ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of US Ecology, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of US Ecology, Inc.
and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows
,
for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by COSO.
As described in Management’s Annual Report on Internal Controls over Financial Reporting, management excluded from its assessment the internal control over financial reporting at ES&H Dallas, LLC and Ecoserv Industrial Disposal, LLC, which were acquired on August 31, 2018 and November 14, 2018, respectively; and whose combined financial statements constitute 3% of total assets (excluding goodwill and intangible assets), 2% of revenues, and 3% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2018. Accordingly, our audit did not include the internal control over financial reporting at ES&H Dallas, LLC and Ecoserv Industrial Disposal, LLC.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Boise, Idaho
February 28, 2019
We have served as the Company’s auditor since 2009.
US ECOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
Assets
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,969
|
|
$
|
27,042
|
Receivables, net
|
|
|
144,690
|
|
|
110,777
|
Prepaid expenses and other current assets
|
|
|
10,938
|
|
|
9,138
|
Income taxes receivable
|
|
|
7,071
|
|
|
—
|
Total current assets
|
|
|
194,668
|
|
|
146,957
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
258,443
|
|
|
234,432
|
Restricted cash and investments
|
|
|
4,941
|
|
|
5,802
|
Intangible assets, net
|
|
|
279,666
|
|
|
222,812
|
Goodwill
|
|
|
207,177
|
|
|
189,373
|
Other assets
|
|
|
3,003
|
|
|
2,700
|
Total assets
|
|
$
|
947,898
|
|
$
|
802,076
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,754
|
|
$
|
14,868
|
Deferred revenue
|
|
|
10,451
|
|
|
8,532
|
Accrued liabilities
|
|
|
35,524
|
|
|
22,888
|
Accrued salaries and benefits
|
|
|
16,732
|
|
|
14,242
|
Income taxes payable
|
|
|
505
|
|
|
2,970
|
Current portion of closure and post-closure obligations
|
|
|
2,266
|
|
|
2,330
|
Total current liabilities
|
|
|
83,232
|
|
|
65,830
|
|
|
|
|
|
|
|
Long-term closure and post-closure obligations
|
|
|
76,097
|
|
|
73,758
|
Long-term debt
|
|
|
364,000
|
|
|
277,000
|
Other long-term liabilities
|
|
|
2,146
|
|
|
3,828
|
Deferred income taxes, net
|
|
|
63,206
|
|
|
57,583
|
Total liabilities
|
|
|
588,681
|
|
|
477,999
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
Common stock $0.01 par value, 50,000 authorized; 22,040 and 21,849 shares issued, respectively
|
|
|
220
|
|
|
218
|
Additional paid-in capital
|
|
|
183,834
|
|
|
177,498
|
Retained earnings
|
|
|
189,324
|
|
|
155,533
|
Treasury stock, at cost, 8 and 3 shares, respectively
|
|
|
(370)
|
|
|
(68)
|
Accumulated other comprehensive loss
|
|
|
(13,791)
|
|
|
(9,104)
|
Total stockholders’ equity
|
|
|
359,217
|
|
|
324,077
|
Total liabilities and stockholders’ equity
|
|
$
|
947,898
|
|
$
|
802,076
|
The accompanying notes are an integral part of these consolidated financial statements.
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Revenue
|
|
$
|
565,928
|
|
$
|
504,042
|
|
$
|
477,665
|
|
Direct operating costs
|
|
|
395,834
|
|
|
350,915
|
|
|
330,070
|
|
Gross profit
|
|
|
170,094
|
|
|
153,127
|
|
|
147,595
|
|
Selling, general and administrative expenses
|
|
|
92,340
|
|
|
84,466
|
|
|
77,566
|
|
Impairment charges
|
|
|
3,666
|
|
|
8,903
|
|
|
—
|
|
Operating income
|
|
|
74,088
|
|
|
59,758
|
|
|
70,029
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
215
|
|
|
62
|
|
|
96
|
|
Interest expense
|
|
|
(12,130)
|
|
|
(18,157)
|
|
|
(17,317)
|
|
Foreign currency gain (loss)
|
|
|
55
|
|
|
516
|
|
|
(138)
|
|
Gain on divestiture
|
|
|
—
|
|
|
—
|
|
|
2,034
|
|
Other
|
|
|
2,630
|
|
|
791
|
|
|
597
|
|
Total other expense
|
|
|
(9,230)
|
|
|
(16,788)
|
|
|
(14,728)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
64,858
|
|
|
42,970
|
|
|
55,301
|
|
Income tax expense (benefit)
|
|
|
15,263
|
|
|
(6,395)
|
|
|
21,049
|
|
Net income
|
|
$
|
49,595
|
|
$
|
49,365
|
|
$
|
34,252
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.27
|
|
$
|
2.27
|
|
$
|
1.58
|
|
Diluted
|
|
$
|
2.25
|
|
$
|
2.25
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,888
|
|
|
21,758
|
|
|
21,704
|
|
Diluted
|
|
|
22,047
|
|
|
21,902
|
|
|
21,789
|
|
The accompanying notes are an integral part of these consolidated financial statements.
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Net income
|
|
$
|
49,595
|
|
$
|
49,365
|
|
$
|
34,252
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(6,094)
|
|
|
4,046
|
|
|
1,379
|
|
Net changes in interest rate hedge, net of taxes of $375, $985, and $517, respectively
|
|
|
1,407
|
|
|
1,575
|
|
|
962
|
|
Comprehensive income, net of tax
|
|
$
|
44,908
|
|
$
|
54,986
|
|
$
|
36,593
|
|
The accompanying notes are an integral part of these consolidated financial statements.
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,595
|
|
$
|
49,365
|
|
$
|
34,252
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
|
3,666
|
|
|
8,903
|
|
|
—
|
|
Depreciation and amortization of property and equipment
|
|
|
29,207
|
|
|
28,302
|
|
|
25,304
|
|
Amortization of intangible assets
|
|
|
9,645
|
|
|
9,888
|
|
|
10,575
|
|
Accretion of closure and post-closure obligations
|
|
|
3,707
|
|
|
3,026
|
|
|
3,953
|
|
Unrealized foreign currency loss (gain)
|
|
|
1,211
|
|
|
(1,283)
|
|
|
65
|
|
Deferred income taxes
|
|
|
5,906
|
|
|
(25,309)
|
|
|
(2,704)
|
|
Share-based compensation expense
|
|
|
4,366
|
|
|
3,933
|
|
|
2,925
|
|
Unrecognized tax benefits
|
|
|
485
|
|
|
—
|
|
|
—
|
|
Gain on disposition of business
|
|
|
—
|
|
|
—
|
|
|
(2,034)
|
|
Net (gain) loss on disposition of assets
|
|
|
370
|
|
|
408
|
|
|
(569)
|
|
Gain on insurance proceeds from damaged property and equipment
|
|
|
(347)
|
|
|
(1,313)
|
|
|
(654)
|
|
Amortization and write-off of debt issuance costs
|
|
|
810
|
|
|
6,009
|
|
|
2,006
|
|
Amortization and write-off of debt discount
|
|
|
—
|
|
|
667
|
|
|
148
|
|
Changes in assets and liabilities (net of effects of business acquisitions and divestiture):
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(32,301)
|
|
|
(13,861)
|
|
|
10,912
|
|
Income taxes receivable
|
|
|
(7,072)
|
|
|
4,121
|
|
|
(2,043)
|
|
Other assets
|
|
|
(1,187)
|
|
|
(1,328)
|
|
|
1,149
|
|
Accounts payable and accrued liabilities
|
|
|
14,301
|
|
|
2,012
|
|
|
(7,735)
|
|
Deferred revenue
|
|
|
2,059
|
|
|
617
|
|
|
(281)
|
|
Accrued salaries and benefits
|
|
|
2,476
|
|
|
3,420
|
|
|
(864)
|
|
Income taxes payable
|
|
|
(3,512)
|
|
|
3,921
|
|
|
49
|
|
Closure and post-closure obligations
|
|
|
(1,900)
|
|
|
(1,795)
|
|
|
(481)
|
|
Net cash provided by operating activities
|
|
|
81,485
|
|
|
79,703
|
|
|
73,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions (net of cash acquired)
|
|
|
(108,382)
|
|
|
—
|
|
|
(9,983)
|
|
Proceeds from divestitures (net of cash divested)
|
|
|
—
|
|
|
—
|
|
|
2,723
|
|
Purchases of property and equipment
|
|
|
(40,757)
|
|
|
(36,240)
|
|
|
(35,696)
|
|
Purchases of restricted investments
|
|
|
(1,023)
|
|
|
(800)
|
|
|
(1,104)
|
|
Proceeds from sale of restricted investments
|
|
|
910
|
|
|
835
|
|
|
1,000
|
|
Proceeds from sale of property and equipment
|
|
|
493
|
|
|
974
|
|
|
991
|
|
Insurance proceeds from damaged property and equipment
|
|
|
—
|
|
|
1,313
|
|
|
654
|
|
Net cash used in investing activities
|
|
|
(148,759)
|
|
|
(33,918)
|
|
|
(41,415)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
87,000
|
|
|
281,000
|
|
|
—
|
|
Payments on long-term debt
|
|
|
—
|
|
|
(287,040)
|
|
|
(17,954)
|
|
Payments on short-term borrowings
|
|
|
—
|
|
|
(13,438)
|
|
|
(47,228)
|
|
Proceeds from short-term borrowings
|
|
|
—
|
|
|
11,260
|
|
|
49,405
|
|
Dividends paid
|
|
|
(15,804)
|
|
|
(15,711)
|
|
|
(15,673)
|
|
Proceeds from exercise of stock options
|
|
|
2,427
|
|
|
1,050
|
|
|
229
|
|
Deferred financing costs paid
|
|
|
—
|
|
|
(2,967)
|
|
|
—
|
|
Payment of equipment financing obligations
|
|
|
(448)
|
|
|
(377)
|
|
|
(179)
|
|
Other
|
|
|
(314)
|
|
|
(121)
|
|
|
(189)
|
|
Net cash provided by (used in) financing activities
|
|
|
72,861
|
|
|
(26,344)
|
|
|
(31,589)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
|
(1,633)
|
|
|
636
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Cash and cash equivalents and restricted cash
|
|
|
3,954
|
|
|
20,077
|
|
|
961
|
|
Cash and cash equivalents and restricted cash at beginning of period
|
|
|
28,799
|
|
|
8,722
|
|
|
7,761
|
|
Cash and cash equivalents and restricted cash at end of period
|
|
$
|
32,753
|
|
$
|
28,799
|
|
$
|
8,722
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Cash and cash equivalents and restricted cash
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
27,042
|
|
|
7,015
|
|
|
5,989
|
|
Restricted cash at beginning of period
|
|
|
1,757
|
|
|
1,707
|
|
|
1,772
|
|
Cash and cash equivalents and restricted cash at beginning of period
|
|
|
28,799
|
|
|
8,722
|
|
|
7,761
|
|
Cash and cash equivalents at end of period
|
|
|
31,969
|
|
|
27,042
|
|
|
7,015
|
|
Restricted cash at end of period
|
|
|
784
|
|
|
1,757
|
|
|
1,707
|
|
Cash and cash equivalents and restricted cash at end of period
|
|
|
32,753
|
|
|
28,799
|
|
|
8,722
|
|
The accompanying notes are an integral part of these consolidated financial statements.
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Common
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Shares
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Treasury
|
|
Comprehensive
|
|
|
|
|
|
Issued
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Stock
|
|
Income (Loss)
|
|
Total
|
Balance at December 31, 2015
|
|
21,743,972
|
|
|
217
|
|
|
169,873
|
|
|
103,300
|
|
|
(189)
|
|
|
(17,066)
|
|
$
|
256,135
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,252
|
|
|
—
|
|
|
—
|
|
|
34,252
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,341
|
|
|
2,341
|
Dividend paid
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,673)
|
|
|
—
|
|
|
—
|
|
|
(15,673)
|
Tax benefit of equity based awards
|
|
—
|
|
|
—
|
|
|
85
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
2,925
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,925
|
Stock option exercises
|
|
11,856
|
|
|
—
|
|
|
229
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
229
|
Repurchase of common stock: 6,589 shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(271)
|
|
|
—
|
|
|
(271)
|
Issuance of restricted common stock
|
|
23,888
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
Issuance of restricted common stock from treasury shares
|
|
—
|
|
|
—
|
|
|
(408)
|
|
|
—
|
|
|
408
|
|
|
—
|
|
|
—
|
Balance at December 31, 2016
|
|
21,779,716
|
|
|
218
|
|
|
172,704
|
|
|
121,879
|
|
|
(52)
|
|
|
(14,725)
|
|
|
280,024
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,365
|
|
|
—
|
|
|
—
|
|
|
49,365
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,621
|
|
|
5,621
|
Dividend paid
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,711)
|
|
|
—
|
|
|
—
|
|
|
(15,711)
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
3,933
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,933
|
Stock option exercises
|
|
43,175
|
|
|
—
|
|
|
1,047
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,047
|
Repurchase of common stock: 2,502 shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(121)
|
|
|
—
|
|
|
(121)
|
Issuance of restricted common stock
|
|
26,274
|
|
|
—
|
|
|
(81)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(81)
|
Issuance of restricted common stock from treasury shares
|
|
—
|
|
|
—
|
|
|
(105)
|
|
|
—
|
|
|
105
|
|
|
—
|
|
|
—
|
Balance at December 31, 2017
|
|
21,849,165
|
|
|
218
|
|
|
177,498
|
|
|
155,533
|
|
|
(68)
|
|
|
(9,104)
|
|
|
324,077
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,595
|
|
|
—
|
|
|
—
|
|
|
49,595
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,687)
|
|
|
(4,687)
|
Dividend paid
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,804)
|
|
|
—
|
|
|
—
|
|
|
(15,804)
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
4,366
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,366
|
Stock option exercises
|
|
143,220
|
|
|
1
|
|
|
2,428
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,429
|
Repurchase of common stock: 5,564 shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(313)
|
|
|
—
|
|
|
(313)
|
Issuance of restricted common stock
|
|
44,949
|
|
|
1
|
|
|
(278)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(277)
|
Issuance of performance common stock
|
|
2,810
|
|
|
—
|
|
|
(169)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(169)
|
Issuance of restricted common stock from treasury shares
|
|
—
|
|
|
—
|
|
|
(11)
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
Balance at December 31, 2018
|
|
22,040,144
|
|
$
|
220
|
|
$
|
183,834
|
|
$
|
189,324
|
|
$
|
(370)
|
|
$
|
(13,791)
|
|
$
|
359,217
|
The accompanying notes are an integral part of these financial statements.
US ECOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
US Ecology, Inc. was most recently incorporated as a Delaware corporation in May 1987 as American Ecology Corporation. On February 22, 2010 the Company changed its name from American Ecology Corporation to US Ecology, Inc. US Ecology, Inc., through its subsidiaries, is a leading North American provider of environmental services to commercial and government entities. The Company addresses the complex waste management needs of its customers, offering treatment, disposal and recycling of hazardous and radioactive waste, as well as a wide range of complementary field and industrial services. US Ecology, Inc. has been protecting the environment since 1952, with operations in the United States, Canada and Mexico. Throughout these financial statements words such as “we,” “us,” “our,” “US Ecology” and the “Company” refer to US Ecology, Inc. and its subsidiaries.
Our operations are managed in two reportable segments reflecting our internal reporting structure and nature of services offered: Environmental Services and Field & Industrial Services.
Our Environmental Services segment provides a broad range of hazardous material management services including transportation, recycling, treatment and disposal of hazardous, non‑hazardous and radioactive waste at Company‑owned landfill, wastewater, deep-well injection and other treatment facilities.
Our Field & Industrial Services segment provides packaging and collection of hazardous waste and total waste management solutions at customer sites and through our 10‑day transfer facilities. Services include on‑site management, waste characterization, transportation and disposal of non‑hazardous and hazardous waste. This segment also provides specialty field services such as industrial cleaning and maintenance, remediation, lab packs, retail services, transportation, emergency response and other services to commercial and industrial facilities and to government entities.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements are prepared on a consolidated basis. All inter‑company balances and transactions have been eliminated in consolidation. Our year‑end is December 31.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on deposit, money market accounts or short-term investments with original maturities of 90 days or less at the date of acquisition. Cash and cash equivalents totaled $32.0 million and $27.0 million at December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, we had $19.4 million and $18.6 million, respectively, of cash at our operations outside the United States.
Receivables
Our receivables include invoiced and unbilled amounts where the Company has an unconditional right to payment.
Receivables are stated at an amount management expects to collect. Based on management’s assessment of the credit history of the customers having outstanding balances and factoring in current economic conditions, management has concluded that potential unidentified losses on balances outstanding at year‑end will not be material.
Unbilled receivables are recorded for work performed under contracts that have not yet been invoiced to customers and arise due to the timing of billings. Substantially all unbilled receivables at December 31, 2018, were billed in the following month.
Restricted Cash and Investments
Restricted cash and investments of $4.9 million and $5.8 million at December 31, 2018 and 2017, respectively, represent funds held in third-party managed trust accounts as collateral for our financial assurance obligations for post-closure activities at our non-operating facilities. These funds are invested in fixed-income U.S. Treasury and government agency securities and money market accounts. The balances are adjusted monthly to fair market value based on quoted prices in active markets for identical or similar assets.
Revenue Recognition
Revenues are recognized when control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
We recognize revenue from three primary sources: 1) waste treatment, recycling and disposal services, 2) field and industrial waste management services, and 3) waste transportation services.
Our waste treatment and disposal customers are legally obligated to properly treat and dispose of their waste in accordance with local, state, and federal laws and regulations. As our customers do not possess the resources to properly treat and dispose of their waste independently, they contract with the Company to perform these services. Waste treatment, recycling, and disposal revenue results primarily from fixed fees charged to customers for treatment and/or disposal or recycling of specified wastes. Waste treatment, recycling, and disposal revenue is generally charged on a per-ton or per-yard basis based on contracted prices and is recognized over time as the services are performed. Our treatment and disposal services are generally performed as the waste is received and considered complete upon final disposal.
Field and industrial waste management services revenue results primarily from specialty onsite services such as high-pressure cleaning, tank cleaning, decontamination, remediation, transportation, spill cleanup and emergency response at refineries, chemical plants, steel and automotive plants, and other government, commercial and industrial facilities. We also provide hazardous waste packaging and collection services and total waste management solutions at customer sites and through our 10-day transfer facilities. These services are provided based on purchase orders or agreements with the customer and include prices based upon daily, hourly or job rates for equipment, materials and personnel. Generally, the pricing in these types of contracts is fixed, but the quantity of services to be provided during the contract term is variable and revenues are recognized over the term of the agreements or as services are performed. As we have a right to consideration from our customers in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, we have applied the practical expedient to recognize revenue in the amount to which we have the right to invoice. Revenue is recognized on contracts with retainage when services have been performed and it is probable that a significant reversal in the amount of cumulative revenue recognized on the contracts will not occur
.
Transportation and logistics revenue results from delivering customer waste to a disposal facility for treatment and/or disposal or recycling. Transportation services are generally not provided on a stand-alone basis and instead are bundled with other Company services. However, in some instances we provide transportation and logistics services for shipment of waste from cleanup sites to disposal facilities operated by other companies. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customer or using expected cost plus margin. Transportation revenue is recognized over time as the waste is transported.
Taxes and fees collected from customers concurrent with revenue-producing transactions to be remitted to governmental authorities are excluded from revenue.
Our Richland, Washington disposal facility is regulated by the Washington
Utilities and Transportation Commission (“
WUTC”), which approves our rates for disposal of
low-level radioactive waste
(“LLRW”). Annual revenue levels are established based on a rate agreement with the WUTC at amounts sufficient to cover the costs of operation, including facility maintenance, equipment replacement and related costs, and provide us with a reasonable profit. Per-unit rates charged to LLRW customers during the year are based on our evaluation of disposal volume and radioactivity projections submitted to us by waste generators. Our proposed rates are then reviewed and approved by the WUTC. If annual revenue
exceeds the approved levels set by the WUTC, we are required to refund excess collections to facility users on a pro-rata basis. Refundable excess collections, if any, are recorded in Accrued liabilities in the consolidated balance sheets. The current rate agreement with the WUTC was extended in 2013 and is effective until January 1, 2020.
Deferred Revenue
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, and is recognized when these services are performed. During the year ended December 31, 2018, we recognized $8.4 million of revenue that was included in the deferred revenue balance at the beginning of the year.
Property and Equipment
Property and equipment are recorded at cost and depreciated on the straight‑line method over estimated useful lives. Replacements and major repairs of property and equipment are capitalized and retirements are made when assets are disposed of or when the useful life has been exhausted. Minor components and parts are expensed as incurred. Repair and maintenance expenses were $17.5 million, $14.8 million and $11.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.
We assume no salvage value for our depreciable fixed assets. The estimated useful lives for significant property and equipment categories are as follows:
|
|
|
|
|
|
|
|
Useful Lives
|
Vehicles and other equipment
|
|
3
|
to
|
10
|
years
|
Disposal facility and equipment
|
|
3
|
to
|
20
|
years
|
Buildings and improvements
|
|
5
|
to
|
40
|
years
|
Railcars
|
|
|
|
40
|
years
|
Disposal Cell Accounting
Qualified disposal cell development costs such as personnel and equipment costs incurred to construct new disposal cells are recorded and capitalized at cost. Capitalized cell development costs, net of recorded amortization, are added to estimated future costs of the permitted disposal cell to be incurred over the remaining construction of the cell, to determine the amount to be amortized over the remaining estimated cell life. Estimates of future costs are developed using input from independent engineers and internal technical and accounting managers. We review these estimates at least annually. Amortization is recorded on a unit of consumption basis, typically applying cost as a rate per cubic yard disposed. Disposal facility costs are expected to be fully amortized upon final closure of the facility, as no salvage value applies. Costs associated with ongoing disposal operations are charged to expense as incurred.
We have material financial commitments for closure and post‑closure obligations for certain facilities we own or operate. We estimate future cost requirements for closure and post‑closure monitoring based on RCRA and conforming state requirements and facility permits. RCRA requires that companies provide the responsible regulatory agency acceptable financial assurance for closure work and subsequent post‑closure monitoring of each facility for 30 years following closure. Estimates for final closure and post‑closure costs are developed using input from our technical and accounting managers as well as independent engineers and are reviewed by management at least annually. These estimates involve projections of costs that will be incurred after the disposal facility ceases operations, through the required post‑closure care period. The present value of the estimated closure and post‑closure costs are accreted using the interest method of allocation to direct costs in our consolidated statements of operations so that 100% of the future cost has been incurred at the time of payment.
Business Combinations
We account for business combinations under the acquisition method of accounting. The cost of an acquired company is assigned to the tangible and identifiable intangible assets purchased and the liabilities assumed on the basis of their fair
values at the date of acquisition. Any excess of purchase price over the fair value of net tangible and intangible assets acquired is assigned to goodwill. The transaction costs associated with business combinations are expensed as they are incurred.
Goodwill
Goodwill represents the excess of the fair value of the consideration transferred over the fair value of the underlying identifiable assets and liabilities acquired. Goodwill is not amortized, but instead is assessed for impairment annually in the fourth quarter as of October 1 and also if an event occurs or circumstances change that may indicate a possible impairment. In the event that we determine that the value of goodwill has become impaired, we will incur an accounting charge for the amount of impairment during the period in which the determination has been made. See Note 3 for additional information related to the use of estimates in the Company’s goodwill impairment tests and Note 13 for additional information on the goodwill impairment charges recorded in 2018 and 2017.
Intangible Assets
Intangible assets are stated at the fair value assigned in a business combination net of amortization. We amortize our amortizing intangible assets using the straight‑line method over their estimated economic lives ranging from 1 to 60 years. We review intangible assets with indefinite useful lives for impairment during the fourth quarter as of October 1 of each year. We also review both non-amortizing and amortizing intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable. See Note 3 for additional information related to the use of estimates in the Company’s intangible assets impairment tests and Note 13 for additional information on the intangible asset impairment charges recorded in 2018 and 2017.
Our acquired permits and licenses generally have renewal terms of approximately 5-10 years. We have a history of renewing these permits and licenses as demonstrated by the fact that each of the sites’ treatment permits and licenses have been renewed regularly since the facility began operations. We intend to continue to renew our permits and licenses as they come up for renewal for the foreseeable future. Costs incurred to renew or extend the term of our permits and licenses are recorded in Selling, general and administrative expenses in our consolidated statements of operations.
Impairment of Long‑Lived Assets
Long-lived assets consist primarily of property and equipment facility development costs and amortizing intangible assets. The recoverability of long-lived assets is evaluated periodically through analysis of operating results and consideration of other significant events or changes in the business environment. If an operating unit had indications of possible impairment, we would evaluate whether impairment exists on the basis of undiscounted expected future cash flows from operations over the remaining amortization period. If an impairment loss were to exist, the carrying amount of the related long-lived assets would be reduced to their estimated fair value.
Deferred Financing Costs
Deferred financing costs are amortized over the life of our new senior secured credit agreement (the “2017 Credit Agreement”). Amortization of deferred financing costs is included as a component of interest expense in the consolidated statements of operations.
Deferred financing costs associated with the 2017 Credit Agreement were $2.7 million and $3.4 million, net of accumulated amortization and have been recorded in Prepaid expenses and other current assets and Other assets in the consolidated balance sheets as of December 31, 2018 and 2017, respectively.
The Company wrote off certain unamortized deferred financing costs and original issue discount associated with the 2014 Credit Agreement that were to be amortized to interest expense in future periods through a one-time charge of $5.5 million to Interest expense in the second quarter of 2017.
Derivative Instruments
In order to manage interest rate exposure, we entered into an interest rate swap agreement in October 2014 that effectively converts a portion of our variable-rate debt to a fixed interest rate. Changes in the fair value of the interest rate swap are recorded as a component of accumulated other comprehensive income within stockholders' equity, and are recognized in interest expense in the period in which the payment is settled. The interest rate swap has an effective date of December 31, 2014 in an initial notional amount of $250.0 million. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
Foreign Currency
Our Canadian operations’ functional currency is the Canadian dollar (“CAD”). Assets and liabilities are translated to U.S. dollars (“USD”) at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for the period. Gains and losses from the translation of the consolidated financial statements of our Canadian subsidiaries into USD are included in stockholders' equity as a component of Accumulated other comprehensive income. Gains and losses resulting from foreign currency transactions are recognized in the consolidated statements of operations. Recorded balances that are denominated in a currency other than the functional currency are re‑measured to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the statements of operations.
