by government agencies may be reduced due to declining tax revenues resulting from a weak economy or changes in policy. Disbursement of funds appropriated by Congress may also be delayed for various reasons.
COVID-19 PANDEMIC UPDATE
The COVID-19 pandemic continued to affect our business through the first quarter of 2021. The impact of temporary closures and staff reductions by industrial facilities has yet to be fully assessed and understood. We have experienced lower waste volumes resulting from these closures, which we expect to continue until industrial facilities resume normal levels of production. We have also experienced, and expect to continue to experience, delays and deferments of industrial cleaning services and some of our field services as our customers limit on site visitation and delay noncritical services based on business conditions. However, we expect the Company’s services-based business to remain stable as we are experiencing growth in our small quantity generation services and our emergency response business has seen an increase in COVID-19 decontamination projects.
We expect that the COVID-19 pandemic will continue to affect our results of operations for the foreseeable future. See “Part II, Item 1A – Risk Factors” in this Quarterly Report on Form 10-Q.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2021 COMPARED TO THREE MONTHS ENDED MARCH 31, 2020
Operating results and percentage of revenues were as follows:
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Three Months Ended March 31, |
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2021 vs. 2020 |
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$s in thousands |
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2021 |
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% |
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2020 |
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% |
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$ Change |
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% Change |
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|||
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Revenue |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waste Solutions |
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$ |
104,142 |
|
46 |
% |
$ |
109,392 |
|
45 |
% |
$ |
(5,250) |
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(5) |
% |
|
Field Services |
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|
118,249 |
|
52 |
% |
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113,994 |
|
47 |
% |
|
4,255 |
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4 |
% |
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Energy Waste |
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|
6,228 |
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2 |
% |
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17,334 |
|
8 |
% |
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(11,106) |
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(64) |
% |
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Total |
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$ |
228,619 |
|
100 |
% |
$ |
240,720 |
|
100 |
% |
$ |
(12,101) |
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(5) |
% |
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Gross Profit |
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|
|
|
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|
|
|
|
|
|
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Waste Solutions |
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$ |
34,950 |
|
34 |
% |
$ |
39,309 |
|
36 |
% |
$ |
(4,359) |
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(11) |
% |
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Field Services |
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18,306 |
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15 |
% |
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18,276 |
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16 |
% |
|
30 |
|
0 |
% |
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Energy Waste |
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(383) |
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(6) |
% |
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4,856 |
|
28 |
% |
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(5,239) |
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(108) |
% |
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Total |
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$ |
52,873 |
|
23 |
% |
$ |
62,441 |
|
26 |
% |
$ |
(9,568) |
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(15) |
% |
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Selling, General & Administrative Expenses |
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|
|
|
|
|
|
|
|
|
|
|
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|
|
Waste Solutions |
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$ |
6,301 |
|
6 |
% |
$ |
6,889 |
|
6 |
% |
$ |
(588) |
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(9) |
% |
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Field Services |
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|
12,725 |
|
11 |
% |
|
12,853 |
|
11 |
% |
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(128) |
|
(1) |
% |
|
Energy Waste |
|
|
3,343 |
|
54 |
% |
|
5,288 |
|
31 |
% |
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(1,945) |
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(37) |
% |
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Corporate |
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|
28,999 |
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n/m |
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|
27,347 |
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n/m |
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|
1,652 |
|
6 |
% |
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Total |
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$ |
51,368 |
|
22 |
% |
$ |
52,377 |
|
22 |
% |
$ |
(1,009) |
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(2) |
% |
|
Adjusted EBITDA |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waste Solutions |
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$ |
40,136 |
|
39 |
% |
$ |
42,922 |
|
39 |
% |
$ |
(2,786) |
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(6) |
% |
|
Field Services |
|
|
17,137 |
|
14 |
% |
|
17,465 |
|
15 |
% |
|
(328) |
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(2) |
% |
|
Energy Waste |
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|
1,258 |
|
20 |
% |
|
5,205 |
|
30 |
% |
|
(3,947) |
|
(76) |
% |
|
Corporate |
|
|
(25,327) |
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n/m |
|
|
(22,372) |
|
n/m |
|
|
(2,955) |
|
13 |
% |
|
Total |
|
$ |
33,204 |
|
15 |
% |
$ |
43,220 |
|
18 |
% |
$ |
(10,016) |
|
(23) |
% |
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)
Management uses Adjusted EBITDA as a financial measure to assess segment performance. Adjusted EBITDA is defined as net income before interest expense, interest income, income tax expense, depreciation, amortization, share-based compensation, accretion of closure and post-closure liabilities, foreign currency gain/loss, non-cash goodwill impairment charges, business development and integration expenses and other income/expense. The reconciliation of Net loss to Adjusted EBITDA is as follows:
Adjusted EBITDA is a complement to results provided in accordance with accounting principles generally accepted in the United States (“GAAP”) and we believe that such information provides additional useful information to analysts, stockholders and other users to understand the Company’s operating performance. Since Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our financial performance. Adjusted EBITDA should
34
not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity.
Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP. Some of the limitations are:
| ● | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| ● | Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt; |
| ● | Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes; |
| ● | Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| ● | Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and |
| ● | Adjusted EBITDA does not reflect our business development and integration expenses. |
Revenue
Total revenue decreased 5% to $228.6 million for the first quarter of 2021 compared with $240.7 million for the first quarter of 2020.
Waste Solutions
Waste Solutions segment revenue decreased 5% to $104.1 million for the first quarter of 2021, compared to $109.4 million for the first quarter of 2020. T&D revenue decreased 3% compared to the first quarter of 2020, primarily as a result of a 3% decrease in Base Business revenue and a 9% decrease in project-based Event Business revenue. Transportation and logistics service revenue decreased 14% compared to the first quarter of 2020, primarily reflecting Event Business projects utilizing less of the Company’s transportation and logistics services. Total tons of waste disposed of or processed across all of our facilities decreased 29% for the first quarter of 2021 compared to the first quarter of 2020. Tons of waste disposed of or processed at our landfills decreased 18% for the first quarter of 2021 compared to the first quarter of 2020.
T&D revenue from recurring Base Business waste generators decreased 3% for the first quarter of 2021 compared to the first quarter of 2020 and comprised 76% of total T&D revenue for the first quarter of 2021. Comparing the first quarter of 2021 to the first quarter of 2020, decreases in Base Business T&D revenue from the broker/TSDF, general manufacturing, metal manufacturing and transportation industry groups were partially offset by an increase in Event Business T&D revenue from the mining, exploration & production industry group.
T&D revenue from Event Business waste generators decreased 9% for the first quarter of 2021 compared to the first quarter of 2020 and comprised 24% of total T&D revenue for the first quarter of 2021. Comparing the first quarter of 2021 to the first quarter of 2020, decreases in Event Business T&D revenue from the transportation, chemical manufacturing and general manufacturing industry groups were partially offset by increases in Event Business T&D revenue from the metal manufacturing and utilities industry groups.
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The following table summarizes combined Base Business and Event Business T&D revenue growth, within the Waste Solutions segment, by generator industry for the first quarter of 2021 as compared to the first quarter of 2020:
Field Services
Field Services segment revenue increased 4% to $118.2 million for the first quarter of 2021 compared with $114.0 million for the first quarter of 2020. The increase in Field Services segment revenue is primarily attributable to higher revenues from our Emergency Response, Small Quantity Generation and Total Waste Management business lines, partially offset by lower revenues from our Industrial Services, Domestic Standby Services and Other business lines.
Energy Waste
Energy Waste segment revenue decreased 64% to $6.2 million for the first quarter of 2021 compared with $17.3 million for the first quarter of 2020, primarily attributable to declines in the energy markets and impacts from the COVID-19 pandemic.
Gross Profit
Total gross profit decreased 15% to $52.9 million for the first quarter of 2021, down from $62.4 million for the first quarter of 2020. Total gross margin was 23% for the first quarter of 2021 compared with 26% for the first quarter of 2020.
Waste Solutions
Waste Solutions segment gross profit decreased 11% to $35.0 million for the first quarter of 2021, down from $39.3 million for the first quarter of 2020. Total segment gross margin for the first quarter of 2021 was 34% compared with 36% for the first quarter of 2020. The decrease in segment gross margin was primarily attributable to a less favorable service mix and lower volumes. T&D gross margin was 37% for the first quarter of 2021 compared with 42% for the first quarter of 2020.
Field Services
Field Services segment gross profit was $18.3 million for both the first quarter of 2021 and 2020. Total segment gross margin was 15% for the first quarter of 2021 compared with 16% for the first quarter of 2020. The decrease in segment gross margin was primarily attributable to a less favorable service mix, partially offset by higher volumes.
Energy Waste
Energy Waste segment gross profit (loss) decreased 108% to $(383,000) for the first quarter of 2021, down from $4.9 million for the first quarter of 2020. Total segment gross margin was (6)% for the first quarter of 2021 compared with 28% for the first quarter of 2020. The decrease in segment gross margin was primarily attributable to lower volumes and a less favorable service mix.
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Selling, General and Administrative Expenses (“SG&A”)
Total SG&A decreased to $51.4 million, or 22% of total revenue, for the first quarter of 2021, down from $52.4 million, or 22% of total revenue, for the first quarter of 2020.
Waste Solutions
Waste Solutions segment SG&A decreased 9% to $6.3 million, or 6% of segment revenue, for the first quarter of 2021 compared with $6.9 million, or 6% of segment revenue, for the first quarter of 2020.
Field Services
Field Services segment SG&A decreased 1% to $12.7 million, or 11% of segment revenue, for the first quarter of 2021 compared with $12.9 million, or 11% of segment revenue, for the first quarter of 2020.
Energy Waste
Energy Waste segment SG&A decreased 37% to $3.3 million, or 54% of segment revenue, for the first quarter of 2021 compared with $5.3 million, or 31% of segment revenue, for the first quarter of 2020. The decrease in Energy Waste segment SG&A is primarily attributable to lower employee labor and benefits costs.