Income Taxes
Income taxes are accounted for using an asset and liability approach. This requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax‑planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The application of income tax law is inherently complex. Tax laws and regulations are voluminous and at times ambiguous and interpretations of guidance regarding such tax laws and regulations change over time. This requires us to make many subjective assumptions and judgments regarding the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. A liability for uncertain tax positions is recorded in our consolidated financial statements on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax position taken will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. We recognize interest assessed by taxing authorities or interest associated with uncertain tax positions as a component of interest expense. We recognize any penalties assessed by taxing authorities or penalties associated with uncertain tax positions as a component of selling, general and administrative expenses. At December 31, 2018, our estimated gross unrecognized tax benefits were $555,000, of which $485,000, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. As facts and circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. Our tax returns are subject to audit by the Internal Revenue Service (“IRS”), various states in the U.S. and the Canadian Revenue Agency.
Insurance
Accrued costs for our self‑insured health care coverage were $826,000 and $1.1 million at December 31, 2018 and 2017, respectively.
Earnings Per Share
Basic earnings per share is calculated based on the weighted‑average number of outstanding common shares during the applicable period. Diluted earnings per share is based on the weighted‑average number of outstanding common shares plus the weighted‑average number of potential outstanding common shares. Potential common shares that would increase earnings per share or decrease loss per share are anti‑dilutive and are excluded from earnings per share computations. Earnings per share is computed separately for each period presented.
Treasury Stock
Shares of common stock repurchased by us are recorded at cost as treasury stock and result in a reduction of stockholders’ equity in our consolidated balance sheets. Treasury shares are reissued using the weighted average cost method for determining the cost of the shares reissued. The difference between the cost of the shares reissued and the issuance price is added or deducted from additional paid‑in capital.
Recently Issued Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02,
Income Statement-Reporting Comprehensive Income (Topic 220)
. This ASU allows for an optional one-time reclassification from accumulated other comprehensive income (loss) to retained earnings for the stranded tax effects resulting from the new corporate tax rate under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The new guidance requires additional disclosures, regardless of whether the optional reclassification is elected. This ASU is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted, and may be applied retrospectively or as of the beginning of the period of adoption. The Company has elected not to make this optional reclassification
.
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification (“ASC”) 740. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis based on legislative updates relating to the Tax Act currently available, which resulted in a net benefit for measurement period adjustments of $193,000 for the year ended December 31, 2018. The total tax provision benefit included a $2.2 million benefit related to the re-measurement of certain deferred tax assets and liabilities offset by $2.0 million of expense related to adjustments to the transition tax.
The Tax Act also includes provisions to tax Global Intangible Low-Taxed Income (“GILTI”) of foreign subsidiaries in excess of a deemed return on their tangible assets. Pursuant to the Tax Act, corporations are allowed to make an accounting policy election to either (1) account for GILTI as a component of income tax expense in the period in which the corporation is subject to the rules (the “period cost method”), or (2) account for GILTI in the corporation's measurement of deferred taxes (the “deferred method”). In the fourth quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.
In August 2017, the FASB issued ASU No. 2017-12,
Derivatives and Hedging (Topic 815).
This ASU amends the guidance in ASC 815 to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact ASU 2017-12 will have on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18
, Restricted Cash (Topic 230)
. This ASU amends the guidance in ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. ASU 2016-18 is based on the Emerging Issues Task Force’s consensuses reached on Issue 16-A. The guidance is effective for annual and interim periods beginning after December 15, 2017. The Company adopted ASU 2016-18 as of January 1, 2018 using the retrospective adoption method. The impact of retrospective application of ASU 2016-18 is not material, as restricted cash activity for the years ended December 31, 2018, 2017, and 2016 was not deemed to be significant. Restricted cash is now included with Cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts presented in the Company’s consolidated statements of cash flows.
In August 2016, the FASB issued ASU No. 2016-15,
Statements of Cash Flows (Topic 230)
. This ASU amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The guidance is effective for annual and interim periods beginning after December 15, 2017. The Company adopted ASU 2016-15 as of January 1, 2018 using the retrospective adoption method. The only provision applicable to the Company relates to the treatment of proceeds from the settlement of insurance claims in connection with damaged property and equipment. The impact of retrospective application of ASU 2016-15 was a reclassification of insurance proceeds related to damaged property and equipment of $1.3 million and $654,000 from cash flows from operating activities to cash flows from investing activities in the statement of cash flows for the years ended December 31, 2017 and 2016, respectively.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The ASU significantly changes the accounting model used by lessees to account for leases, requiring that all material leases be presented on the balance sheet. Lessees will recognize substantially all leases on the balance sheet as a right-of-use asset and a corresponding lease liability. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. The guidance is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11 which provides a practical expedient that allows companies to use an optional transition method. Under the optional transition method, a cumulative adjustment to retained earnings during the period of adoption is recorded and prior periods would not require restatement. The Company will adopt ASU 2016-02 in the first quarter of 2019 utilizing this optional transitional method. While we are continuing to assess the potential impacts of ASU 2016-02, the Company estimates that the adoption of the ASU 2016-02 will result in the recognition of right-of-use assets and lease liabilities for operating leases of approximately $18 million on its consolidated balance sheets, with no material impact on its consolidated statements of operations.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which provides guidance for revenue recognition. The ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. See Note 4 for additional information.
NOTE 3. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Listed below are the estimates and assumptions that we consider to be significant in the preparation of our consolidated financial statements.
|
·
|
|
Allowance for Doubtful Accounts -
We estimate losses for uncollectible accounts based on the aging of the accounts receivable and an evaluation of the likelihood of success in collecting the receivable.
|
|
·
|
|
Recovery of Long‑Lived Assets
- We evaluate the recovery of our long‑lived assets periodically by analyzing our operating results and considering significant events or changes in the business environment.
|
|
·
|
|
Income Taxes
- We assume the deductibility of certain costs in our income tax filings, estimate our income tax rate
|
and estimate the future recovery of deferred tax assets.
|
|
·
|
|
Legal and Environmental Accruals -
We estimate the amount of potential exposure we may have with respect to litigation and environmental claims and assessments.
|
|
·
|
|
Disposal Cell Development and Final Closure/Post‑Closure Amortization -
We expense amounts for disposal cell usage and closure and post‑closure costs for each cubic yard of waste disposed of at our operating facilities. In determining the amount to expense for each cubic yard of waste disposed, we estimate the cost to develop each disposal cell and the closure and post‑closure costs for each disposal cell and facility. The expense for each cubic yard is then calculated based on the remaining permitted capacity and total permitted capacity. Estimates for closure and post‑closure costs are developed using input from third‑party engineering consultants, and our internal technical and accounting personnel. Management reviews estimates at least annually. Estimates for final disposal cell closure and post‑closure costs consider when the costs would actually be paid and, where appropriate, inflation and discount rates.
|
|
·
|
|
Business Acquisitions
- The Company records assets and liabilities of the acquired business at their fair values. Acquisition‑related transaction and restructuring costs are expensed rather than treated as part of the cost of the acquisition. Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business acquisition.
|
|
·
|
|
Goodwill
- We assess goodwill for impairment during the fourth quarter as of October 1 of each year or sooner if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The assessment consists of comparing the estimated fair value of the reporting unit to the carrying value of the net assets assigned to the reporting unit, including goodwill. Fair values are generally determined by using both the market approach, applying a multiple of earnings based on guideline for publicly traded companies, and the income approach, discounting projected future cash flows based on our expectations of the current and future operating environment. The rates used to discount projected future cash flows reflect a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Estimating future cash flows requires significant judgment about factors such as general economic conditions and projected growth rates, and our estimates often vary from the cash flows eventually realized. Failure to execute on planned growth initiatives within the related reporting units, coupled with the other factors mentioned above, could lead to the impairment of goodwill and other long-lived assets in future periods.
|
|
·
|
|
Intangible Assets -
We review intangible assets with indefinite useful lives for impairment during the fourth quarter as of October 1 of each year. Fair value is generally determined by considering an internally-developed discounted projected cash flow analysis. If the fair value of an asset is determined to be less than the carrying amount of the intangible asset, an impairment in the amount of the difference is recorded in the period in which the annual assessment occurs.
|
We also review amortizing intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable. In order to assess whether a potential impairment exists, the assets' carrying values are compared with their undiscounted expected future cash flows. Estimating future cash flows requires significant judgment about factors such as general economic conditions and projected growth rates, and our estimates often vary from the cash flows eventually realized. Impairments are measured by comparing the fair value of the asset to its carrying value. Fair value is generally determined by considering: (i) the internally-developed discounted projected cash flow analysis; (ii) a third‑party valuation; and/or (iii) information available regarding the current market environment for similar assets. If the fair value is determined to be less than the carrying amount of the intangible assets, an impairment in the amount of the difference is recorded in the period in which the events or changes in circumstances that indicated the carrying value of the intangible assets may not be recoverable occurred.
Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements. As it relates to estimates and assumptions in amortization rates and environmental obligations, significant engineering, operations and accounting judgments are required. We review these estimates and assumptions no less than annually. In many circumstances, the ultimate outcome of these estimates and assumptions will not be known for
decades into the future. Actual results could differ materially from these estimates and assumptions due to changes in applicable regulations, changes in future operational plans and inherent imprecision associated with estimating environmental impacts far into the future.
NOTE 4. REVENUES
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
As of January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Revenue Recognition (Topic 605).
Adoption of the guidance did not materially affect the timing or amount of revenue recognized, and no cumulative effect adjustment was recognized as a result of initially applying Topic 606.
Disaggregation of Revenue
Our operations are managed in two reportable segments, Environmental Services and Field & Industrial Services, reflecting our internal reporting structure and nature of services offered. The operations not managed through our two reportable segments are recorded as Corporate. See Note 21 for additional information.
Effective December 31, 2018, we changed our presentation of disaggregated revenues to align with changes in how we manage our service lines within our Field & Industrial Services segment. Revenues previously combined and reported as Technical Services are now disaggregated into two service lines, Small Quantity Generation (“SQG”) and Total Waste Management (“TWM”) and certain revenues formerly classified as Technical Services were reclassed to Remediation. Also, marine terminal services revenues, formerly classified as Other, are now included in Industrial Services. Throughout this Annual Report on Form 10-K, our disaggregated revenues for all periods presented have been recast to reflect these changes.
The following table presents our revenue disaggregated by our reportable segments and service lines:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
Field &
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
$s in thousands
|
|
Services
|
|
Services
|
|
Total
|
Treatment & Disposal Revenue (1)
|
|
$
|
319,282
|
|
$
|
12,865
|
|
$
|
332,147
|
Services Revenue:
|
|
|
|
|
|
|
|
|
|
Transportation and Logistics (2)
|
|
|
81,396
|
|
|
33,037
|
|
|
114,433
|
Industrial Services (3)
|
|
|
—
|
|
|
24,155
|
|
|
24,155
|
Small Quantity Generation (4)
|
|
|
—
|
|
|
34,571
|
|
|
34,571
|
Total Waste Management (5)
|
|
|
—
|
|
|
41,729
|
|
|
41,729
|
Remediation (6)
|
|
|
—
|
|
|
10,139
|
|
|
10,139
|
Other (7)
|
|
|
—
|
|
|
8,754
|
|
|
8,754
|
Revenue
|
|
$
|
400,678
|
|
$
|
165,250
|
|
$
|
565,928
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
Field &
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
$s in thousands
|
|
Services
|
|
Services
|
|
Total
|
Treatment & Disposal Revenue (1)
|
|
$
|
298,871
|
|
$
|
11,084
|
|
$
|
309,955
|
Services Revenue:
|
|
|
|
|
|
|
|
|
|
Transportation and Logistics (2)
|
|
|
67,437
|
|
|
21,898
|
|
|
89,335
|
Industrial Services (3)
|
|
|
—
|
|
|
19,121
|
|
|
19,121
|
Small Quantity Generation (4)
|
|
|
—
|
|
|
29,934
|
|
|
29,934
|
Total Waste Management (5)
|
|
|
—
|
|
|
38,628
|
|
|
38,628
|
Remediation (6)
|
|
|
—
|
|
|
14,241
|
|
|
14,241
|
Other (7)
|
|
|
—
|
|
|
2,828
|
|
|
2,828
|
Revenue
|
|
$
|
366,308
|
|
$
|
137,734
|
|
$
|
504,042
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
Field &
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
$s in thousands
|
|
Services
|
|
Services
|
|
Total
|
Treatment & Disposal Revenue (1)
|
|
$
|
275,457
|
|
$
|
12,680
|
|
$
|
288,137
|
Services Revenue:
|
|
|
|
|
|
|
|
|
|
Transportation and Logistics (2)
|
|
|
62,314
|
|
|
17,812
|
|
|
80,126
|
Industrial Services (3)
|
|
|
—
|
|
|
22,440
|
|
|
22,440
|
Small Quantity Generation (4)
|
|
|
—
|
|
|
33,043
|
|
|
33,043
|
Total Waste Management (5)
|
|
|
—
|
|
|
30,688
|
|
|
30,688
|
Remediation (6)
|
|
|
—
|
|
|
21,908
|
|
|
21,908
|
Other (7)
|
|
|
—
|
|
|
1,323
|
|
|
1,323
|
Revenue
|
|
$
|
337,771
|
|
$
|
139,894
|
|
$
|
477,665
|
|
(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 years ended December 31, 2018, 2017 and 2016, 20%, 22% and 18%, respectively, of our treatment and disposal revenue was derived from Event Business projects. Base Business revenue accounted for 80%, 78% and 82% of our treatment and disposal revenue for the years ended December 31, 2018, 2017 and 2016, respectively.
|
|
(2)
|
|
Includes such services as collection and transportation of non-hazardous and hazardous waste.
|
|
(3)
|
|
Includes such services as 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 such services as 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 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 c
ontracts may extend beyond one year and a portion of the transaction price can be fixed.
|
|
(6)
|
|
Includes such services as 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 emergency response and other services.
|
We provide services in the United States and Canada. The following table presents our revenue disaggregated by our reportable segments and geographic location where the underlying services were performed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Field &
|
|
|
|
|
|
|
Field &
|
|
|
|
|
|
|
Field &
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
$s in thousands
|
|
Services
|
|
Services
|
|
Total
|
|
Services
|
|
Services
|
|
Total
|
|
Services
|
|
Services
|
|
Total
|
United States
|
|
$
|
329,918
|
|
$
|
165,250
|
|
$
|
495,168
|
|
$
|
296,777
|
|
$
|
137,734
|
|
$
|
434,511
|
|
$
|
288,884
|
|
$
|
139,894
|
|
$
|
428,778
|
Canada
|
|
|
70,760
|
|
|
—
|
|
|
70,760
|
|
|
69,531
|
|
|
—
|
|
|
69,531
|
|
|
48,887
|
|
|
—
|
|
|
48,887
|
Total revenue
|
|
$
|
400,678
|
|
$
|
165,250
|
|
$
|
565,928
|
|
$
|
366,308
|
|
$
|
137,734
|
|
$
|
504,042
|
|
$
|
337,771
|
|
$
|
139,894
|
|
$
|
477,665
|
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.
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.
NOTE 5. BUSINESS COMBINATIONS
ES&H of Dallas, LLC
On August 31, 2018, the Company acquired ES&H of Dallas, LLC (“ES&H Dallas”), which provides emergency and spill response, light industrial services and transportation and logistics for waste disposal and recycling from locations in Dallas and Midland, Texas. The total purchase price was $21.3 million and was funded with cash on hand. The ES&H Dallas facilities are reported as part of our Field and Industrial Services segment. The Company assessed the revenues, net income, earnings per share and total assets of ES&H Dallas and concluded they are not material to our consolidated financial position or results of operations either individually or when aggregated with other acquisitions completed in 2018. As such, pro forma financial information has not been provided.
We allocated the purchase price to the assets acquired based on preliminary estimates of the fair value at the date of acquisition, resulting in $10.0 million allocated to property and equipment and other current assets, $7.1 million allocated to goodwill and $4.2 million allocated to intangible assets (consisting primarily of customer relationships) to be amortized over a weighted average life of approximately 13 years. No liabilities were assumed in the acquisition. The purchase price allocation is preliminary, as estimates and assumptions are subject to change as more information becomes available.
Goodwill of $7.1 million arising from the acquisition is attributable to the assembled workforce and the future economic benefits of synergies with our other Texas facilities and expansion into new markets. All of the goodwill recognized was assigned to our Field & Industrial Services segment and is expected to be deductible for income tax purposes over a 15-year amortization period.
Ecoserv Industrial Disposal, LLC
On November 14, 2018, the Company acquired Ecoserv Industrial Disposal, LLC (“Winnie”), which provides non-hazardous industrial wastewater disposal solutions and employs deep-well injection technology in the southern United States. The total purchase price was $87.1 million and was funded with $87.0 million in borrowings under the 2017 Credit Agreement and cash on hand. The purchase price is subject to post-closing adjustments based on agreed upon working capital requirements. Post-closing adjustments are expected to be finalized and settled in 2019. Winnie is reported as part of our Environmental Services segment. The Company assessed the revenues, net income, earnings per share and total assets of Winnie and concluded they are not material to our consolidated financial position or results of operations either individually or when aggregated with other acquisitions completed in 2018. As such, pro forma financial information has not been provided.
We allocated the purchase price to the assets acquired and liabilities assumed based on preliminary estimates of the fair value at the date of acquisition. The purchase price allocation is preliminary, as estimates and assumptions are subject to change as more information becomes available. The following table summarizes the consideration paid for Winnie and the preliminary fair value estimates of assets acquired and liabilities assumed recognized at the acquisition date:
|
|
|
|
|
|
Purchase
Price
|
$s in thousands
|
|
Allocation
|
Current assets
|
|
$
|
1,923
|
Property and equipment
|
|
|
6,300
|
Identifiable intangible assets
|
|
|
66,600
|
Current liabilities
|
|
|
(755)
|
Other liabilities
|
|
|
(512)
|
Total identifiable net assets
|
|
|
73,556
|
Goodwill
|
|
|
13,573
|
Total purchase price
|
|
$
|
87,129
|
The preliminary fair value of identifiable intangible assets related to the acquisition of Winnie consisted of $54.8 million in permits to be amortized over a life of 60 years, and $11.8 million in customer relationships to be amortized over a life of 15 years.
Goodwill of $13.6 million arising from the acquisition is attributable to the future economic benefits of expansion into the deep-well injection market and the assembled workforce. All of the goodwill recognized was assigned to our Environmental Services segment and is expected to be deductible for income tax purposes over a 15-year amortization period.
Environmental Services Inc.
On May 2, 2016, the Company acquired 100% of the outstanding shares of Environmental Services Inc., (“ESI”), an environmental services company based in Tilbury, Ontario, Canada. ESI is focused primarily on hazardous and non-hazardous transportation and disposal, hazardous and non-hazardous waste treatment, industrial services, confined space rescue and emergency response work throughout Ontario. The total purchase price was $4.9 million, net of cash acquired, and was funded with cash on hand. ESI is reported as part of our Environmental Services segment, however, revenues, net income, earnings per share and total assets of ESI are not material to our consolidated financial position or results of operations.
We allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, resulting in $1.0 million allocated to goodwill (which is not deductible for tax purposes), $813,000 allocated to intangible assets (primarily customer relationships) to be amortized over a weighted average life of approximately 14 years, and $686,000 allocated to non-amortizing environmental permits. All of the goodwill recognized was assigned to our Environmental Services segment and is expected to be deductible for income tax purposes over a 15-year amortization period.
Acquisition of Vernon, California Facility
On October 1, 2016, we acquired the Vernon, California based RCRA Part B, liquids and solids waste treatment and storage facility of Evoqua Water Technologies LLC for $5.0 million. The Vernon, California facility is reported as part of our Environmental Services segment, however, revenues, net income, earnings per share and total assets of the Vernon, California facility are not material to our consolidated financial position or results of operations.
We allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, resulting in $354,000 allocated to goodwill, $1.9 million allocated to intangible assets (primarily customer relationships) to be amortized over a weighted average life of approximately 20 years, and $1.3 million allocated to non-amortizing environmental permits. All of the goodwill recognized was assigned to our Environmental Services segment and is expected to be deductible for income tax purposes over a 15-year amortization period.
NOTE 6.
DIVESTITURES
Divestiture of Augusta, Georgia Facility
On April 5, 2016, we completed the divestiture of our Augusta, Georgia facility for cash proceeds of $1.9 million. The Augusta, Georgia facility was reported as part of our Environmental Services segment. Sales, net income and total assets of the Augusta, Georgia facility are not material to our consolidated financial position or results of operations in any period presented. We recognized a $1.9 million pre-tax gain on the divestiture of the Augusta, Georgia facility, which is included in Other income (expense) in our consolidated statements of operations for the year ended December 31, 2016.
NOTE 7. ACCUMULATED OTHER COMPREHENSIVE INCOME (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, 2016
|
|
$
|
(12,649)
|
|
$
|
(2,076)
|
|
$
|
(14,725)
|
Other comprehensive income before reclassifications, net of tax
|
|
|
4,046
|
|
|
45
|
|
|
4,091
|
Amounts reclassified out of AOCI, net of tax (1)
|
|
|
—
|
|
|
1,530
|
|
|
1,530
|
Other comprehensive income, net
|
|
|
4,046
|
|
|
1,575
|
|
|
5,621
|
Balance at December 31, 2017
|
|
$
|
(8,603)
|
|
$
|
(501)
|
|
$
|
(9,104)
|
Other comprehensive income (loss) before reclassifications, net of tax
|
|
|
(6,094)
|
|
|
1,111
|
|
|
(4,983)
|
Amounts reclassified out of AOCI, net of tax (2)
|
|
|
—
|
|
|
296
|
|
|
296
|
Other comprehensive income, net
|
|
|
(6,094)
|
|
|
1,407
|
|
|
(4,687)
|
Balance at December 31, 2018
|
|
$
|
(14,697)
|
|
$
|
906
|
|
$
|
(13,791)
|
|
(1)
|
|
Before-tax reclassifications of $2.3 million ($1.5 million after-tax) for the year ended December 31, 2017 were included in Interest expense in the Company’s consolidated statements of operations. Amount relates to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made.
|
|
(2)
|
|
Before-tax reclassifications of $375,000 ($296,000 after-tax) for the year ended December 31, 2018 were included in Interest expense in the Company’s consolidated statements of operations. Amount relates to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made. Amounts in AOCI expected to be recognized as a reduction of interest expense over the next 12 months total approximately $229,000 ($181,000 after tax).
|
NOTE 8. DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
$s in thousands
|
|
2018
|
|
2017
|
|
2016
|
Income taxes and interest paid:
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net of receipts
|
|
$
|
19,580
|
|
$
|
10,714
|
|
$
|
25,729
|
Interest paid
|
|
|
11,246
|
|
|
11,364
|
|
|
14,304
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Closure/Post-closure retirement asset
|
|
|
99
|
|
|
(352)
|
|
|
426
|
Capital expenditures in accounts payable
|
|
|
1,601
|
|
|
2,302
|
|
|
2,906
|
Acquisition of equipment with financing arrangements
|
|
|
747
|
|
|
531
|
|
|
1,156
|
Restricted stock issuances from treasury shares
|
|
|
11
|
|
|
105
|
|
|
408
|
NOTE 9. 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 and interest rate swap agreements. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to the short-term nature of these instruments.
The Company estimates the fair value of its variable-rate debt using Level 2 inputs, such as interest rates, related terms and maturities of similar obligations. At December 31, 2018, the carrying value of the Company’s variable-rate debt approximates fair value due to the short-term nature of the interest rates.
The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2018 and 2017 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
Quoted Prices in
|
|
Other Observable
|
|
Unobservable
|
|
|
|
|
|
Active Markets
|
|
Inputs
|
|
Inputs
|
|
|
|
$s in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-income securities
(1)
|
|
$
|
1,561
|
|
$
|
2,596
|
|
$
|
—
|
|
$
|
4,157
|
Money market funds
(2)
|
|
|
784
|
|
|
—
|
|
|
—
|
|
|
784
|
Interest rate swap agreement
(3)
|
|
|
—
|
|
|
1,147
|
|
|
—
|
|
|
1,147
|
Total
|
|
$
|
2,345
|
|
$
|
3,743
|
|
$
|
—
|
|
$
|
6,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
Quoted Prices in
|
|
Other Observable
|
|
Unobservable
|
|
|
|
|
|
Active Markets
|
|
Inputs
|
|
Inputs
|
|
|
|
$s in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-income securities
(1)
|
|
$
|
1,396
|
|
$
|
2,649
|
|
$
|
—
|
|
$
|
4,045
|
Money market funds
(2)
|
|
|
1,757
|
|
|
—
|
|
|
—
|
|
|
1,757
|
Total
|
|
$
|
3,153
|
|
$
|
2,649
|
|
$
|
—
|
|
$
|
5,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement
(3)
|
|
$
|
—
|
|
$
|
638
|
|
$
|
—
|
|
$
|
638
|
Total
|
|
$
|
—
|
|
$
|
638
|
|
$
|
—
|
|
$
|
638
|
|
(1)
|
|
We invest a portion of our Restricted cash and investments in fixed‑income securities, including U.S. Treasury and U.S. agency securities. We measure the fair value of U.S. Treasury securities using quoted prices for identical assets in active markets. We measure the fair value of U.S. agency securities using observable market activity for similar assets. The fair value of our fixed‑income securities approximates our cost basis in the investments.
|
|
(2)
|
|
We invest a portion of our Restricted cash and investments in money market funds. We measure the fair value of these money market fund investments using quoted prices for identical assets in active markets. Money market funds are considered restricted 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 October 2014 that effectively converts a portion of our variable-rate debt to a fixed interest rate. The swap is designated as a cash flow hedge, with gains and losses deferred in other comprehensive income to be recognized as an adjustment to interest expense in the same period that the hedged interest payments affect earnings. The interest rate swap has an effective date of December 31, 2014 with an initial notional amount of $250.0 million. The fair value of the interest rate swap agreement represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of the interest rate swap agreement quarterly based on the quoted market price for the same or similar financial instruments. The fair value of the interest rate swap agreement is included in Other assets and Other long-term liabilities in the Company’s consolidated balance sheets as of December 31, 2018 and 2017, respectively.
|
NOTE 10. CONCENTRATIONS AND CREDIT RISK
Major Customers
No customer accounted for more than 10% of total revenue for the years ended December 31, 2018, 2017 or 2016.
No customer accounted for more than 10% of total receivables as of December 31, 2018 or 2017.
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.
Labor Concentrations
As of December 31, 2018, 28 employees were represented by the Paper, Allied-Industrial Chemical & Energy Workers International Union, AFL-CIO, CLC (PACE) on behalf of Local 9777 and Local 12-369; 122 employees at our Blainville, Québec, Canada facility were represented by the Communications, Energy and Paperworkers Union of Canada; 143
employees were represented by the Local 324 Operating Engineers Union; and 48 employees were represented by the International Brotherhood of Teamsters on behalf of Local 283, Local 560, and Local 728. As of December 31, 2018, our 1,382 other employees did not belong to a union.