Corporate
Corporate SG&A increased to $29.0 million, or 13% of total revenue, for the first quarter of 2021 compared with $27.3 million, or 11% of total revenue, for the first quarter of 2020. The increase in Corporate SG&A primarily reflects higher consulting and professional services expenses, lower bad debt recoveries and higher insurance costs, partially offset by lower business development and integration expenses in the first quarter of 2021 compared to the first quarter of 2020.
Components of Adjusted EBITDA
Income tax benefit
Income tax benefit for the first quarter of 2021 was $1.4 million, resulting in a consolidated effective income tax rate of 64.5%. Income tax benefit for the first quarter of 2020 was $263,000, resulting in a consolidated effective income tax rate of 0.1%. The increase in our effective tax rate for the first quarter of 2021 compared to the first quarter of 2020 was primarily due to non-deductible goodwill impairment charges incurred during the first quarter of 2020, and lower pre-tax earnings for the first quarter of 2021 which resulted in a tax benefit from the year-to-date loss of our US operations, partially offset by foreign tax expense from the year-to-date earnings of our foreign operations.
Interest expense
Interest expense was $7.4 million for the first quarter of 2021 compared with $9.3 million for the first quarter of 2020. The decrease is the result of the impact of lower interest rates on the variable portion of our outstanding debt as well as lower outstanding debt levels in the first quarter of 2021 compared to the first quarter of 2020.
Foreign currency loss (gain)
We recognized a $371,000 foreign currency loss for the first quarter of 2021 compared with a $937,000 foreign currency gain for the first quarter of 2020. Foreign currency gains and losses reflect changes in business activity conducted in a currency other than the USD, our functional currency. Additionally, we established intercompany loans with certain of our Canadian subsidiaries, whose functional currency is the Canadian dollar (“CAD”) as part of a tax and treasury management strategy allowing for repayment of third-party bank debt. These intercompany loans are payable by our Canadian subsidiaries to US Ecology in CAD requiring us to revalue the outstanding loan balance through our statements of
37
operations based on USD/CAD currency movements from period to period. At March 31, 2021, we had $33.7 million of intercompany loans subject to currency revaluation.
Other income
Other income was $3.7 million for the first quarter of 2021 compared with other income of $171,000 for the first quarter of 2020. In the first quarter of 2021, the company recognized a gain of $3.5 million related to the change in the fair value of a minority interest investment.
Goodwill impairment charges
We performed an interim assessment of the fair value of certain reporting units as of March 31, 2020. Based on the results of the assessment, we recognized goodwill impairment charges of $300.3 million in the first quarter of 2020.
Depreciation and amortization of plant and equipment
Depreciation and amortization expense increased 1% to $18.2 million for the first quarter of 2021 compared with $18.0 million for the first quarter of 2020.
Amortization of intangible assets
Intangible assets amortization expense decreased 3% to $9.1 million for the first quarter of 2021 compared with $9.4 million for the first quarter of 2020.
Share-based compensation
Share-based compensation expense increased 23% to $1.9 million for the first quarter of 2021, compared with $1.6 million for the first quarter of 2020, primarily reflecting a larger number of employees eligible for share-based compensation in the first quarter of 2021 compared to the first quarter of 2020, as a result of the NRC Merger.
Accretion and non-cash adjustment of closure and post-closure liabilities
Accretion and non-cash adjustment of closure and post-closure liabilities decreased 7% to $1.2 million for the first quarter of 2021, compared with $1.3 million for the first quarter of 2020.
Business development and integration expenses
Business development and integration expenses decreased 58% to $1.2 million in the first quarter of 2021, compared to $2.9 million in the first quarter of 2020, primarily attributable to lower NRC Merger integration expenses incurred in the first quarter of 2021 compared to the first quarter of 2020.
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 unaudited consolidated financial statements are prepared using the same critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
RECENTLY ISSUED ACCOUNTING STANDARDS
For information about recently issued accounting standards, see Note 1 of the Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q.
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LIQUIDITY AND CAPITAL RESOURCES
We are continually evaluating the impact of the COVID-19 pandemic on our financial condition and liquidity. Although the situation remains uncertain, we believe that we have sufficient cash flow from operations and available borrowings under the Revolving Credit Facility to execute our business strategy in the short and longer term. While management continues to closely monitor the impact of the COVID-19 pandemic and government and private sector responses to it in each of the locations and sectors in which the Company does business, we believe that the Company’s strategy during the pandemic has increased the Company’s resiliency and positioned the Company to take advantage of any post-pandemic recovery.
Our primary sources of liquidity are cash and cash equivalents, cash generated from operations and borrowings under the Credit Agreement. At March 31, 2021, we had $82.4 million in unrestricted cash and cash equivalents immediately available and $142.9 million of borrowing capacity available under our Revolving Credit Facility. We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our primary ongoing cash requirements are funding operations, capital expenditures, paying principal and interest on our long-term debt, and paying declared dividends pursuant to our dividend policy. We believe future operating cash flows will be sufficient to meet our future operating, investing and dividend cash needs for the foreseeable future. Furthermore, existing cash balances and availability of additional borrowings under the Credit Agreement provide additional sources of liquidity should they be required. On June 26, 2020, Predecessor US Ecology amended the Credit Agreement, which provides for a covenant relief period through the earlier of March 31, 2022 and the date the Predecessor US Ecology elects to end such covenant relief period pursuant to the terms therein. See additional information on the Third Amendment under “Amendments to the Credit Agreement,” below.
Operating Activities
For the three months ended March 31, 2021, net cash provided by operating activities was $19.5 million. This primarily reflects net loss of $796,000, non-cash depreciation, amortization and accretion of $28.6 million, an increase in deferred revenue of $2.2 million and share-based compensation expense of $1.9 million, partially offset by deferred incomes taxes of $3.8 million, a decrease in accounts payable and accrued liabilities of $3.6 million, a gain of $3.5 million related to a change in the fair value of a minority interest investment and a decrease in accrued salaries and benefits of $3.0 million. Impacts on net income are due to the factors discussed above under “Results of Operations.” The increase in deferred revenue is primarily attributable to cash payments that are received, or advance billings charged, prior to performance of services and waste that has been received but not yet treated or disposed at the end of the period. Changes in accounts payable and accrued liabilities are attributable to the timing of payments to vendors for products and services. The decrease in accrued salaries and benefits is primarily attributable to the payment of accrued employee-incentive compensation related to fiscal 2020 financial performance.
We calculate days sales outstanding (“DSO”) as a rolling four quarter average of our net accounts receivable divided by our quarterly revenue. Our net accounts receivable balance for the DSO calculation includes trade accounts receivable, net of allowance for doubtful accounts, and unbilled accounts receivable, adjusted for changes in deferred revenue. DSO was 88 days as of March 31, 2021, compared to 86 days as of December 31, 2020 and 84 days as of March 31, 2020.
For the three months ended March 31, 2020, net cash provided by operating activities was $29.3 million. This primarily reflects net loss of $298.1 million, non-cash goodwill impairment charges of $300.3 million, non-cash depreciation, amortization and accretion of $28.7 million, a decrease in accounts receivable of $13.5 million and an increase in deferred revenue of $7.1 million, partially offset by a decrease in accounts payable and accrued liabilities of $13.6 million and a decrease in accrued salaries and benefits of $7.4 million. Impacts on net income are due to the factors discussed above under “Results of Operations.” Changes in accounts receivable and accounts payable and accrued liabilities are attributable to the timing of payments from customers and payments to vendors for products and services. The increase in deferred revenue is primarily attributable to annual invoicing of retainer-based services which will be recognized over the course of the year as services are performed. The decrease in accrued salaries and benefits is primarily attributable to the payment of accrued employee-incentive compensation related to fiscal 2019 financial performance.
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Investing Activities
For the three months ended March 31, 2021, net cash used in investing activities was $8.7 million, primarily related to capital expenditures of $9.6 million and a $712,000 investment in the preferred stock of a privately held company, partially offset by $1.6 million in proceeds from the sale of property and equipment. Capital projects consisted primarily of infrastructure upgrades at our operating facilities and landfill cell development.
For the three months ended March 31, 2020, net cash used in investing activities was $21.7 million, primarily related to capital expenditures of $19.1 million and the acquisition of Impact Environmental, Inc. for $3.3 million in January 2020. Capital projects consisted primarily of equipment purchases and infrastructure upgrades at our corporate and operating facilities.
Financing Activities
For the three months ended March 31, 2021, net cash used in financing activities was $2.8 million, consisting primarily of $1.5 million in payments on our equipment financing obligations and a $1.1 million quarterly payment on our term loan. Quarterly cash dividends have been suspended and no dividends were paid in the first quarter of 2021.
For the three months ended March 31, 2020, net cash provided by financing activities was $63.7 million, consisting primarily of $90.0 million in borrowings on our revolving credit facility, partially offset by repurchases of our common stock of $18.3 million and dividend payments to our stockholders of $5.7 million.
Credit Agreement
On April 18, 2017, Predecessor US Ecology, a wholly-owned subsidiary of the Company, entered into a new senior secured credit agreement (as amended, restated, supplemented or otherwise modified through the date hereof, the “Credit Agreement”) with Wells Fargo, as administrative agent for the lenders, swingline lender and issuing lender, and Bank of America, N.A., as an issuing lender, that provides for a $500.0 million, five-year revolving credit facility (the “Revolving Credit Facility”), including a $75.0 million sublimit for the issuance of standby letters of credit and a $40.0 million sublimit for the issuance of swingline loans used to fund short-term working capital requirements. The Credit Agreement also contains an accordion feature whereby Predecessor US Ecology may request up to $200.0 million of additional funds through an increase to the Revolving Credit Facility, through incremental term loans, or some combination thereof. As described below, the Credit Agreement was amended in November 2019 in connection with the NRC Merger and further amended on June 26, 2020 pursuant to the Third Amendment (as defined below).
During the three months ended March 31, 2021, the effective interest rate on the Revolving Credit Facility, after giving effect to the impact of our interest rate swap and the amortization of the loan discount and debt issuance costs, was 4.06%. Interest only payments are due either quarterly or on the last day of any interest period, as applicable. In March 2020, the Company entered into an interest rate swap agreement, effectively fixing the interest rate on $470.0 million, or approximately 59%, of the Revolving Credit Facility and term loan borrowings outstanding as of March 31, 2021.