NOTE 11. RECEIVABLES
Receivables as of December 31, 2018 and 2017 consisted of the following:
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
Trade
|
|
$
|
118,909
|
|
$
|
96,760
|
Unbilled revenue
|
|
|
26,538
|
|
|
16,176
|
Other
|
|
|
2,241
|
|
|
637
|
Total receivables
|
|
|
147,688
|
|
|
113,573
|
Allowance for doubtful accounts
|
|
|
(2,998)
|
|
|
(2,796)
|
Receivables, net
|
|
$
|
144,690
|
|
$
|
110,777
|
The allowance for doubtful accounts is a provision for uncollectible accounts receivable and unbilled receivables. The allowance is evaluated and adjusted to reflect our collection history and an analysis of the accounts receivables aging. The allowance is decreased by accounts receivable as they are written off. The allowance is adjusted periodically to reflect actual experience. The change in the allowance during 2018, 2017 and 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
(Credited) to
|
|
Recoveries
|
|
|
|
|
|
|
|
|
Beginning of
|
|
Costs and
|
|
(Deductions/
|
|
|
|
|
Balance at
|
$s in thousands
|
|
Period
|
|
Expenses
|
|
Write-offs)
|
|
Adjustments
|
|
End of Period
|
Year ended December 31, 2018
|
|
$
|
2,796
|
|
$
|
436
|
|
$
|
(213)
|
|
$
|
(21)
|
|
$
|
2,998
|
Year ended December 31, 2017
|
|
$
|
2,334
|
|
$
|
704
|
|
$
|
(255)
|
|
$
|
13
|
|
$
|
2,796
|
Year ended December 31, 2016
|
|
$
|
3,226
|
|
$
|
(186)
|
|
$
|
(705)
|
|
$
|
(1)
|
|
$
|
2,334
|
NOTE 12. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2018 and 2017 consisted of the following:
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
Cell development costs
|
|
$
|
146,155
|
|
$
|
142,144
|
Land and improvements
|
|
|
50,481
|
|
|
36,499
|
Buildings and improvements
|
|
|
91,358
|
|
|
87,034
|
Railcars
|
|
|
17,299
|
|
|
17,299
|
Vehicles and other equipment
|
|
|
154,014
|
|
|
122,697
|
Construction in progress
|
|
|
14,554
|
|
|
23,334
|
Total property and equipment
|
|
|
473,861
|
|
|
429,007
|
Accumulated depreciation and amortization
|
|
|
(215,418)
|
|
|
(194,575)
|
Property and equipment, net
|
|
$
|
258,443
|
|
$
|
234,432
|
Depreciation and amortization expense was $29.2 million, $28.3 million and $25.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
NOTE 13. GOODWILL AND INTANGIBLE ASSETS
Changes in goodwill for the years ended December 31, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field &
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
|
|
Services
|
|
Services
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
$s in thousands
|
|
Gross
|
|
Impairment
|
|
Gross
|
|
Impairment
|
|
Total
|
Balance at December 31, 2016
|
|
$
|
149,490
|
|
$
|
—
|
|
$
|
44,131
|
|
$
|
—
|
|
$
|
193,621
|
Impairment charges
|
|
|
—
|
|
|
(5,457)
|
|
|
—
|
|
|
—
|
|
|
(5,457)
|
Foreign currency translation and other adjustments
|
|
|
1,209
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,209
|
Balance at December 31, 2017
|
|
$
|
150,699
|
|
$
|
(5,457)
|
|
$
|
44,131
|
|
$
|
—
|
|
$
|
189,373
|
ES&H Dallas acquisition
|
|
|
—
|
|
|
—
|
|
|
7,100
|
|
|
—
|
|
|
7,100
|
Winnie acquisition
|
|
|
13,573
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,573
|
Impairment charges
|
|
|
—
|
|
|
(1,413)
|
|
|
—
|
|
|
—
|
|
|
(1,413)
|
Foreign currency translation
|
|
|
(1,456)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,456)
|
Balance at December 31, 2018
|
|
$
|
162,816
|
|
$
|
(6,870)
|
|
$
|
51,231
|
|
$
|
—
|
|
$
|
207,177
|
We assess goodwill for impairment during the fourth quarter as of October 1 of each year, and also if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The assessment consists of comparing the fair value of the reporting unit to the carrying value of the net assets assigned to the reporting unit, including goodwill.
Fair values are generally determined by using a market approach, applying a multiple of earnings based on guideline for publicly traded companies, an income approach, discounting projected future cash flows based on our expectations of the current and future operating environment, or a combination thereof. Estimating future cash flows requires significant judgment about factors such as general economic conditions and projected growth rates, and our estimates often vary from the cash flows eventually realized. The rates used to discount projected future cash flows reflect a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization.
In connection with our annual budgeting process commencing in the third quarter of 2018 and review of the projected future cash flows of our reporting units used in our annual assessment of goodwill, it was determined that the projected future cash flows of our Mobile Recycling reporting unit (described below), which is part of our Environmental Services segment, indicated that the fair value of the reporting unit may be below its carrying amount. Accordingly, we performed an interim assessment of the reporting unit’s goodwill as of September 30, 2018. Based on the results of that assessment, goodwill was deemed impaired and we recognized an impairment charge of $1.4 million in the third quarter of 2018, representing the reporting unit’s entire goodwill balance.
Our Mobile Recycling reporting unit operates a fleet of mobile solvent recycling stills that provide on-site recycling services throughout the Eastern United States. The factors contributing to the $1.4 million goodwill impairment charge principally related to declining business and cash flows, which negatively impacted the reporting unit’s prospective
financial information in its discounted cash flow model and the reporting unit's estimated fair value as compared to previous estimates.
The result of the annual assessment of goodwill undertaken in the fourth quarter of 2018 indicated that the fair value of each of our reporting units was in excess of its respective carrying value.
The result of the annual assessment of goodwill undertaken in the fourth quarter of 2017 indicated that the fair value of each of our reporting units was in excess of its respective carrying value, with the exception of the Resource Recovery reporting unit.
In performing the annual goodwill impairment test, the estimated fair value of the Resource Recovery reporting unit was determined under an income approach using discounted projected future cash flows and then compared to the reporting unit’s carrying amount as of October 1, 2017. Based on the results of that evaluation, the carrying amount of the Resource Recovery reporting unit, including $5.5 million of goodwill, exceeded the estimated fair value of the reporting unit by more than $5.5 million and, as a result, we recognized a $5.5 million impairment charge, representing the reporting unit’s entire goodwill balance, in the fourth quarter of 2017.
Our Resource Recovery reporting unit offers full-service storm water management and propylene glycol (“PG”) deicing fluid recovery at major airports. Recovered fluids are transported to our recycling facility where they are distilled and resold to industrial users. The Resource Recovery reporting unit also generates revenues from brokered PG sales and services revenues for PG collection at the airports we service. The factors contributing to the $5.5 million goodwill impairment charge principally related to weak PG commodity prices and reduced PG collection volumes at the airports we service, which negatively impacted the reporting unit’s prospective financial information in its discounted cash flow model and the reporting unit's estimated fair value. A longer-than-expected recovery in PG commodity pricing and PG collection volumes became evident during the fourth quarter of 2017 as management completed its 2018 budgeting cycle and updated the long-term projections for the reporting unit which, as a result, decreased the reporting unit’s anticipated future cash flows as compared to those estimated previously.
Intangible assets as of December 31, 2018 and 2017 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
$s in thousands
|
|
Cost
|
|
Amortization
|
|
Net
|
|
Cost
|
|
Amortization
|
|
Net
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits, licenses and lease
|
|
$
|
164,840
|
|
$
|
(14,804)
|
|
$
|
150,036
|
|
$
|
111,818
|
|
$
|
(12,459)
|
|
$
|
99,359
|
Customer relationships
|
|
|
99,241
|
|
|
(25,676)
|
|
|
73,565
|
|
|
84,977
|
|
|
(20,168)
|
|
|
64,809
|
Technology - formulae and processes
|
|
|
6,672
|
|
|
(1,714)
|
|
|
4,958
|
|
|
7,250
|
|
|
(1,630)
|
|
|
5,620
|
Customer backlog
|
|
|
3,652
|
|
|
(1,656)
|
|
|
1,996
|
|
|
3,652
|
|
|
(1,291)
|
|
|
2,361
|
Developed software
|
|
|
2,884
|
|
|
(1,581)
|
|
|
1,303
|
|
|
2,926
|
|
|
(1,319)
|
|
|
1,607
|
Non-compete agreements
|
|
|
1,542
|
|
|
(875)
|
|
|
667
|
|
|
748
|
|
|
(748)
|
|
|
—
|
Internet domain and website
|
|
|
536
|
|
|
(128)
|
|
|
408
|
|
|
540
|
|
|
(100)
|
|
|
440
|
Database
|
|
|
384
|
|
|
(167)
|
|
|
217
|
|
|
393
|
|
|
(153)
|
|
|
240
|
Total amortizing intangible assets
|
|
|
279,751
|
|
|
(46,601)
|
|
|
233,150
|
|
|
212,304
|
|
|
(37,868)
|
|
|
174,436
|
Non-amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits and licenses
|
|
|
46,391
|
|
|
—
|
|
|
46,391
|
|
|
48,241
|
|
|
—
|
|
|
48,241
|
Tradename
|
|
|
125
|
|
|
—
|
|
|
125
|
|
|
135
|
|
|
—
|
|
|
135
|
Total intangible assets
|
|
$
|
326,267
|
|
$
|
(46,601)
|
|
$
|
279,666
|
|
$
|
260,680
|
|
$
|
(37,868)
|
|
$
|
222,812
|
We review non-amortizing intangible assets for impairment during the fourth quarter as of October 1 of each year. Fair value is generally determined by considering an internally-developed discounted projected cash flow analysis. Estimating future cash flows requires significant judgment about factors such as general economic conditions and projected growth rates, and our estimates often vary from the cash flows eventually realized. If the fair value of an asset is determined to be less than the carrying amount of the intangible asset, an impairment in the amount of the difference is recorded in the period in which the annual assessment occurs.
In connection with the interim goodwill impairment assessment of the Mobile Recycling reporting unit, we also assessed the reporting unit’s non-amortizing permit intangible asset and other amortizing tangible and intangible assets for impairment as of September 30, 2018. Based on the results of that assessment, the carrying amounts of the non-amortizing permit intangible asset and other amortizing intangible assets exceeded their estimated fair values and, as a result, we recognized a $2.3 million impairment charge in the third quarter of 2018. The factors and timing contributing to the non-amortizing intangible asset and the other amortizing intangible assets impairment charges were the same as the factors and timing described above with regards to the Mobile Recycling reporting unit goodwill impairment charge.
The result of the annual assessment of non-amortizing intangible assets undertaken in the fourth quarter of 2018 indicated no impairment charges were required.
On August 31, 2018, the Company acquired ES&H Dallas and recorded $7.1 million of goodwill and $4.2 million of amortizing intangible assets (consisting primarily of customer relationships) as a result of the acquisition. See Note 5 for additional information.
On November 14, 2018, the Company acquired Winnie and recorded $13.6 million of goodwill and $66.6 million of amortizing intangible assets (consisting of permits and customer relationships) as a result of the acquisition. See Note 5 for additional information.
The result of the annual assessment of non-amortizing intangible assets undertaken in the fourth quarter of 2017 indicated no impairment charges were required, with the exception of the non-amortizing intangible waste collection, recycling and resale permit associated with our Resource Recovery business.
In performing the annual non-amortizing intangible assets impairment test, the estimated fair value of the Resource Recovery waste collection, recycling and resale permit was determined under an income approach using discounted projected future cash flows associated with the permit and then compared to the $3.7 million carrying amount of the permit as of October 1, 2017. Based on the results of that evaluation, the carrying amount of the permit exceeded the estimated fair value of the permit and, as a result, we recognized a $3.4 million impairment charge in the fourth quarter of 2017. The factors and timing contributing to the non-amortizing permit impairment charge were the same as the factors and timing described above with regards to the Resource Recovery reporting unit goodwill impairment charge.
In the fourth quarter of 2017, we performed an assessment of the Resource Recovery business’ amortizing tangible and intangible assets, as events indicated their carrying values may not be recoverable. The result of the assessment indicated no impairment charges were required.
Amortization expense relating to intangible assets was $9.6 million, $9.9 million and $10.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. Foreign intangible asset carrying amounts are affected by foreign currency translation. Future amortization expense of amortizing intangible assets is expected to be as follows:
|
|
|
|
|
|
Expected
|
$s in thousands
|
|
Amortization
|
2019
|
|
$
|
11,406
|
2020
|
|
|
11,273
|
2021
|
|
|
11,006
|
2022
|
|
|
11,006
|
2023
|
|
|
10,850
|
Thereafter
|
|
|
177,609
|
|
|
$
|
233,150
|
NOTE 14. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
We maintain the US Ecology, Inc., 401(k) Savings and Retirement Plan (“the Plan”) for employees who voluntarily contribute a portion of their compensation, thereby deferring income for federal income tax purposes. The Plan covers substantially all of our employees in the United States. Participants may contribute a percentage of salary up to the IRS limitations. The Company contributes a matching contribution equal to 55% of participant contributions up to 6% of eligible compensation. The Company contributed matching contributions to the Plan of $2.5 million, $2.1 million and $1.9 million in 2018, 2017 and 2016, respectively.
We also maintain the Stablex Canada Inc. Simplified Pension Plan (“the SPP”). This defined contribution plan covers substantially all of our employees at our Blainville, Québec facility in Canada. Employees represented by the Communications, Energy and Paperworkers Union of Canada receive a Company contribution equal to 8.5% of eligible compensation. Employees not represented by the union receive a base Company contribution equal to 5% of eligible compensation and an additional matching contribution in an amount up to 2% of eligible compensation. The Company contributed $653,000, $556,000 and $507,000 to the SPP in 2018, 2017 and 2016, respectively.