Except as modified by the Third Amendment as described below, Predecessor US Ecology is required to pay a commitment fee ranging from 0.175% to 0.35% on the average daily unused portion of the Revolving Credit Facility, with such commitment fee to be based upon Predecessor US Ecology’s total net leverage ratio (as defined in the Credit Agreement). The maximum letter of credit capacity under the Revolving Credit Facility is $75.0 million and the Credit Agreement provides for a letter of credit fee equal to the applicable margin for LIBOR loans under the Revolving Credit Facility. At March 31, 2021, there were $347.0 million of revolving credit loans outstanding on the Revolving Credit Facility. These revolving credit loans are due upon the earliest to occur of (i) November 1, 2024 (or, with respect to any lender, such later date as requested by us and accepted by such lender), (ii) the date of termination of the entire revolving credit commitment (as defined in the Credit Agreement) by us, and (iii) the date of termination of the revolving credit commitment and are presented as long-term debt in the consolidated balance sheets.
Predecessor US Ecology has entered into a sweep arrangement whereby day-to-day cash requirements in excess of available cash balances are advanced to the Company on an as-needed basis with repayments of these advances
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automatically made from subsequent deposits to our cash operating accounts (the “Sweep Arrangement”). Total advances outstanding under the Sweep Arrangement are subject to the $40.0 million swingline loan sublimit under the Revolving Credit Facility. Predecessor US Ecology’s revolving credit loans outstanding under the Revolving Credit Facility are not subject to repayment through the Sweep Arrangement. As of March 31, 2021, there were $277,000 in borrowings outstanding subject to the Sweep Arrangement, which are presented as Short-term borrowings in the consolidated balance sheet.
As of March 31, 2021, the availability under the Revolving Credit Facility was $142.9 million, with $9.8 million of the Revolving Credit Facility issued in the form of standby letters of credit utilized as collateral for closure and post-closure financial assurance and other assurance obligations.
Amendments to the Credit Agreement
On August 6, 2019, Predecessor US Ecology entered into the first amendment (the “First Amendment”) to the Credit Agreement, by and among Predecessor US Ecology, the subsidiaries of Predecessor US Ecology party thereto, the lenders referred to therein and Wells Fargo, as issuing lender, swingline lender and administrative agent. Effective November 1, 2019, the First Amendment, among other things, extended the expiration of the Revolving Credit Facility to November 1, 2024, permitted the issuance of a $400.0 million incremental term loan to be used to refinance the indebtedness of NRC and pay related transaction expenses in connection with the NRC Merger, modified the accordion feature allowing Predecessor US Ecology to request up to the greater of (x) $250.0 million and (y) 100% of consolidated EBITDA plus certain additional amounts, increased the sublimit for the issuance of swingline loans to $40.0 million and increased the maximum consolidated total net leverage ratio to 4.00 to 1.00.
On November 1, 2019, Predecessor US Ecology entered into the lender joinder agreement and second amendment (the “Second Amendment”) to the Credit Agreement. Effective November 1, 2019, the Second Amendment, among other things, amended the Credit Agreement to increase the capacity for incremental term loans by $50.0 million and provided for Wells Fargo lending $450.0 million in incremental term loans to Predecessor US Ecology to pay off the existing debt of NRC in connection with the NRC Merger, to pay certain fees, costs and expenses incurred in connection with the NRC Merger and to repay outstanding borrowings under the Revolving Credit Facility. The seven-year incremental term loan matures November 1, 2026, requires principal repayment of 1% annually, and bears interest at LIBOR plus 2.25% or a base rate plus 1.25% (with a step-up to LIBOR plus 2.50% or a base rate plus 1.50% in the event that US Ecology credit ratings are not BB (with a stable or better outlook) or better from S&P and Ba2 (with a stable or better outlook) or better from Moody’s). During the three months ended March 31, 2021, the effective interest rate on the term loan, including the impact of the amortization of debt issuance costs, was 2.89%.
On June 26, 2020, Predecessor US Ecology entered into the third amendment (the “Third Amendment”) to the Credit Agreement. Among other things, the Third Amendment amended the Credit Agreement to provide a covenant relief period through the earlier of March 31, 2022 and the date the Predecessor US Ecology elects to end such covenant relief period pursuant to the terms therein. During the covenant relief period, the Third Amendment increased Predecessor US Ecology’s consolidated total net leverage ratio requirement as of the end of each fiscal quarter to certain ratios above the 4.00 to 1.00 ratio in effect immediately before giving effect to the Third Amendment, subject to compliance with certain restrictions on restricted payments and permitted acquisitions during such covenant relief period. Furthermore, during the covenant relief period, under the Revolving Credit Facility, revolving credit loans are available based on a base rate (as defined in the Credit Agreement) or LIBOR, at the Company’s option, plus an applicable margin, which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to consolidated earnings before interest, taxes, depreciation and amortization (as defined in the Credit Agreement).
For additional information see Note 11 of the Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q.
CONTRACTUAL OBLIGATIONS AND GUARANTEES
In March 2020, the Company entered into an interest rate swap agreement with Wells Fargo, effectively fixing the interest rate on $470.0 million, or approximately 59%, of the Revolving Credit Facility and term loan borrowings outstanding as
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of March 31, 2021. In connection with our entry into the March 2020 interest rate swap, we terminated our existing interest rate swap prior to its scheduled maturity date of June 2021. For more information, see Note 11 of the Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q.
Except as set forth above, there were no material changes in the amounts of our contractual obligations and guarantees during the three months ended March 31, 2021. For further information on our contractual obligations and guarantees, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We do not maintain equities, commodities, derivatives, or any other similar instruments for trading purposes. We have minimal interest rate risk on investments or other assets due to our preservation of capital approach to investments. At March 31, 2021, $5.8 million of restricted cash was invested in fixed-income U.S. Treasury and U.S. government agency securities and money market accounts.
We are exposed to changes in interest rates as a result of our Revolving Credit Facility and Term Loan borrowings under the Credit Agreement. Our Revolving Credit Facility borrowings incur interest at a base rate (as defined in the Credit Agreement) or LIBOR, at the Company’s option, plus an applicable margin which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to consolidated earnings before interest, taxes, depreciation and amortization (as defined in the Credit Agreement). Our Term Loan bears interest at LIBOR plus 2.25% or a base rate plus 1.25% (with a step-up to LIBOR plus 2.50% or a base rate plus 1.50% in the event that US Ecology credit ratings are not BB (with a stable or better outlook) or better from S&P and Ba2 (with a stable or better outlook) or better from Moody’s).
On March 6, 2020, the Company entered into an interest rate swap agreement with the intention of hedging the Company’s interest rate exposure on a portion of the Company’s outstanding LIBOR-based variable rate debt. Under the terms of the swap, the Company pays interest at the fixed effective rate of 0.83% and receives interest at the variable one-month LIBOR rate on an initial notional amount of $500.0 million.
As of March 31, 2021, there were $347.0 million of Revolving Credit Facility loans, and $444.4 million of Term Loans outstanding under the Credit Agreement. If interest rates were to rise and outstanding balances remain unchanged, we would be subject to higher interest payments on our outstanding debt. Subsequent to the March 31, 2020 effective date of our interest rate swap we are subject to higher interest payments on only the unhedged borrowings under the Credit Agreement and the Term Loan.
Based on the outstanding indebtedness under the Credit Agreement on March 31, 2021 and the impact of our interest rate hedge, if market rates used to calculate interest expense were to average 1% higher in the next twelve months, our interest expense would increase by approximately $1.0 million for the corresponding period.
Foreign Currency Risk
We are subject to foreign currency exchange risk through our international operations. While we operate primarily in the United States and, accordingly, most of our consolidated revenue and associated expenses are denominated in USD. During the three months ended March 31, 2021, we recorded approximately $20.2 million, or 9%, of our revenue in Canada, $10.0 million, or 4%, of our revenue in the EMEA region, and less than 1% of our revenue from other international regions. Revenue and expenses denominated in foreign currencies may be affected by movements in foreign currency exchange rates.
Our exposure to foreign currency exchange risk in our Consolidated Balance Sheets relates primarily to cash, trade payables and receivables, and intercompany loans that are denominated in foreign currencies, primarily CAD. Contracts for services that our foreign subsidiaries provide to customers are often denominated in currencies other than their local
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functional currency. The resulting cash, receivable and payable accounts are subject to non-cash foreign currency translation gains or losses.
We established intercompany loans with certain of our Canadian subsidiaries, as part of a tax and treasury management strategy allowing for repayment of third-party bank debt. These intercompany loans are payable using CAD and are subject to mark-to-market adjustments with movements in the CAD. At March 31, 2021, we had $33.7 million of intercompany loans outstanding between our Canadian subsidiaries and US Ecology. During the three months ended March 31, 2021, the CAD strengthened as compared to the USD resulting in a $395,000 non-cash foreign currency translation gain being recognized in the Company’s consolidated statements of operations related to the intercompany loans. Based on intercompany balances as of March 31, 2021, a $0.01 CAD increase or decrease in currency rate compared to the USD at March 31, 2021 would have generated a gain or loss of approximately $337,000 for the three months ended March 31, 2021.
We had a total pre-tax foreign currency loss of $371,000 for the three months ended March 31, 2021. We currently have no foreign exchange contracts, option contracts or other foreign currency hedging arrangements. Management evaluates our risk position on an ongoing basis to determine whether foreign exchange hedging strategies should be employed.
Commodity Price Risk
We have exposure to commodity pricing for oil and gas. Fluctuations in oil and gas commodity prices may impact business activity in the industries that we serve, affecting demand for our services and our future earnings and cash flows. We have not entered into any derivative contracts to hedge our exposure to commodity price risk.
ITEM 4. CONTROLS AND PROCEDURES
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer of the Company, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, including the accumulation and communication of disclosures to the Company’s Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure, are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission (“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.