Multi-Employer Defined Benefit Pension Plans
Certain of the Company’s wholly-owned subsidiaries participate in three multi-employer defined benefit pension plans under the terms of collective bargaining agreements covering most of the subsidiaries’ union employees. Contributions are determined in accordance with the provisions of negotiated labor contracts and are generally based on stipulated rates per hours worked. Benefits under these plans are generally based on compensation levels and years of service.
The financial risks of participating in multi-employer plans are different from single employer defined benefit pension plans in the following respects:
|
·
|
|
Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
|
|
·
|
|
If a participating employer discontinues contributions to a plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
|
·
|
|
If a participating employer chooses to stop participating in a plan, a withdrawal liability may be created based on the unfunded vested benefits for all employees in the plan.
|
Information regarding significant multi-employer pension benefit plans in which the Company participates is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
Protection Act
|
|
|
|
|
|
|
Certified
|
|
|
Plan Employer
|
|
Plan
|
|
Zone Status
|
Name of Plan
|
|
ID Number
|
|
Number
|
|
2018
|
|
2017
|
Operating Engineers Local 324 Pension Fund
|
|
38-1900637
|
|
001
|
|
Red
|
|
Red
|
The Company contributed $1.0 million to the Operating Engineers Local 324 Pension Fund (the “Local 324 Plan”) in both 2018 and 2017. The Company also contributed $242,000 and $217,000 to other multi-employer plans in 2018 and 2017, respectively, which are excluded from the table above as they are not individually significant.
Based on information as of April 30, 2018 and 2017, the year end of the Local 324 Plan, the Company's contributions made to the Local 324 Plan represented less than 5% of total contributions received by the Local 324 Plan during the 2018 and 2017 plan years.
The certified zone status in the table above is defined by the Department of Labor and the Pension Protection Act of 2006 and represents the level at which the plan is funded. Plans in the red zone are less than 65% funded; plans in the yellow zone are less than 80% funded; and plans in the green zone are at least 80% funded. The certified zone status is as of the Local 324 Plan's year end of April 30, 2018 and 2017.
A financial improvement or rehabilitation plan, as defined under ERISA, was adopted by the Local 324 Plan on March 17, 2011 and the Rehabilitation Period began May 1, 2013.
As of December 31, 2018, 143 employees were employed under union collective bargaining agreements with the Local 324 Operating Engineers union. Our three remaining collective bargaining agreements expire on November 30, 2020, April 30, 2022 and December 31, 2023.
NOTE 15. CLOSURE AND POST‑CLOSURE OBLIGATIONS
Our accrued closure and post-closure liability represents the expected future costs, including corrective actions, associated with closure and post-closure of our operating and non-operating disposal facilities. We record the fair value of our closure and post-closure obligations as a liability in the period in which the regulatory obligation to retire a specific asset is triggered. For our individual landfill cells, the required closure and post-closure obligations under the terms of our permits and our intended operation of the landfill cell are triggered and recorded when the cell is placed into service and waste is initially disposed in the landfill cell. The fair value is based on the total estimated costs to close the landfill cell and perform post-closure activities once the landfill cell has reached capacity and is no longer accepting waste. We perform periodic reviews of both non-operating and operating facilities and revise accruals for estimated closure and post-closure, remediation or other costs as necessary. Recorded liabilities are based on our best estimates of current costs and are updated periodically to include the effects of existing technology, presently enacted laws and regulations, inflation and other economic factors.
We do not presently bear significant financial responsibility for closure and/or post-closure care of the disposal facilities located on state-owned land at our Beatty, Nevada site; Provincial-owned land in Blainville, Québec; or state-leased federal land on the Department of Energy Hanford Reservation near Richland, Washington. The States of Nevada and Washington and the Province of Québec collect fees from us based on the waste received on a quarterly or annual basis. Such fees are deposited in dedicated, government-controlled funds to cover the future costs of closure and post-closure care and maintenance. Such fees are periodically reviewed for adequacy by the governmental authorities. We also maintain a surety bond for closure costs associated with the Stablex facility. Our lease agreement with the Province of Québec requires that the surety bond be maintained for 25 years after the lease expires. At December 31, 2018 we had $715,000 in commercial surety bonds dedicated for closure obligations.
In accounting for closure and post-closure obligations, which represent our asset retirement obligations, we recognize a liability as part of the fair value of future asset retirement obligations and an associated asset as part of the carrying amount of the underlying asset. This obligation is valued based on our best estimates of current costs and current estimated closure and post-closure costs taking into account current technology, material and service costs, laws and regulations. These cost estimates are increased by an estimated inflation rate, estimated to be 2.6% at December 31, 2018. Inflated current costs are then discounted using our credit‑adjusted risk‑free interest rate, which approximates our incremental borrowing rate, in effect at the time the obligation is established or when there are upward revisions to our estimated closure and post‑closure costs. Our weighted‑average credit‑adjusted risk‑free interest rate at December 31, 2018 approximated 6.0%.
Changes to reported closure and post‑closure obligations for the years ended December 31, 2018 and 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
Closure and post-closure obligations, beginning of period
|
|
$
|
76,088
|
|
$
|
75,082
|
Accretion expense
|
|
|
3,707
|
|
|
3,026
|
Payments
|
|
|
(1,388)
|
|
|
(1,794)
|
Adjustments
|
|
|
99
|
|
|
(352)
|
Foreign currency translation
|
|
|
(143)
|
|
|
126
|
Closure and post-closure obligations, end of period
|
|
|
78,363
|
|
|
76,088
|
Less current portion
|
|
|
(2,266)
|
|
|
(2,330)
|
Long-term portion
|
|
$
|
76,097
|
|
$
|
73,758
|
Adjustment to the obligations represents changes in the expected timing or amount of cash expenditures based upon actual and estimated cash expenditures. The adjustments in 2018 were primarily attributable to a $1.1 million decrease in closure and post-closure obligations at our Grand View, Idaho operating facility due to a change in closure timing, partially offset by a $511,000 increase to the obligation for the acquired deep-well at our Winnie facility and a $472,000 increase to the obligation at our Belleville, Michigan operating facility due to changes in both estimated closure costs and closure timing. The adjustments in 2017 were primarily attributable to an $897,000 decrease in closure and post-closure obligations at our Grand View, Idaho operating facility due to a change in closure timing, partially offset by a $545,000 increase to the obligation for our Blainville, Québec, Canada operating facility associated with a newly-constructed disposal cell.
Changes in the reported closure and post‑closure asset, recorded as a component of Property and equipment, net, in the consolidated balance sheets, for the years ended December 31, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
Net closure and post-closure asset, beginning of year
|
|
$
|
20,495
|
|
$
|
22,408
|
Additions or adjustments to closure and post-closure asset
|
|
|
99
|
|
|
(352)
|
Amortization of closure and post-closure asset
|
|
|
(805)
|
|
|
(1,757)
|
Foreign currency translation
|
|
|
(279)
|
|
|
196
|
Net closure and post-closure asset, end of year
|
|
$
|
19,510
|
|
$
|
20,495
|
NOTE 16. DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
December 31,
|
$s in thousands
|
|
2018
|
|
2017
|
Revolving credit facility
|
|
$
|
364,000
|
|
$
|
277,000
|
Long-term debt
|
|
$
|
364,000
|
|
$
|
277,000
|
Future maturities of long-term debt, excluding unamortized discount and debt issuance costs, as of December 31, 2018 consist of the following:
|
|
|
|
$s in thousands
|
|
Maturities
|
2019
|
|
$
|
—
|
2020
|
|
|
—
|
2021
|
|
|
—
|
2022
|
|
|
364,000
|
2023
|
|
|
—
|
Thereafter
|
|
|
—
|
|
|
$
|
364,000
|
2017 Credit Agreement
On April 18, 2017, the Company entered into a new senior secured credit agreement (the “2017 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 $25.0 million sublimit for the issuance of swingline loans used to fund short-term working capital requirements. The 2017 Credit Agreement also contains an accordion feature whereby the Company 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. In connection with the Company’s entry into the 2017 Credit Agreement, the Company terminated its existing credit agreement with Wells Fargo, dated June 17, 2014 (the “2014 Credit Agreement”). Immediately prior to the termination of the 2014 Credit Agreement, there were $278.3 million of term loans and no revolving loans outstanding under the 2014 Credit Agreement. No early termination penalties were incurred as a result of the termination of the 2014 Credit Agreement. The Company wrote off certain unamortized deferred financing costs and original issue discount associated with the 2014 Credit Agreement that were to be amortized to interest expense in future periods through a one-time non-cash charge of $5.5 million to interest expense in the second quarter of 2017.
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). Under the Revolving Credit Facility, revolving credit loans are available based on a base rate (as defined in the 2017 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 2017 Credit Agreement), as set forth in the table below:
Total Net Leverage Ratio
|
LIBOR Rate Loans Interest Margin
|
Base Rate Loans Interest Margin
|
Equal to or greater than 3.25 to 1.00
|
2.00%
|
1.00%
|
Equal to or greater than 2.50 to 1.00, but less than 3.25 to 1.00
|
1.75%
|
0.75%
|
Equal to or greater than 1.75 to 1.00, but less than 2.50 to 1.00
|
1.50%
|
0.50%
|
Equal to or greater than 1.00 to 1.00, but less than 1.75 to 1.00
|
1.25%
|
0.25%
|
Less than 1.00 to 1.00
|
1.00%
|
0.00%
|
At December 31, 2018, the effective interest rate on the Revolving Credit Facility, after giving effect to the impact of our interest rate swap, was 3.53%. Interest only payments are due either quarterly or on the last day of any interest period, as applicable.
In October 2014, the Company entered into an interest rate swap agreement, effectively fixing the interest rate on $170.0 million, or 47%, of the Revolving Credit Facility borrowings as of December 31, 2018. The interest rate swap agreement continued in place following the termination of the 2014 Credit Agreement. The critical terms of the interest rate swap and the forecasted transaction (periodic interest payments on the Company’s variable-rate debt) did not change as a result of
the refinancing therefore the interest rate swap continues to qualify as a highly-effective cash flow hedge, with gains and losses deferred in accumulated other comprehensive income to be recognized as an adjustment to interest expense in the same period that the hedged interest payments affect earnings.
The Company 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 reduced based upon the Company’s total net leverage ratio (as defined in the 2017 Credit Agreement). The maximum letter of credit capacity under the Revolving Credit Facility is $75.0 million and the 2017 Credit Agreement provides for a letter of credit fee equal to the applicable margin for LIBOR loans under the Revolving Credit Facility. At December 31, 2018, there were $364.0 million of revolving credit loans outstanding on the Revolving Credit Facility. These revolving credit loans are due upon the earliest to occur of (a) April 18, 2022 (or, with respect to any lender, such later date as requested by us and accepted by such lender), (b) the date of termination of the entire revolving credit commitment (as defined in the 2017 Credit Agreement) by us, and (c) the date of termination of the revolving credit commitment and are presented as long-term debt in the consolidated balance sheets.
The Company 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 $25.0 million swingline loan sublimit under the Revolving Credit Facility. The Company’s revolving credit loans outstanding under the Revolving Credit Facility are not subject to repayment through the Sweep Arrangement. As of December 31, 2018, there were no amounts outstanding subject to the Sweep Arrangement.
As of December 31, 2018, the availability under the Revolving Credit Facility was $130.3 million with $5.7 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.
The Company 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 2017 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 2017 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 2017 Credit Agreement), in an amount equal to such excess. Subject to certain exceptions, the 2017 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 the Company and its domestic subsidiaries on April 18, 2017, the Company’s obligations under the 2017 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 the Company 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 2017 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 2017 Credit Agreement), among other things, amounts outstanding under the 2017 Credit Agreement may be accelerated and the commitments may be terminated.
The 2017 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 2017 Credit Agreement). Our consolidated total net leverage ratio as of the last day of any fiscal quarter, commencing with the fiscal quarter ending June 30, 2017, may not exceed 3.50 to 1.00, subject to certain exceptions. 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.
At December 31, 2018, we were in compliance with all of the financial covenants in the 2017 Credit Agreement.
2014 Credit Agreement
On June 17, 2014, the Company entered into a $540.0 million senior secured credit agreement with a syndicate of banks comprised of a $415.0 million term loan (the “Former Term Loan”) with a maturity date of June 17, 2021 and a $125.0 million revolving line of credit (the “Former Revolving Credit Facility”) with a maturity date of June 17, 2019.
The Former Term Loan provided an initial commitment amount of $415.0 million and bore interest at a base rate (as defined in the 2014 Credit Agreement) plus 2.00% or LIBOR plus 3.00%, at the Company’s option.
The Former Revolving Credit Facility provided up to $125.0 million of revolving credit loans or letters of credit with the use of proceeds restricted solely for working capital and other general corporate purposes. Under the Former Revolving Credit Facility, revolving loans were available based on a base rate (as defined in the 2014 Credit Agreement) or LIBOR, at the Company’s option, plus an applicable margin which was determined according to a pricing grid under which the interest rate decreased or increased based on our ratio of funded debt to consolidated earnings before interest, taxes, depreciation and amortization (as defined in the 2014 Credit Agreement). The maximum letter of credit capacity under the Former Revolving Credit Facility was $50.0 million and the 2014 Credit Agreement provided for a letter of credit fee equal to the applicable margin for LIBOR loans under the Former Revolving Credit Facility.