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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 the Company’s 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 may include developments related to the COVID-19 pandemic, including, but not limited to, the duration and severity of additional measures taken by government authorities and the private sector to limit the spread of COVID-19, the integration of the operations of NRC, the loss or failure to renew significant contracts, competition in our markets, adverse economic conditions, our compliance with applicable laws and regulations, potential liability in connection with providing oil spill response services and waste disposal services, the effect of existing or future laws and regulations related to greenhouse gases and climate change, the effect of our failure to comply with U.S. or foreign anti-bribery laws, the effect of compliance with laws and regulations, an accident at one of our facilities, incidents arising out of the handling of dangerous substances, our failure to maintain an acceptable safety record, our ability to perform under required contracts, limitations on our available cash flow as a result of our indebtedness, liabilities arising from our participation in multi-employer pension plans, the effect of changes in the method of determining LIBOR or the replacement thereto, risks associated with our international operations, the impact of changes to U.S. tariff and import and export regulations, fluctuations in commodity markets related to our business, a change in NRC’s classification as an Oil Spill Removal Organization, cyber security threats, unanticipated changes in tax rules and regulations, the loss of key personnel, a deterioration in our labor relations or labor disputes, our reliance on third-party contractors to provide emergency response services, our access to insurance, surety bonds and other financial assurances, our litigation risk not covered by insurance, the replacement of non-recurring event projects, our ability to permit and contract for timely construction of new or expanded disposal space, renewals of our operating permits or lease agreements with regulatory bodies, our access to cost-effective transportation services, lawsuits, our implementation of new technologies, fluctuations in foreign currency markets and foreign affairs, our integration of acquired businesses, our ability to pay dividends or repurchase stock, anti-takeover regulations, stock market volatility, the failure of the warrants to be in the money or their expiration worthless and risks related to our compliance with maritime regulations (including the Jones Act).
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 Form 10-K for the fiscal year ended December 31, 2020 and in other reports we file with the SEC 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,
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stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of US Ecology, Inc.
ITEM 1. LEGAL PROCEEDINGS
In December 2010, National Response Corporation, a subsidiary of NRC acquired by the Company in the NRC Merger, was named as one of many “Dispersant Defendants” in multi-district litigation, arising out of the explosion of the BP Deepwater Horizon (“BP”) oil rig, filed in the U.S. District Court for the Eastern District of Louisiana (“In re Deepwater Horizon” or the “MDL”). The claims against National Response Corporation, and other “Dispersant Defendants,” were brought by workers and others who alleged injury arising from post-explosion clean–up efforts, including particularly the use of certain chemical dispersants. In January 2013, the Court approved a Medical Benefits Class Action Settlement, which, among other things, provided for a “class wide” settlement as well as a release of claims against Dispersant Defendants, including National Response Corporation. Further, National Response Corporation successfully moved the court to dismiss all claims against it based on derivative immunity, as it was acting at the direction of the U.S. Government. In early 2018, BP began asserting an alleged contractual right of indemnity against National Response Corporation and others in post-settlement lawsuits brought by persons who had either chosen not to participate in the class-wide agreement or whose injuries were allegedly manifest after the period covered by the claim submission process. The Company advised BP that it considers the attempt to bring National Response Corporation back into previously settled litigation to be improper and moved for a declaratory judgment that it owes no indemnity or contribution to BP, raising various arguments, including BP’s own actions and conduct over the preceding nine years with respect to these claims (including its failure to seek indemnity) and the resultant prejudice to National Response Corporation, BP’s waiver of any indemnity, and the court’s prior finding that National Response Corporation is entitled to derivative immunity. In response, BP asserted counterclaims against National Response Corporation for a declaratory judgment that National Response Corporation must indemnify BP under certain circumstances and for unjust enrichment. National Response Corporation successfully moved to dismiss the unjust enrichment claim. The parties filed simultaneous judgment on the pleadings briefs in February 2020, and all oppositions were filed on March 16, 2020. On May 4, 2020, the court found in favor of National Response Corporation, and held that the Company is not liable to BP or any back end litigation plaintiffs for any damages related to the Deepwater Horizon oil spill. BP timely appealed the ruling on June 11, 2020. The Company is currently unable to estimate the range of possible losses associated with this proceeding. However, the Company also believes that, were it deemed to have liability arising out of or related to BP’s indemnity claims, such liability would be covered by an indemnity by SEACOR Holdings Inc., the former owner of National Response Corporation, in favor of National Response Corporation and its affiliates.
On November 17, 2018, an explosion occurred at our Grand View, Idaho facility, resulting in one employee fatality and injuries to other employees. The incident severely damaged the facility’s primary waste-treatment building as well as surrounding waste handling, waste storage, maintenance and administrative support structures, resulting in the closure of the entire facility that remained in effect through January 2019. In addition to initiating and conducting our own investigation into the incident, we fully cooperated with the Idaho Department of Environmental Quality, the U.S. Environmental Protection Agency and the Occupational Safety and Health Administration (“OSHA”) to support their comprehensive and independent investigations of the incident. On January 10, 2020, we entered into a settlement agreement with OSHA settling a complaint made by OSHA relating to the incident for $50,000. On January 28, 2020, the Occupational Safety and Health Review Commission issued an order terminating the proceeding relating to such OSHA complaint. We maintain workers’ compensation insurance, business interruption insurance and liability insurance for personal injury, property and casualty damage. We believe that any potential third-party claims associated with the explosion in excess of our deductibles are expected to be resolved primarily through our insurance policies. Although we carry business interruption insurance, a disruption of our business caused by a casualty event, including the full and partial closure of our Grand View, Idaho facility, may result in the loss of business, profits or customers during the time of such closure. Accordingly, our insurance policies may not fully compensate us for these losses. In November 2020, we commenced a lawsuit against the generator and broker of the waste, the treatment of which we believe contributed to the Grand View explosion, seeking damages in connection with the losses suffered as a result of the incident.
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Other than described above, during the period covered by this Quarterly Report on Form 10-Q, we have not been a party to any material legal proceedings.
ITEM 1A. RISK FACTORS
The Company is subject to various risks and uncertainties that could have a material impact on our business, financial condition, results of operations and cash flows. Reference is also made to those risk factors included in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 6, 2020, the Company’s Board of Directors’ authorization to repurchase the Company’s outstanding shares of common stock and warrants under the share repurchase program expired. In the future, the Board of Directors may consider reauthorizing the repurchase program at any time, and the timing of any future repurchases of common stock or warrants will be based upon prevailing market conditions and other factors. The Company may from time to time also consider other options for repurchasing some or all of its warrants, including but not limited to a tender offer for all of the outstanding warrants.
The following table summarizes the purchases of shares of our common stock during the three months ended March 31, 2021:
| (1) | Represents shares surrendered or forfeited in connection with certain employees’ tax withholding obligations related to the vesting of shares of restricted stock and performance stock units. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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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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The following materials from the quarterly report on Form 10-Q of US Ecology, Inc. for the quarter ended March 31, 2021 formatted in Extensible Business Reporting Language (Inline XBRL) include: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Consolidated Financial Statements |
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The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL |
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* Identifies management contracts or compensatory plans or arrangements filed as exhibits hereto. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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US Ecology, Inc. |
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(Registrant) |
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Date: May 3, 2021 |
/s/ Eric L. Gerratt |
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Eric L. Gerratt |
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Executive Vice President, Chief Financial Officer and Treasurer |
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Exhibit 10.1
US ECOLOGY, INC.
MANAGEMENT INCENTIVE PLAN
This US Ecology, Inc. Management Incentive Plan (“Plan”) is entered into between ____________________ (“Employee”) and US Ecology, Inc., including its parents, affiliates, subsidiaries, and divisions for which Employee will work during his or her employment.
I.PURPOSE
The US Ecology Inc. Amended and Restated Omnibus Incentive Plan authorizes the Compensation Committee (“Committee”) of the Board of Directors (“Board”) of US Ecology, Inc. (“Company”) to grant performance-based awards denominated in cash in such amounts and subject to such terms and conditions as the Committee may determine. The Plan provides a variable component of compensation for certain Team Members for achievement of objectives (“Plan Objectives” and each, a “Plan Objective”) set by the Committee for the Company’s fiscal year (“Plan Year”). The Plan is designed to align the interests of Team Members with those of stockholders and attract, motivate and retain key Team Members critical to the long-term success of the Company.
II.ADMINISTRATION
The administrator of the Plan shall be the Committee; hereinafter referred to as “Administrator”. The Administrator shall have full power, discretion and authority to, among other things, interpret the Plan, verify all amounts paid under the Plan, and establish rules and procedures for its administration, as deemed necessary and appropriate. The Administrator may rely on opinions, reports or statements of the Company’s officers, public accountants and other professionals. The calculation of any amounts to be paid under the Plan shall be performed by the Company’s Vice President and Corporate Controller and submitted by the Chief Executive Officer (“CEO”) to the Administrator for approval. Any interpretation of the Plan or act of the Administrator, or its designee, in administering the Plan, shall be final and binding.
No member of the Board shall be liable for any action, interpretation or construction made in good faith with respect to the Plan. The Company shall indemnify, to the fullest extent permitted by law, each member of its Board who may become liable in any civil action or proceeding with respect to decisions made relating to the Plan.
III.PERFORMANCE PERIOD
The Plan’s performance period shall be the Plan Year, which runs January 1 through December 31.
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PLAN OBJECTIVES |
Awards under the Plan are based on the attainment of Plan Objectives established for the Plan Year. Plan Objective achievement will be determined by the Administrator in its absolute discretion.
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ELIGIBILITY |
Eligibility to participate in the Plan is limited to designated Team Members (each a “Participant”) as approved by the CEO and shall be evidenced by an offer letter or direct correspondence from the CEO.
To be eligible to receive an award under the Plan, a Participant must have been employed by the Company (i) on a full-time basis during the Plan Year and (ii) on the date of any payment under the Plan, except as otherwise provided for in this Plan or when such requirement is waived by the CEO.