NOTE 17. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
|
2016
|
Domestic
|
|
$
|
46,147
|
|
$
|
26,051
|
|
$
|
47,859
|
Foreign
|
|
|
18,711
|
|
|
16,919
|
|
|
7,442
|
Income before income taxes
|
|
$
|
64,858
|
|
$
|
42,970
|
|
$
|
55,301
|
The components of the income tax expense (benefit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
2,239
|
|
$
|
11,157
|
|
$
|
17,866
|
State
|
|
|
2,368
|
|
|
2,482
|
|
|
3,324
|
Foreign
|
|
|
4,746
|
|
|
5,398
|
|
|
2,459
|
Total current
|
|
|
9,353
|
|
|
19,037
|
|
|
23,649
|
Deferred:
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
5,675
|
|
|
(27,029)
|
|
|
(1,790)
|
State
|
|
|
172
|
|
|
2,323
|
|
|
(275)
|
Foreign
|
|
|
63
|
|
|
(726)
|
|
|
(535)
|
Total deferred
|
|
|
5,910
|
|
|
(25,432)
|
|
|
(2,600)
|
Income tax (benefit) expense
|
|
$
|
15,263
|
|
$
|
(6,395)
|
|
$
|
21,049
|
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In accordance with the Tax Act, we recorded $23.8 million as additional income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The total benefit included $25.2 million related to the re-measurement of certain deferred tax assets and liabilities partially offset by $1.4 million of expense related to one-time transition tax on the mandatory deemed repatriation of foreign earnings. Additionally, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the
necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis based on legislative updates relating to the Tax Act currently available, which resulted in a net benefit for measurement period adjustments of $193,000 for the year ended December 31, 2018. The total tax provision benefit included a $2.2 million benefit related to the re-measurement of certain deferred tax assets and liabilities offset by $2.0 million of expense related to adjustments to the transition tax.
A reconciliation between the effective income tax rate and the applicable statutory federal and state income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Taxes computed at statutory rate
|
|
21.0
|
%
|
35.0
|
%
|
35.0
|
%
|
Impairment and loss on divestiture
|
|
0.5
|
|
4.4
|
|
—
|
|
State income taxes (net of federal income tax benefit)
|
|
5.1
|
|
2.9
|
|
3.3
|
|
Share-based compensation
|
|
(1.3)
|
|
—
|
|
—
|
|
Research and development credits
|
|
(2.0)
|
|
—
|
|
—
|
|
Non-deductible transaction costs
|
|
—
|
|
—
|
|
0.2
|
|
Tax Cuts and Jobs Act of 2017
|
|
(0.3)
|
|
(55.4)
|
|
—
|
|
Foreign rate differential
|
|
1.7
|
|
(2.9)
|
|
(1.1)
|
|
Other
|
|
(1.2)
|
|
1.1
|
|
0.7
|
|
|
|
23.5
|
%
|
(14.9)
|
%
|
38.1
|
%
|
The components of the total net deferred tax assets and liabilities as of December 31, 2018 and 2017 consisted of the following:
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss, foreign tax credit and capital loss carry forwards
|
|
$
|
5,165
|
|
$
|
2,493
|
Accruals, allowances and other
|
|
|
5,041
|
|
|
3,603
|
Environmental compliance and other site related costs
|
|
|
8,580
|
|
|
8,549
|
Unrealized foreign exchange gains and losses
|
|
|
1,550
|
|
|
1,120
|
Unrealized gains and losses on interest rate hedge
|
|
|
—
|
|
|
134
|
Total deferred tax assets
|
|
|
20,336
|
|
|
15,899
|
Less: valuation allowance
|
|
|
(4,791)
|
|
|
(2,242)
|
Net deferred tax assets
|
|
|
15,545
|
|
|
13,657
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Property and equipment
|
|
|
(26,145)
|
|
|
(18,386)
|
Intangible assets
|
|
|
(51,081)
|
|
|
(51,575)
|
Unrealized gains and losses on interest rate hedge
|
|
|
(241)
|
|
|
—
|
Other
|
|
|
(1,284)
|
|
|
(1,279)
|
Total deferred tax liabilities
|
|
|
(78,751)
|
|
|
(71,240)
|
Net deferred tax liability
|
|
$
|
(63,206)
|
|
$
|
(57,583)
|
All deferred tax assets and liabilities are recorded in Deferred income taxes, net on the consolidated balance sheets as of December 31, 2018 and 2017. In evaluating its ability to realize the deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies.
As of December 31, 2018, we have no federal NOLs available to offset future income, and have approximately $7.7 million in state and local NOLs for which we maintain a substantial valuation allowance. We have historically recorded a valuation allowance for certain deferred tax assets due to uncertainties regarding future operating results and limitations on utilization of state and local NOLs for tax purposes. State and local NOLs expire between 2019 and 2036. At December 31, 2018 and 2017, we maintained a valuation allowance of approximately $73,000 and $182,000, respectively, for state NOLs that are not expected to be utilizable prior to expiration.
As of December 31, 2018, we have foreign tax credit carry forwards of approximately $4.1 million that expire starting in 2024. As of December 31, 2018, we have capital loss carry forwards of approximately $2.2 million that expire in 2020. We believe it is more likely than not the foreign tax credit and capital loss carry forwards will not be utilized and therefore maintain a valuation allowance on the entire balance.
As of December 31, 2018, the Company has accumulated undistributed earnings generated by our foreign subsidiaries of approximately $35.8 million. Any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding taxes and state income taxes. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.
Changes to unrecognized tax benefits for the years ended December 31, 2018 and 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
|
2016
|
Unrecognized tax benefits, beginning of year
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Gross increases - tax positions in prior period
|
|
|
494
|
|
|
—
|
|
|
—
|
Gross increases - tax positions in current period
|
|
|
61
|
|
|
—
|
|
|
—
|
Unrecognized tax benefits, end of year
|
|
$
|
555
|
|
$
|
—
|
|
$
|
—
|
We apply the provisions of ASC 740 related to income tax uncertainties which clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is require to meet before being recognized in the consolidated financial statements. The unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year are classified as “Other long-term liabilities” in the Consolidated Balance Sheets. As of December 31, 2018, the total amount of gross unrecognized tax benefits was $555,000, of which $485,000, if recognized, would favorably impact the Company’s effective tax rate. There were no unrecognized tax benefits as of December 31, 2017 or December 31, 2016.
We recognize interest assessed by taxing authorities and accrued interest associated with uncertain tax positions as a component of interest expense. We recognize any penalties assessed by taxing authorities or penalties associated with uncertain tax positions as a component of selling, general and administrative expenses. Related to the unrecognized tax benefits noted above, as of December 31, 2018, we recognized a liability for interest of $15,000 and no penalties. There were no unrecognized tax benefits as of December 31, 2017 or December 31, 2016. Accordingly, no interest or penalties were accrued or recognized in these years.
Given the potential outcome of the current examinations as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that approximately $73,000 of unrecognized tax benefits could reverse within the next twelve months as a result of a lapse of the statute of limitations.
We file a consolidated U.S. federal income tax return with the IRS as well as tax returns in various states, Canada, and Mexico. The Company is subject to examination by the IRS for tax years 2014 through 2018. EQ is subject to examination by the IRS for pre-acquisition tax year 2014. The Company is currently under examination by the state of Idaho for years 2014 through 2017 and the state of Texas for the year 2014. We may be subject to examinations by various state and local taxing jurisdictions for tax years 2013 through 2018. The Company has no significant foreign jurisdiction audits underway. The tax years 2014 through 2018 remain subject to examination by foreign jurisdictions.
NOTE 18. 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.
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. We resumed limited operations at our Grand View, Idaho facility in February 2019. In addition to initiating and conducting our own investigation into the incident, we are fully cooperating with IDEQ, the USEPA and the Occupational Safety and Health Administration’s (“OSHA”) to support their comprehensive and independent investigations of the incident. As we continue to investigate the cause of the incident, we are evaluating its impact, but, at this time, we are unable to predict the timing and outcome of the investigation. As such, we cannot presently estimate the potential liability, if any, related to the incident therefore no amounts related to such claims have been recorded in our financial statements as of December 31, 2018. We have not been named as a defendant in any action relating to the incident. 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.
Other than as described above, we are not currently a party to any material pending legal proceedings and are not aware of any other claims that could, individually or in the aggregate, have a materially adverse effect on our financial position, results of operations or cash flows.
Operating Leases
Lease agreements primarily cover railcars, the disposal site at our Stablex facility and corporate office space. Future minimum lease payments on non-cancellable operating leases as of December 31, 2018 are as follows:
|
|
|
|
$s in thousands
|
|
Payments
|
2019
|
|
$
|
5,638
|
2020
|
|
|
3,644
|
2021
|
|
|
3,184
|
2022
|
|
|
1,885
|
2023
|
|
|
1,457
|
Thereafter
|
|
|
5,065
|
|
|
$
|
20,873
|
Rental expense under operating leases was $7.4 million, $7.6 million and $7.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.
NOTE 19. EQUITY
Stock Repurchase Program
On June 1, 2016, the Company’s Board of Directors authorized the repurchase of $25.0 million of the Company’s outstanding common stock. Repurchases may be made from time to time in the open market or through privately negotiated transactions. The timing of any repurchases will be based upon prevailing market conditions and other factors. The Company did not repurchase any shares of common stock under the repurchase program during 2018. On May 29, 2018, the repurchase program was extended and will remain in effect until June 6, 2020, unless further extended by our Board of Directors.
Omnibus Incentive Plan
On May 27, 2015, our stockholders approved the Omnibus Incentive Plan (“Omnibus Plan”), which was approved by our Board of Directors on April 7, 2015. The Omnibus Plan was developed to provide additional incentives through equity ownership in US Ecology and, as a result, encourage employees and directors to contribute to our success. The Omnibus Plan provides, among other things, the ability for the Company to grant restricted stock, performance stock, options, stock appreciation rights, restricted stock units, performance stock units and other share-based awards or cash awards to officers, employees, consultants and non-employee directors. Subsequent to the approval of the Omnibus Plan in May 2015, we stopped granting equity awards under our 2008 Stock Option Incentive Plan and our 2006 Restricted Stock Plan (“Previous Plans”), and the Previous Plans will remain in effect solely for the settlement of awards granted under the Previous Plans. No shares that are reserved but unissued under the Previous Plans or that are outstanding under the Previous Plans and reacquired by the Company for any reason will be available for issuance under the Omnibus Plan. The Omnibus Plan expires on April 7, 2025 and authorizes 1,500,000 shares of common stock for grant over the life of the Omnibus Plan. As of December 31, 2018, 1,012,001 shares of common stock remain available for grant under the Omnibus Plan.
Performance Stock Units (PSUs)
We have PSU awards outstanding under the Omnibus Plan. Each PSU represents the right to receive, on the settlement date, one share of the Company’s common stock. The total number of PSUs each participant is eligible to earn ranges from 0% to 200% of the target number of PSUs granted. The actual number of PSUs that will vest and be settled in shares is determined based on total stockholder return relative to a set of peer companies, over a three-year performance period. Compensation expense is recorded over the awards' three-year vesting period.
A summary of our PSU activity is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Grant Date
|
|
|
Units
|
|
Fair Value
|
Outstanding as of December 31, 2017
|
|
30,963
|
|
$
|
53.76
|
Granted
|
|
14,100
|
|
|
63.56
|
Vested
|
|
(5,863)
|
|
|
65.78
|
Cancelled, expired or forfeited
|
|
—
|
|
|
—
|
Outstanding as of December 31, 2018
|
|
39,200
|
|
$
|
55.48
|
The fair value of PSUs is estimated as of the date of grant using a Monte Carlo simulation model. The grant date fair value of PSUs granted during 2018, 2017 and 2016 was $63.56, $62.45 and $41.22 per unit, respectively. Assumptions used in the Monte Carlo simulation to calculate the fair value of the PSUs granted are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Stock price on grant date
|
|
$
|
51.00
|
|
$
|
49.15
|
|
$
|
35.05
|
|
Expected term
|
|
|
3.0
|
years
|
|
3.0
|
years
|
|
3.0
|
years
|
Expected volatility
|
|
|
30
|
%
|
|
31
|
%
|
|
29
|
%
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
1.5
|
%
|
|
1.3
|
%
|
Expected dividend yield
|
|
|
1.4
|
%
|
|
1.5
|
%
|
|
2.1
|
%
|
During 2018, 5,863 PSUs vested and PSU holders earned 5,996 shares of the Company’s common stock.
Stock Options
We have stock option awards outstanding under the 2008 Stock Option Incentive Plan (“2008 Stock Option Plan”) and the Omnibus Plan. Subsequent to the approval of the Omnibus Plan in May 2015, we stopped granting equity awards under the 2008 Stock Option Plan. The 2008 Stock Option Plan will remain in effect solely for the settlement of awards previously granted. Stock options expire ten years from the date of grant and vest over a period ranging from three to five years from the date of grant. Vesting requirements for non-employee directors are contingent on attending a minimum of
75% of regularly scheduled board meetings during the year. Upon the exercise of stock options, common stock is issued from treasury stock or, when depleted, from new stock issuances.