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New Hire/Rehire — A Participant whose employment with the Company began during the Plan Year shall be eligible for an award on a pro-rata basis, provided the CEO has approved participation and other conditions of the Plan are satisfied. An award will be pro-rated based upon the number of calendar days the Participant was employed in an eligible position during the Plan Year. In the case of rehires, there shall be no credit for prior service, unless otherwise approved in writing by the CEO. |
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Leave of Absence — Provided other requirements of the Plan are satisfied; a Participant who is on an approved leave of absence for thirteen (13) weeks or more will be eligible for a pro-rated award. An award will be pro-rated by excluding the number of calendar days the Participant was on leave during the Plan Year. Military leaves of absence are waived from pro-ration. |
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Promotion — If a Participant is promoted to an eligible position or from one eligible position to another eligible position with a higher award potential during the Plan Year, the award will be calculated based on the annualized base pay and target percentage in effect as of November 30. |
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d. |
Demotion – If a Participant is demoted from an eligible position or from one eligible position to another eligible position with a lower award potential during the Plan Year, the award will be calculated based on the annualized base pay and target percentage in effect as of November 30. |
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e. |
Transition Between Incentive Bonus Plans – If a Participant moves from one incentive plan to another, awards are calculated based on the calendar days in each eligible position and the target incentive amount, plan objective and weights applicable during the Participant’s tenure in each applicable position. |
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f. |
Removal from Plan — A Participant may be removed from the Plan or an award adjusted, including elimination of any right to an award under the Plan, for insubordination, misconduct, malfeasance, or any formal disciplinary action taken by the Company during the Plan Year or prior to payment. |
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VI. |
INCENTIVE AWARD |
The Administrator shall establish the Plan Objectives that must be achieved for a Participant to receive payment of all or a portion of his/her target incentive amount, which amount is the product of the Participant’s annual salary and an established percentage (“Target Incentive”), established by the CEO.
Payments under the Plan, if any, shall be made to a Participant upon certification by the CEO that such payments are authorized, and all applicable criteria have been satisfied. Payments shall be made as soon as practicable after approval and availability of the Company’s final audited Plan Year financial statements.
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VII. |
PLAN OBJECTIVES |
Plan Objectives fall into one of four categories: a) Financial (60% of Target Incentive), b) Individual Performance (20% of Target Incentive), c) Health and Safety (10% of Target Incentive), and d) Compliance (10% of Target Incentive). Plan Objectives are independent and mutually exclusive from each other, so that the applicable percentage of the Target Incentive may be earned if one Plan Objective is met, even if the threshold performance is not met for another Plan Objective.
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a. |
Financial – The Financial Plan Objective is based on the Plan Year’s actual EBITDA and actual consolidated Free Cash Flow, before Plan expenses. |
The portion of a Participant’s Target Incentive based on financial performance is comprised of two separate financial targets established and approved by the Administrator 1) earnings before interest, taxes, depreciation, and amortization (the “EBITDA Target”) and 2) free cash flow (the “FCF Target”) (each a “Base MIP Target”) and are weighted at 40% and 20%, respectively, of a Participant’s Target Incentive and 67% and 33% respectively of the Finance Target Incentive. Achievement will be determined by comparing the Plan Year’s actual financial results (based on audited financial information) to the EBITDA target and FCF target.
The Administrator, in its sole discretion, may include or exclude certain non-recurring or special transactions from calculated EBITDA or Free Cash Flow for purposes of determining the amount of an award under the Plan.
Upon achievement of 90% of a Base MIP Target, the Participant will earn 50% of the Finance Target Incentive, multiplied by the corresponding weight; 67% in the case of the EBITDA Target and 33% in case of the FCF Target (each, a “Target Weight”). For every percentage point achievement over 90% of a Base MIP Target, up to and including 100%, a Participant will earn 5% of the Finance Target Incentive, multiplied by the Target Weight. Upon 100% achievement of a Base MIP Target, 100% of the Finance Target Incentive, multiplied by the Target Weight, will be available to a Participant. In the event the Company exceeds 100% of a Base MIP Target, a Participant will be eligible for an additional incentive payment in an amount calculated by multiplying his Target Incentive by 10% for every 1% increase over 100% of a Base MIP Target and multiplied further by the Target Weight. The additional incentive payments are capped at one times a Participant’s Target Incentive (achieved at 110% of each Base MIP Target) for a maximum potential incentive payment of two times the Participant’s Target Incentive.
By way of example only, a Participant with an annual base salary of $100,000 who has a Target Incentive of 20% would receive the following amounts based on various levels of achievement:
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Example 1: Assuming 95% achievement of the Consolidated EBITDA Target and 98% achievement of the Consolidated Free Cash Flow Target, the Participant in this example would be entitled to $9,600, calculated as follows:
Example 2: Assuming 95% achievement of the Consolidated EBITDA Target and 105% achievement of the Consolidated Free Cash Flow Target, the Participant would be entitled to an Additional Finance Incentive (“AFI”) of $3,300 and a total earned amount of $13,300, calculated as follows:
4
Example 3: Assuming 145% achievement of the Consolidated EBITDA Target and 100% of the Consolidated Free Cash Flow Target, the Participant would be entitled to an Additional Finance Incentive of $13,400 and a total earned amount of $25,400, calculated as follows:
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b. |
Individual Performance - Up to an additional 20% of a Participant’s Target Incentive shall be awarded, at the sole discretion of the Administrator (“Individual Performance Incentive”) based on the following Plan Objectives. |
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i. |
Achieving established objectives that align with the Company’s Strategic Outcomes (10% Weight) |
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ii. |
Leadership Excellence and Engagement (5% Weight) |
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iii. |
Humble, Hungry, & Smart (HHS) Role Model and Leader (5% Weight). |
This metric is independent so that a percentage of the Individual Performance Incentive may be earned independent and mutually exclusive of achievement of any other Plan Objective.
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c. |
Health and Safety - The health and safety Plan Objective is weighted at 10% of a Participant’s target Incentive and earned based on the organizations performance towards achieving a Total Recordable Incident Rate (“TRIR”) target. Participants are assigned to a TRIR Target established for Canada, USA or companywide depending on the Team Member’s work location and role within the company. This Health and Safety Incentive may be earned independent and mutually exclusive of achievement of any other Plan Objective. |
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d. |
Compliance – The metric for this Plan Objective is the Company’s avoidance of Notices of Violation or Enforcement with monetary penalties during the Plan Year and is weighted at 10% of a Participant’s Target Incentive. The Target Incentive related to Compliance (“Compliance Target Incentive”) shall be earned based on a determination by the Administrator, taking into consideration, among other things, the dollar amount of a monetary penalty paid (or accrued under generally accepted accounting principles – “GAAP”) in the Plan Year, severity of the Notices of Violation or Enforcement, regulatory basis for penalty and respective fact patterns. This metric is scalable independent so that a percentage of the Compliance Target Incentive may be earned independent and mutually exclusive of achievement of any other Plan Objective. |
Each Participant Letter will include the applicable Target Incentive, Plan Objectives, metrics, weights and such other information as may be determined.
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VIII. |
RESTRICTIVE COVENANTS |
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a. |
Confidentiality Covenant – Employee agrees that (1) the Company’s competitive position depends upon its ability to maintain the confidentiality of its confidential information (as that term is typically defined in the ordinary course of Company’s industry – hereinafter “CI”), and (2) Employee’s use of CI, other than as specifically authorized by the Company, will be detrimental to the Company. Employee shall treat all CI as confidential. Employee shall not directly or indirectly (i) disclose any CI to a third party (except as required in the normal course of Employee's duties), or (ii) use any CI for Employee's own account. Employee agrees not to remove any CI from the Company’s premises or networks in any form, including, but not limited to, hard copy documents, electronic files, or e-mails. |
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b. |
Non solicitation Covenant – For a period of 12 months following Employee’s termination (regardless of the reason for termination), Employee shall not, directly or indirectly, do any of the following: |
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i. |
solicit, or attempt to solicit, on behalf of a competing business any of Company’s customers or accounts; or |
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ii. |
on behalf of a competing business, contract with, sell to, or perform services for any of Company’s customers or accounts; or |
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iii. |
interfere with, or attempt to interfere with, any customer relationship of Company; or |
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iv. |
solicit, induce, encourage, or attempt to solicit, any Company employee to terminate his or her employment or other association with Company; or |
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v. |
hire or engage, or attempt to hire or engage, any Company employee. |
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c. |
Extension of Restrictive Periods – The restrictive periods identified above shall not expire during (and shall be extended for a period equal to the duration of) any period in which Employee is in violation of such restrictive periods. |
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d. |
Consideration – Employee acknowledges that (1) participation in this Plan, (2) continued employment, and (3) receipt of confidential information constitutes sufficient consideration for the foregoing restrictive covenants. |
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e. |
Survival – This Section VIII applies to any position Employee may hold with the Company (or any subsidiary or affiliate) notwithstanding any changes in Employee’s job duties or compensation. Further, this provision survives Employee’s termination for any reason. |
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f. |
Conflict – In the event of any conflict between the terms of this Section VIII and the provisions contained in any other agreement between the Company (or any subsidiary or affiliate) and Employee binding the Employee to similar restrictive covenants, the terms of the more restrictive agreement shall govern. In all other respects, this Plan shall remain in full force and effect. |
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IX. |
MISCELLANEOUS |
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a. |
Interests Not Transferable – Any interest of a Participant under the Plan may not be voluntarily sold, transferred, alienated, assigned or encumbered, other than by will or pursuant to the laws of descent and distribution. |
Notwithstanding the foregoing, if a Participant dies during the Plan Year, or after the Plan Year and prior to payment of an award, then a pro-rata portion of the award to which the Participant would have been eligible absent death shall be paid to the deceased’s Participant’s estate. Payment shall be based on the number of calendar days the Participant was employed in an eligible position during the Plan Year and shall be made at the time other Participants are paid. The requirement that the Participant be a Team Member on that date of payment shall be waived.
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b. |
Withholding Taxes and liabilities – The Company shall withhold taxes and Participant liabilities payable under the Plan as required by law, including, but not limited to, country, federal, state, provincial, city and/or local taxes, pensions, FICA and Medicare. Additionally, the Company will withhold from any amounts payable under the Plan the applicable contribution for the Participant’s retirement plans. |
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c. |
No Right of Employment – Nothing in this Plan will be construed as creating any contract of employment or conferring upon any Participant any right to continue in the employ or other service of the Company or limit in any way the right of Company to change such person’s compensation or other benefits or to terminate the employment or other service of such person with or without cause. |
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d. |
No Representations – The Company does not represent or guarantee that any federal or state income, payroll, personal property or other tax consequence will result from participation in the Plan. |
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e. |
Section Headings – The section headings contained herein are for convenience only and, in the event of any conflict, the text of the Plan, rather than the section headings, will control. |
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f. |
Severability – In the event any provision of the Plan shall be held to be illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if such illegal or invalid provisions had never been contained in the Plan. |
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g. |
Invalidity – If any term or provision contained herein is to any extent invalid or unenforceable, such term or provision shall be reformed so that it is valid, and such invalidity or unenforceability shall not affect any other provision or part hereof. |
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h. |
Amendment, Modification or Termination – The Administrator reserves the right to unilaterally amend, modify or terminate the Plan at any time as it deems necessary or advisable. |
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i. |
Applicable Law – Except to the extent superseded by the laws of the United States, the laws of the State of Idaho, without regard to its conflicts of laws principles, shall govern in all matters relating to the Plan. |
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j. |
Effect on Other Plans – Payments or benefits provided to a Participant under any stock, deferred compensation, savings, retirements or other Team Member benefit plan are governed solely by the terms of each of such plans. |
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k. |
Translation – In the event this Plan is translated into a language other than English, to the extent permitted by applicable law in the relevant jurisdiction, the English language version of the Plan shall prevail in case of any discrepancy. |
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l. |
Effective Date – The Plan is effective as of January 1, 2021 and remains valid until the Company amends, modifies or terminates the Plan. |
SIGNATURES
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US ECOLOGY, INC. |
EMPLOYEE |
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BY: |
BY: |
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NAME: JEFF FEELER |
NAME: |
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TITLE: PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN |
TITLE: |
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DATE: |
DATE: |
8
Exhibit 10.2
US ECOLOGY, INC.
RESTRICTED STOCK AGREEMENT
This RESTRICTED STOCK AGREEMENT (this “Agreement”) is entered into as of [GrantDate] (the “Grant Date”), between US Ecology, Inc., a Delaware corporation (the “Company”), and [FirstLast] (the “Grantee”).
WHEREAS, the Company maintains the Amended and Restated US Ecology, Inc. Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”) pursuant to which Restricted Stock may be granted; and
WHEREAS, the Compensation Committee of the Company’s Board of Directors (the “Committee”) has determined that it is in the best interests of the Company and its stockholders to grant the award of Restricted Stock provided for herein to the Grantee in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of these premises and the agreements set forth herein, the parties hereto, intending to be legally bound hereby, agree as follows:
1. Grant of Restricted Stock.
Pursuant to Section 6.3 of the Plan, the Company hereby grants to the Grantee an award of [TotalRS] Shares of Restricted Stock (the “Restricted Shares”). The Restricted Shares shall be administered by the Company or its designated agent and shall be subject to the execution and return of this Agreement by the Grantee (or the Grantee’s estate, if applicable) to the Company as provided in Section 5 hereof. Capitalized terms that are used but not defined herein have the meanings ascribed to them in the Plan.
2. Restrictions on Transfer.
Except as permitted by the Committee in accordance with Section 13 of the Plan, no unvested Restricted Shares or other right or interest of the Grantee with respect thereto shall be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of the Grantee to, any Person other than the Company or any Subsidiary, or assigned or transferred by the Grantee otherwise than by will or the laws of descent and distribution, and all rights hereunder shall be exercisable during the lifetime of the Grantee only by the Grantee or his or her guardian or legal representative.
3. Restricted Period.
The Restricted Shares are unvested on the Grant Date. Except as provided in Section 4 hereof, the Restricted Shares shall vest as follows:
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[Year1RS] of the Restricted Shares shall vest on [Year1VestingDate]; |
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[Year2RS] of the Restricted Shares shall vest on [Year2VestingDate]; and |
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[Year3RS] of the Restricted Shares shall vest on [Year3VestingDate]. |
Vesting in all cases is subject to the Grantee’s continued employment or other service with the Company or a Subsidiary from the Grant Date until the applicable vesting date.
4. Effect of Certain Terminations of Employment or Other Service.
Unless otherwise provided in an effective employment, consulting, severance or similar agreement with the Company or a Subsidiary, if the Grantee’s employment or other service terminates at any time (A) (i) due to the Grantee’s death or Disability; or (ii) within twenty-four (24) months following a Change in Control by the Company or a Subsidiary without Cause or by the Grantee for Good Reason, then in each case of clauses (i) and (ii), all then outstanding Restricted Shares which have not vested in accordance with Section 3 herein shall vest in full as of the date of such termination and the applicable Restriction Period shall expire or (B) other than as provided in clause (A) of this Section 4, then any unvested Restricted Shares shall be forfeited with no compensation due to the Grantee or any other Person.
5. Execution of Award Agreement.
The Restricted Shares shall be subject to the Grantee’s execution and return of this Agreement to the Company or its designee (including by electronic means, if so provided) no later than the earlier of (i) [AcceptanceDate]; and (ii) the date that is immediately prior to the first date that any of the Restricted Shares vest pursuant to Section 3 or 4 hereof (the “Grantee Return Date”); provided that if the Grantee dies before the Grantee Return Date, this requirement shall be deemed to be satisfied if the executor or administrator of the Grantee’s estate executes and returns this Agreement to the Company or its designee no later than ninety (90) days following the Grantee’s death (the “Executor Return Date”). If this Agreement is not so executed and returned on or prior to the Grantee Return Date or the Executor Return Date, as applicable, the Restricted Shares shall be forfeited, and neither the Grantee nor the Grantee’s heirs, executors, administrators, beneficiaries or successors shall have any rights with respect thereto.
6. Stockholder Rights.
The Grantee shall have all rights as a stockholder with respect to the Restricted Shares (including, without limitation, the right to receive dividends thereon (whether in cash or Shares), at the same time such dividends are paid on Shares generally, and to vote such Restricted Shares).
7. No Right to Continued Employment or Other Service.
Neither the Plan nor this Agreement shall be construed as giving the Grantee any right to be retained in the employ or other service of the Company or any Subsidiary.
8. Withholding of Taxes.
The Grantee must make appropriate arrangements for the payment of any taxes relating to the Restricted Shares. The Company and its Subsidiaries are authorized to withhold from any payment relating to the Restricted Shares, including from a distribution of Shares, or from any payroll or other payment to the Grantee, amounts of withholding and other taxes due in connection with the Restricted Shares, and to take such other action as the Committee may deem advisable to enable the Company, its Subsidiaries and the Grantee to satisfy obligations for the payment of withholding taxes and other tax obligations relating to the Restricted Shares. This authority shall include, in the discretion of the Committee, the ability to withhold or receive Shares or other property and to make cash payments in respect thereof in satisfaction of the Grantee's tax withholding obligations and to require the Grantee to enter into elections in respect of taxes. If the Grantee is subject to Section 16 of the Exchange Act with respect to the Company, the Grantee may direct the Company to reduce the number of Shares that would otherwise be deliverable upon the vesting of the Restricted Shares having a Fair Market Value on the date of vesting equal to the withholding taxes payable in connection with such vesting. Withholding of taxes in the form of Shares with respect to the Restricted Shares shall not occur at a rate that equals or exceeds the rate that would result in liability accounting treatment.
9. Compliance with Securities Law.
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9.1 |
No Shares may be issued hereunder if the Company shall at any time determine that to do so would (i) violate the listing requirements of an applicable securities exchange, or adversely affect the registration or qualification of the Company's Shares under any state or federal law or regulation, or (ii) require the consent or approval of any regulatory body or the satisfaction of withholding tax or other withholding liabilities. In any of the events referred to in clause (i) or clause (ii) above, the issuance of such Shares shall be suspended and shall not be effective unless and until such withholding, listing, registration, qualifications or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole discretion, notwithstanding any termination of the Restricted Shares or any portion of the Restricted Shares during the period when issuance has been suspended. |
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9.2 |
The Committee may require, as a condition to the issuance of the Restricted Shares hereunder, representations, warranties and agreements to the effect that such Restricted Shares are being purchased or acquired by the Grantee for investment only and without any present intention to sell or otherwise distribute such Restricted Shares and that the Grantee will not dispose of such Restricted Shares in a transaction which, in the opinion of counsel to the Company, would violate the registration provisions of the Securities Act or the rules or regulations thereunder. |
10. Amendment.
The Committee may waive any condition or right under, or amend, alter, suspend, discontinue, or terminate, this Agreement and/or the Restricted Shares; provided, however, that without the consent of the Grantee, no such amendment, alteration, suspension, discontinuation, or termination of the Plan, this Agreement or the Restricted Shares may materially and adversely affect the rights of the Grantee under this Agreement, except insofar as any such action is necessary to ensure the Plan’s and this Agreement’s compliance with applicable law or regulation or the listing requirements of an applicable securities exchange, including, without limitation, Code Sections 162(m) or 409A.
11. Severability.
Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
12. Governing Law.
To the extent that Federal laws do not otherwise control, the validity and construction of this Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, but without giving effect to the choice of law principles thereof.
13. Recoupment.
The Restricted Shares shall be subject to mandatory repayment by the Grantee to the Company pursuant to the terms of any applicable Company "clawback" or recoupment policy.
14. Restricted Shares Subject to Plan.
This Agreement is subject to the Plan. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
15. Successors and Assigns.
The Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein or in the Plan, this Agreement will be binding upon the Grantee and the Grantee's beneficiaries, executors, administrators and the Person(s) to whom the Restricted Shares may be transferred by will or the laws of descent and distribution.
16. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee, the Grantee’s heirs, executors, administrators and successors, and the Company and all other Persons for all purposes.
3
17. Entire Agreement.
This Agreement and the terms and conditions of the Plan constitute the entire understanding between the Grantee and the Company regarding the subject matter of this Agreement, and supersede all other agreements, whether written or oral, with respect to the Restricted Shares.
18. Headings.
The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
19. Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
20. Acceptance.
The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms and provisions thereof and hereof, and accepts the Restricted Shares subject to all of the terms and conditions of the Plan and this Agreement. The Grantee acknowledges that there may be adverse tax consequences upon the vesting of the Restricted Shares or the disposition of the Restricted Shares, and that the Grantee has been advised to consult a tax advisor prior to such vesting or disposition.
[Signature Page Follows]
4
IN WITNESS WHEREOF, this Agreement has been executed effective the __ day of ______, 20__.
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US ECOLOGY, INC. |
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By: |
Jeffrey R. Feeler |
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Its: |
President and Chief Executive Officer |
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GRANTEE |
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Name: |
[FirstLast] |
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Address: |
[Address] |
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[City], [State] [Zip] |
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Employee ID#: |
[TaxID] |
Exhibit 10.3
US ECOLOGY, INC.
INCENTIVE STOCK OPTION AGREEMENT
Effective [GrantDate] (the “Effective Date”), US Ecology, Inc., a Delaware corporation (the “Company”), hereby grants to [FirstLast] (the “Optionee”) an Incentive Stock Option to purchase from the Company, at an exercise price of $[OptionPrice] per Share, [Total] Shares (the “Option”) subject to the terms and conditions set forth in this Stock Option Agreement (this “Agreement”).
1.Incentive Stock Option. The Option is intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). If, during one taxable year, the Option and any other incentive stock options (within the meaning of Code Section 422) granted to the Optionee by the Company or its Subsidiaries (or any of their respective predecessors) vests for Shares with an aggregate Fair Market Value in excess of $100,000, then the Option, as to such excess, shall be treated as a Non-Qualified Option that does not meet the requirements of Section 422 of the Code. If and to the extent that the Option (or a portion thereof) fails to qualify as an “incentive stock option” under the Code, the Option (or such portion) shall remain outstanding according to its terms as a Non-Qualified Option. If the preceding $100,000 rule is implicated, the Company shall determine, in accordance with the Code, which portion of the Option and any other option granted to Optionee will be treated as a Non-Qualified Option. Notwithstanding anything contained in this Agreement or in the Plan (as defined below) to the contrary, (i) the Company makes no promise that the Option will qualify as an “incentive stock option” under Section 422 of the Code, and any portion of the Option that does not so qualify will be treated as a Non-Qualified Option and (ii) neither the Company nor any of its Subsidiaries will have any liaiblity to the Optionee or to any other Person if the Option or any portion thereof does not qualify as an “incentive stock option” under Section 422 of the Code.
2.Plan. This Agreement and the Option are made and accepted pursuant to and in accordance with the Amended and Restated US Ecology, Inc. Omnibus Plan (the “Plan”). The terms and provisions of the Plan, and any amendments thereto from time to time, are hereby incorporated herein by reference. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will prevail. Unless otherwise stated, all capitalized terms used herein that are not otherwise defined shall have the meanings set forth in the Plan.
3.Term and Vesting. The Option shall vest and become exercisable as follows, provided that the Optionee remains employed by the Company or a Subsidiary from the Grant Date through each applicable vesting date:
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The Option shall become vested and exercisable with respect to [Year1ISO] Shares on [Year1VestingDate]; |
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The Option shall become vested and exercisable with respect to [Year2ISO] Shares on [Year2VestingDate]; and |
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The Option shall become vested and exercisable with respect to [Year3ISO] Shares on [Year3VestingDate]. |
To the extent not exercised in full or forfeited earlier in accordance with the terms of this Agreement, the Plan or an effective employment, severance or similar agreement between the Optionee and the Company or a Subsidiary and subject to the Optionee’s continued employment with the Company or any of its Subsidiaries, the Option will remain exercisable until the tenth anniversary of the Effective Date (the “Expiration Date”). If not terminated or exercised in full earlier, the Option will terminate on the Expiration Date with no further compensation due to the Optionee or any other Person. Unless otherwise provided in an effective employment, severance or similar agreement between the Optionee and the Company or a Subsidiary, upon the date of the termination of the Optionee’s employment with the Company and its Subsidiaries (the “Termination Date”), the Option shall remain exercisable only in accordance with the following provisions:
(a)Upon the termination of the Optionee’s employment with the Company or any of its Subsidiaries, other than as provided in Section 3(b), Section 3(c) or Section 3(d) below, any vested portion of the Option
shall remain exercisable by the Optionee until the earlier of (i) thirty (30) days after the Termination Date and (ii) the Expiration Date.
(b)Upon the termination of the Optionee’s employment by the Company or any of its Subsidiaries without Cause or by the Optionee for Good Reason, in each case, within twenty-four (24) months following a Change in Control, (i) any unvested portion of the Option as of the Termination Date shall vest in full (with any applicable Performance Goals being deemed to have been achieved at target or, if greater, the actual level of performance) and (ii) the Option shall remain exercisable by the Optionee until the earlier of (i) ninety (90) days after the Termination Date and (ii) the Expiration Date.
(c)Upon the termination of the Optionee’s employment with the Company or any of its Subsidiaries by reason of the Optionee’s death or Disability, (i) any unvested portion of the Option as of the Termination Date shall vest in full (with any applicable Performance Goals being deemed to have been achieved at target or, if greater, the actual level of performance) and (ii) the Option shall remain exercisable by the Optionee or the Optionee’s beneficiary or legal representative, as the case may be, until the earlier of (i) ninety (90) days after the Termination Date and (ii) the Expiration Date.
(d)Upon the termination of the Optionee’s employment with the Company or any of its Subsidiaries for Cause, the Option (whether vested or not vested) shall be immediately forfeited at such time with no further compensation due to the Optionee or any other Person.
Any vested and exercisable portion of the Option that is not so exercised within the applicable exercise period set forth in this Section 3 shall be forfeited with no further compensation due to the Optionee or any other Person. Additionally, except as set forth in this Section 3 or unless otherwise provided in an effective employment, severance or similar agreement between the Optionee and the Company or a Subsidiary, any portion of the Option that is not vested or exercisable as of the Termination Date shall be immediately forfeited at the time of such termination of employment with no further compensation due to the Optionee or any other Person.
Optionee understands and agrees that, except in the case of a termination of employment due to Optionee’s death, if the Option is exercised more than ninety (90) days after Optionee’s termination of employment (or more than one year after such termination of employment due to “permanent and total disability” (as defined in Section 22(e)(3) of the Code)), then the portion of the Option so exercised shall be treated as a Non-Qualified Option.
4.Limitation Upon Transfer. Notwithstanding anything in the Plan to the contrary, the Option shall not be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation or liability of the Optionee to, any Person, other than the Company or any Subsidiary, or assigned or transferred by the Optionee otherwise than by will or the laws of descent and distribution, and the Option and the rights relating thereto shall be exercisable during the lifetime of the Optionee only by the Optionee or his or her guardian or legal representative.
5.Method of Exercise. The Option may be exercised in whole or in part by tendering to the Company written notice of exercise accompanied by the aggregate exercise price for the Shares with respect to which the Option is being exercised. The exercise price for the Shares acquired upon the exercise of the Option shall be paid by the Optionee by the delivery of cash or check payable to the order of the Company, or with the consent of the Committee, in whole or in part, by tendering owned Shares valued at Fair Market Value. Shares acquired upon the exercise of the Option shall be delivered or credited to the Optionee promptly after such exercise. The Optionee may also require net share settlement with respect to any portion of the Option that does not satisfy the requirements of Section 422 of the Code, whereby the Company reduces the number of Shares otherwise to be delivered on exercise by the number of Shares having a Fair Market Value on the exercise date equal to the exercise price of the portion of the Option being so exercised.
6.Disqualifying Disposition. If the Optionee disposes of any Shares acquired upon the exercise of the Option within two (2) years after the Effective Date or one (1) year after such Shares were acquired pursuant to the exercise of the Option (either disposition, a “Disqualifying Disposition”), the Optionee acknowledges and agrees
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that the Optionee shall notify the Company in writing of such disposition. Any notice to the Company of a Disqualifying Disposition must be given within thirty (30) days after such disposition.
7.Registration of Shares. Notwithstanding any of the provisions of this Agreement, the Option will not be exercisable, in whole or in part, unless (a) all Shares issuable on the exercise thereof have been registered under the Securities Act or (b) the Company shall have received an opinion of its counsel that registration under the Securities Act and all other applicable securities laws is not required in connection with such issuance. The Optionee further agrees that all Shares acquired under the exercise of the Option will not be sold or transferred unless such Shares have been registered for resale under the Securities Act or unless the Company shall receive an opinion of counsel satisfactory to it that such Shares may be resold without registration under the Securities Act.
8.Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein and in the Plan, the Optionee and the Optionee’s beneficiaries, executors, administrators, heirs, legal representatives and the Person(s) to whom the Option may be transferred by will or the laws of descent and distribution.
9.Adjustments. The number and kind of Shares subject to the Option and/or the exercise price set forth herein shall be subject to adjustment from time to time as provided in Section 9 of the Plan.
10.Taxes. The Optionee must make appropriate arrangements for the payment of any taxes relating to the Option. The Company and its Subsidiaries are authorized to withhold from any payment relating to the Option, including from a distribution of Shares, or from any payroll or other payment to the Optionee, amounts of withholding and other taxes due in connection with the Option, and to take such other action as the Committee may deem advisable to enable the Company, its Subsidiaries and the Optionee to satisfy obligations for the payment of withholding taxes and other tax obligations relating to the Option. This authority shall include, in the discretion of the Committee, the ability to withhold or receive Shares or other property and to make cash payments in respect thereof in satisfaction of the Optionee's tax withholding obligations and to require the Optionee to enter into elections in respect of taxes. If the Grantee is subject to Section 16 of the Exchange Act with respect to the Company, the Grantee may direct the Company to reduce the number of Shares that would otherwise be deliverable upon the exercise of the Option having a Fair Market Value on the date of exercise equal to the withholding taxes payable (up to the withholding rate permitted by the immediately following sentence) in connection with such exercise. Withholding of taxes in the form of Shares with respect to the Option shall not occur at a rate that equals or exceeds the rate that would result in liability accounting treatment.
[Signature Page Follows]
IN WITNESS WHEREOF, this Agreement has been executed this ___ day of _________, 20__.
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US ECOLOGY, INC. |
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Jeffrey R. Feeler |
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President and Chief Executive Officer |
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OPTIONEE |
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Name: |
[FirstLast] |
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Employee ID#: |
[TaxID] |
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Exhibit 10.4
US ECOLOGY, INC.
NON-QUALIFIED OPTION AGREEMENT
Effective [GrantDate] (the “Effective Date”), US Ecology, Inc., a Delaware corporation (the “Company”), hereby grants to [FirstLast] (the “Optionee”) a Non-Qualified Option to purchase from the Company, at an exercise price of $[OptionPrice] per Share, [Total] Shares (the “Option”) subject to the terms and conditions set forth in this Stock Option Agreement (this “Agreement”).
1.Plan. This Agreement and the Option are made and accepted pursuant to and in accordance with the Amended and Restated US Ecology, Inc. Omnibus Plan (the “Plan”). The terms and provisions of the Plan, and any amendments thereto from time to time, are hereby incorporated herein by reference. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will prevail. Unless otherwise stated, all capitalized terms used herein that are not otherwise defined shall have the meanings set forth in the Plan.
2.Term and Vesting. The Option shall vest and become exercisable as follows, provided that the Optionee remains employed by the Company or a Subsidiary from the Grant Date through each applicable vesting date:
| ● | The Option shall become vested and exercisable with respect to [Year1ISO] Shares on [Year1VestingDate]; |
| ● | The Option shall become vested and exercisable with respect to [Year2ISO] Shares on [Year2VestingDate]; and |
| ● | The Option shall become vested and exercisable with respect to [Year3ISO] Shares on [Year3VestingDate]. |
To the extent not exercised in full or forfeited earlier in accordance with the terms of this Agreement, the Plan or an effective employment, severance or similar agreement between the Optionee and the Company or a Subsidiary and subject to the Optionee’s continued employment with the Company or any of its Subsidiaries, the Option will remain exercisable until the tenth anniversary of the Effective Date (the “Expiration Date”). If not terminated or exercised in full earlier, the Option will terminate on the Expiration Date with no further compensation due to the Optionee or any other Person. Unless otherwise provided in an effective employment, severance or similar agreement between the Optionee and the Company or a Subsidiary, upon the date of the termination of the Optionee’s employment with the Company and its Subsidiaries (the “Termination Date”), the Option shall remain exercisable only in accordance with the following provisions:
(a)Upon the termination of the Optionee’s employment with the Company or any of its Subsidiaries, other than as provided in Section 2(b), Section 2(c) or Section 2(d) below, any vested portion of the Option shall remain exercisable by the Optionee until the earlier of (i) thirty (30) days after the Termination Date and (ii) the Expiration Date.
(b)Upon the termination of the Optionee’s employment by the Company or any of its Subsidiaries without Cause or by the Optionee for Good Reason, in each case, within twenty-four (24) months following a Change in Control, (i) any unvested portion of the Option as of the Termination Date shall vest in full (with any applicable Performance Goals being deemed to have been achieved at target or, if greater, the actual level of performance) and (ii) the Option shall remain exercisable by the Optionee until the earlier of (i) ninety (90) days after the Termination Date and (ii) the Expiration Date.
(c)Upon the termination of the Optionee’s employment with the Company or any of its Subsidiaries by reason of the Optionee’s death or Disability, (i) any unvested portion of the Option as of the Termination Date shall vest in full (with any applicable Performance Goals being deemed to have been achieved at target or, if greater, the actual level of performance) and (ii) the Option shall remain exercisable by the Optionee or the Optionee’s beneficiary or legal representative, as the case may be, until the earlier of (i) ninety (90) days after the Termination Date and (ii) the Expiration Date.
(d)Upon the termination of the Optionee’s employment with the Company or any of its Subsidiaries for Cause, the Option (whether vested or not vested) shall be immediately forfeited at such time with no further compensation due to the Optionee or any other Person.
Any vested and exercisable portion of the Option that is not so exercised within the applicable exercise period set forth in this Section 2 shall be forfeited with no further compensation due to the Optionee or any other Person. Additionally, except as set forth in this Section 2 or unless otherwise provided in an effective employment, severance or similar agreement between the Optionee and the Company or a Subsidiary, any portion of the Option that is not vested or exercisable as of the Termination Date shall be immediately forfeited at the time of such termination of employment with no further compensation due to the Optionee or any other Person.
3.Limitation Upon Transfer. Notwithstanding anything in the Plan to the contrary, the Option shall not be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation or liability of the Optionee to, any Person, other than the Company or any Subsidiary, or assigned or transferred by the Optionee otherwise than by will or the laws of descent and distribution, and the Option and the rights relating thereto shall be exercisable during the lifetime of the Optionee only by the Optionee or his or her guardian or legal representative.
4.Method of Exercise. The Option may be exercised in whole or in part by tendering to the Company written notice of exercise accompanied by the aggregate exercise price for the Shares with respect to which the Option is being exercised. The exercise price for the Shares acquired upon the exercise of the Option shall be paid by the Optionee by the delivery of cash or check payable to the order of the Company, or with the consent of the Committee, in whole or in part, by tendering owned Shares valued at Fair Market Value. Shares acquired upon the exercise of the Option shall be delivered or credited to the Optionee promptly after such exercise. The Optionee may also require net share settlement with respect to any portion of the Option that does not satisfy the requirements of Section 422 of the Code, whereby the Company reduces the number of Shares otherwise to be delivered on exercise by the number of Shares having a Fair Market Value on the exercise date equal to the exercise price of the portion of the Option being so exercised.
5.Registration of Shares. Notwithstanding any of the provisions of this Agreement, the Option will not be exercisable, in whole or in part, unless (a) all Shares issuable on the exercise thereof have been registered under the Securities Act or (b) the Company shall have received an opinion of its counsel that registration under the Securities Act and all other applicable securities laws is not required in connection with such issuance. The Optionee further agrees that all Shares acquired under the exercise of the Option will not be sold or transferred unless such Shares have been registered for resale under the Securities Act or unless the Company shall receive an opinion of counsel satisfactory to it that such Shares may be resold without registration under the Securities Act.
6.Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein and in the Plan, the Optionee and the Optionee’s beneficiaries, executors, administrators, heirs, legal representatives and the Person(s) to whom the Option may be transferred by will or the laws of descent and distribution.
7.Adjustments. The number and kind of Shares subject to the Option and/or the exercise price set forth herein shall be subject to adjustment from time to time as provided in Section 9 of the Plan.
8.Taxes. The Optionee must make appropriate arrangements for the payment of any taxes relating to the Option. The Company and its Subsidiaries are authorized to withhold from any payment relating to the Option, including from a distribution of Shares, or from any payroll or other payment to the Optionee, amounts of withholding and other taxes due in connection with the Option, and to take such other action as the Committee may deem advisable to enable the Company, its Subsidiaries and the Optionee to satisfy obligations for the payment of withholding taxes and other tax obligations relating to the Option. This authority shall include, in the discretion of the Committee, the ability to withhold or receive Shares or other property and to make cash payments in respect thereof
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in satisfaction of the Optionee's tax withholding obligations and to require the Optionee to enter into elections in respect of taxes. If the Grantee is subject to Section 16 of the Exchange Act with respect to the Company, the Grantee may direct the Company to reduce the number of Shares that would otherwise be deliverable upon the exercise of the Option having a Fair Market Value on the date of exercise equal to the withholding taxes payable (up to the withholding rate permitted by the immediately following sentence) in connection with such exercise. Withholding of taxes in the form of Shares with respect to the Option shall not occur at a rate that equals or exceeds the rate that would result in liability accounting treatment.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Agreement has been executed this ___ day of _______, 20__.
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US ECOLOGY, INC. |
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By: |
Jeffrey R. Feeler |
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President and Chief Executive Officer |
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OPTIONEE |
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Name: |
[FirstLast] |
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[Address] |
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[City], [State] [Zip] |
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Employee ID#: |
[TaxID] |
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EXHIBIT 15
May 3, 2021
The Board of Directors and Stockholders of US Ecology, Inc.
101 S. Capitol Blvd. Suite #1000
Boise, Idaho 83702
We are aware that our report dated May 3, 2021, on our review of the interim financial information of US Ecology, Inc. appearing in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, is incorporated by reference in Registration Statement Nos. 333-235835 and 333-234424 on Form S-8 filed by US Ecology, Inc., Registration Statement No. 333-235824 on Form S-3 filed by US Ecology Inc. and Registration Statement No. 333-232930 on Form S-4 filed by US Ecology Parent Inc.
/s/ Deloitte & Touche LLP
Boise, Idaho
EXHIBIT 31.1
US ECOLOGY, INC.
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Jeffrey R. Feeler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of US Ecology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 3, 2021 |
/s/ Jeffrey R. Feeler |
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Jeffrey R. Feeler |
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President and Chief Executive Officer |
EXHIBIT 31.2
US ECOLOGY, INC.
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Eric L. Gerratt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of US Ecology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 3, 2021 |
/s/ Eric L. Gerratt |
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Eric L. Gerratt |
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Executive Vice President, Chief Financial Officer and Treasurer |
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of US Ecology, Inc., (the “Company”) for the quarterly period ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Jeffrey R. Feeler and Eric L. Gerratt, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
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Date: May 3, 2021 |
/s/ Jeffrey R. Feeler |
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Jeffrey R. Feeler |
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President and Chief Executive Officer |
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/s/ Eric L. Gerratt |
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Eric L. Gerratt |
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Executive Vice President, Chief Financial Officer and Treasurer |