A summary of our stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
Aggregate
|
|
Remaining
|
|
|
|
|
Exercise
|
|
Intrinsic
|
|
Contractual
|
|
|
Shares
|
|
Price
|
|
Value
|
|
Term (Years)
|
Outstanding as of December 31, 2017
|
|
429,729
|
|
$
|
38.58
|
|
|
|
|
|
Granted
|
|
40,900
|
|
|
51.00
|
|
|
|
|
|
Exercised
|
|
(228,120)
|
|
|
34.12
|
|
|
|
|
|
Cancelled, expired or forfeited
|
|
(6,006)
|
|
|
42.94
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
236,503
|
|
$
|
44.93
|
|
$
|
4,269
|
|
7.1
|
Exercisable as of December 31, 2018
|
|
127,851
|
|
$
|
44.47
|
|
$
|
2,367
|
|
6.3
|
The weighted average grant date fair value of all stock options granted during 2018, 2017 and 2016 was $11.64, $10.92 and $8.19 per share, respectively. The total intrinsic value of stock options exercised during 2018, 2017 and 2016 was $6.6 million, $1.0 million and $307,000, respectively. During 2018, option holders tendered 84,901 options in connection with options exercised via net share settlement.
The fair value of each stock option is estimated as of the date of grant using the Black‑Scholes option‑pricing model. Expected volatility is estimated based on an average of actual historical volatility and implied volatility corresponding to the stock option’s estimated expected term. We believe this approach to determine volatility is representative of future stock volatility. The expected term of a stock option is estimated based on analysis of stock options already exercised and foreseeable trends or changes in behavior. The risk‑free interest rates are based on the U.S. Treasury securities maturities as of each applicable grant date. The dividend yield is based on analysis of actual historical dividend yield.
The significant weighted‑average assumptions relating to the valuation of each option grant are as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Expected life
|
|
3.8
|
years
|
3.8
|
years
|
3.8
|
years
|
Expected volatility
|
|
30
|
%
|
31
|
%
|
31
|
%
|
Risk-free interest rate
|
|
2.0
|
%
|
1.5
|
%
|
1.1
|
%
|
Expected dividend yield
|
|
1.5
|
%
|
1.7
|
%
|
1.7
|
%
|
Restricted Stock
We have restricted stock awards outstanding under the Omnibus Plan. Generally, restricted stock awards vest annually over a three-year period. Vesting of restricted stock awards to non-employee directors is contingent on the non-employee director attending a minimum of 75% of regularly scheduled board meetings and 75% of the meetings of each committee of which the non
‐
employee director is a member during the year. Upon the vesting of restricted stock awards, common stock is issued from treasury stock or, when depleted, from new stock issuances.
A summary of our restricted stock activity is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Grant Date
|
|
|
Shares
|
|
Fair Value
|
Outstanding as of December 31, 2017
|
|
66,701
|
|
$
|
44.83
|
Granted
|
|
32,700
|
|
|
53.24
|
Vested
|
|
(24,297)
|
|
|
50.23
|
Cancelled, expired or forfeited
|
|
(116)
|
|
|
49.97
|
Outstanding as of December 31, 2018
|
|
74,988
|
|
$
|
46.74
|
The total fair value of restricted stock vested during 2018, 2017 and 2016 was $2.2 million, $868,000 and $1.4 million, respectively.
Restricted Stock Units
We have restricted stock unit awards outstanding under the Omnibus Plan. Each restricted stock unit represents the right to receive, on the settlement date, one share of the Company’s common stock. Generally, restricted stock unit awards vest annually over a three-year period. Upon the vesting of restricted stock unit awards, common stock is issued from treasury stock or, when depleted, from new stock issuances.
A summary of our restricted stock unit activity is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Grant Date
|
|
|
Units
|
|
Fair Value
|
Outstanding as of December 31, 2017
|
|
47,151
|
|
$
|
45.56
|
Granted
|
|
39,674
|
|
|
59.19
|
Vested
|
|
(17,732)
|
|
|
44.90
|
Cancelled, expired or forfeited
|
|
(2,308)
|
|
|
47.30
|
Outstanding as of December 31, 2018
|
|
66,785
|
|
$
|
53.77
|
The total fair value of restricted stock units vested during 2018 and 2017 was $967,000 and $314,000, respectively. No restricted stock units vested in 2016.
Treasury Stock
During 2018, the Company issued 400 shares of restricted stock, under the Omnibus Plan, from our treasury stock at an average cost of $26.43 per share and repurchased 5,564 shares of the Company's common stock in connection with the net share settlement of employee equity awards at an average cost of $56.20 per share.
Share‑Based Compensation Expense
All share‑based compensation is measured at the grant date based on the fair value of the award, and is recognized as an expense in earnings over the requisite service period. The components of pre‑tax share‑based compensation expense
(primarily included in Selling, general and administrative expenses in our consolidated statements of operations) and related tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
|
2016
|
Share-based compensation from:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
727
|
|
$
|
1,141
|
|
$
|
1,123
|
Restricted stock
|
|
|
1,590
|
|
|
1,505
|
|
|
1,272
|
Restricted stock units
|
|
|
1,324
|
|
|
716
|
|
|
216
|
Performance stock units
|
|
|
725
|
|
|
571
|
|
|
314
|
Total share-based compensation
|
|
|
4,366
|
|
|
3,933
|
|
|
2,925
|
Income tax benefit
|
|
|
(1,027)
|
|
|
(1,403)
|
|
|
(1,113)
|
Share-based compensation, net of tax
|
|
$
|
3,339
|
|
$
|
2,530
|
|
$
|
1,812
|
The tax benefits from stock options exercised during 2018, 2017 and 2016 were $1.4 million, $129,000 and $83,000, respectively.
Unrecognized Share‑Based Compensation Expense
As of December 31, 2018, there was $5.5 million of unrecognized compensation expense related to unvested share‑based awards granted under our share‑based award plans. The expense is expected to be recognized over a weighted average remaining vesting period of approximately two years.
NOTE 20. EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
$s and shares in thousands, except per share amounts
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
Net income
|
|
$
|
49,595
|
|
$
|
49,595
|
|
$
|
49,365
|
|
$
|
49,365
|
|
$
|
34,252
|
|
$
|
34,252
|
Weighted average basic shares outstanding
|
|
|
21,888
|
|
|
21,888
|
|
|
21,758
|
|
|
21,758
|
|
|
21,704
|
|
|
21,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of share-based awards
|
|
|
|
|
|
159
|
|
|
|
|
|
144
|
|
|
|
|
|
85
|
Weighted average diluted shares outstanding
|
|
|
|
|
|
22,047
|
|
|
|
|
|
21,902
|
|
|
|
|
|
21,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
2.27
|
|
$
|
2.25
|
|
$
|
2.27
|
|
$
|
2.25
|
|
$
|
1.58
|
|
$
|
1.57
|
Anti-dilutive shares excluded from calculation
|
|
|
|
|
|
46
|
|
|
|
|
|
103
|
|
|
|
|
|
249
|
NOTE 21. SEGMENT REPORTING
Financial Information by Segment
Our operations are managed in two reportable segments reflecting our internal reporting structure and nature of services offered as follows:
Environmental Services
—This segment provides a broad range of hazardous material management services including transportation, recycling, treatment and disposal of hazardous, non‑hazardous and radioactive waste at Company‑owned landfill, wastewater, deep-well injection and other treatment facilities.
Field & Industrial Services
—This segment provides packaging and collection of hazardous waste and total waste management solutions at customer sites and through our 10‑day transfer facilities. Services include on‑site management, waste characterization, transportation and disposal of non‑hazardous and hazardous waste. This segment also provides specialty field services such as industrial cleaning and maintenance, remediation, lab packs, retail services, transportation, emergency response and other services to commercial and industrial facilities and to government entities.
The operations not managed through our two reportable segments are recorded as "Corporate." Corporate selling, general and administrative expenses include typical corporate items such as legal, accounting and other items of a general corporate nature. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have been eliminated from the segment information and are not significant between segments.
Summarized financial information of our reportable segments for the years ended December 31, 2018, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
Field &
|
|
|
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
|
|
|
$s in thousands
|
|
Services
|
|
Services
|
|
Corporate
|
|
Total
|
Revenue
|
|
$
|
400,678
|
|
$
|
165,250
|
|
$
|
—
|
|
$
|
565,928
|
Depreciation, amortization and accretion
|
|
$
|
35,195
|
|
$
|
6,304
|
|
$
|
1,060
|
|
$
|
42,559
|
Capital expenditures
|
|
$
|
31,735
|
|
$
|
7,430
|
|
$
|
1,592
|
|
$
|
40,757
|
Total assets
|
|
$
|
701,267
|
|
$
|
169,066
|
|
$
|
77,565
|
|
$
|
947,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
Field &
|
|
|
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
|
|
|
$s in thousands
|
|
Services
|
|
Services
|
|
Corporate
|
|
Total
|
Revenue
|
|
$
|
366,308
|
|
$
|
137,734
|
|
$
|
—
|
|
$
|
504,042
|
Depreciation, amortization and accretion
|
|
$
|
35,137
|
|
$
|
5,578
|
|
$
|
501
|
|
$
|
41,216
|
Capital expenditures
|
|
$
|
28,783
|
|
$
|
4,206
|
|
$
|
3,251
|
|
$
|
36,240
|
Total assets
|
|
$
|
609,174
|
|
$
|
125,110
|
|
$
|
67,792
|
|
$
|
802,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
Field &
|
|
|
|
|
|
|
|
|
Environmental
|
|
Industrial
|
|
|
|
|
|
|
$s in thousands
|
|
Services
|
|
Services
|
|
Corporate
|
|
Total
|
Revenue
|
|
$
|
337,771
|
|
$
|
139,894
|
|
$
|
—
|
|
$
|
477,665
|
Depreciation, amortization and accretion
|
|
$
|
33,839
|
|
$
|
5,481
|
|
$
|
512
|
|
$
|
39,832
|
Capital expenditures
|
|
$
|
30,098
|
|
$
|
2,572
|
|
$
|
3,026
|
|
$
|
35,696
|
Total assets
|
|
$
|
599,300
|
|
$
|
119,198
|
|
$
|
57,902
|
|
$
|
776,400
|
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 impairment charges, gain/loss on divestiture 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; and
|
|
·
|
|
Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
|
A reconciliation of Net income to Adjusted EBITDA for the years ended December 31, 2018, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
|
2016
|
Net income
|
|
$
|
49,595
|
|
$
|
49,365
|
|
$
|
34,252
|
Income tax (benefit) expense
|
|
|
15,263
|
|
|
(6,395)
|
|
|
21,049
|
Interest expense
|
|
|
12,130
|
|
|
18,157
|
|
|
17,317
|
Interest income
|
|
|
(215)
|
|
|
(62)
|
|
|
(96)
|
Foreign currency (gain) loss
|
|
|
(55)
|
|
|
(516)
|
|
|
138
|
Gain on divestiture
|
|
|
—
|
|
|
—
|
|
|
(2,034)
|
Other income
|
|
|
(2,630)
|
|
|
(791)
|
|
|
(597)
|
Impairment charges
|
|
|
3,666
|
|
|
8,903
|
|
|
—
|
Depreciation and amortization of plant and equipment
|
|
|
29,207
|
|
|
28,302
|
|
|
25,304
|
Amortization of intangibles
|
|
|
9,645
|
|
|
9,888
|
|
|
10,575
|
Share-based compensation
|
|
|
4,366
|
|
|
3,933
|
|
|
2,925
|
Accretion and non-cash adjustment of closure & post-closure liabilities
|
|
|
3,707
|
|
|
3,026
|
|
|
3,953
|
Adjusted EBITDA
|
|
$
|
124,679
|
|
$
|
113,810
|
|
$
|
112,786
|
Adjusted EBITDA, by operating segment, for the years ended December 31, 2018, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
|
2016
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
Environmental Services
|
|
$
|
160,526
|
|
$
|
146,371
|
|
$
|
139,698
|
Field & Industrial Services
|
|
|
18,456
|
|
|
14,709
|
|
|
16,342
|
Corporate
|
|
|
(54,303)
|
|
|
(47,270)
|
|
|
(43,254)
|
Total
|
|
$
|
124,679
|
|
$
|
113,810
|
|
$
|
112,786
|
Property and Equipment and Intangible Assets Outside of the United States
We provide services in the United States and Canada. Long‑lived assets, comprised of property and equipment and intangible assets net of accumulated depreciation and amortization, by geographic location as of December 31, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
$s in thousands
|
|
2018
|
|
2017
|
United States
|
|
$
|
480,322
|
|
$
|
396,066
|
Canada
|
|
|
57,787
|
|
|
61,178
|
Total long-lived assets
|
|
$
|
538,109
|
|
$
|
457,244
|
NOTE 22. QUARTERLY FINANCIAL DATA (unaudited)
The unaudited consolidated quarterly results of operations for 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended
|
|
|
|
$s and shares in thousands, except per share amounts
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Year
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
120,059
|
|
$
|
136,912
|
|
$
|
151,416
|
|
$
|
157,541
|
|
$
|
565,928
|
Gross profit
|
|
|
35,671
|
|
|
41,448
|
|
|
47,300
|
|
|
45,675
|
|
|
170,094
|
Operating income
|
|
|
13,439
|
|
|
20,292
|
|
|
19,985
|
|
|
20,372
|
|
|
74,088
|
Net income
|
|
|
9,243
|
|
|
13,220
|
|
|
13,427
|
|
|
13,705
|
|
|
49,595
|
Earnings per share—diluted (1)
|
|
$
|
0.42
|
|
$
|
0.60
|
|
$
|
0.61
|
|
$
|
0.62
|
|
$
|
2.25
|
Weighted average common shares outstanding used in the diluted earnings per share calculation
|
|
|
21,957
|
|
|
22,024
|
|
|
22,099
|
|
|
22,109
|
|
|
22,047
|
Dividends paid per share
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.72
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
110,234
|
|
$
|
126,057
|
|
$
|
134,054
|
|
$
|
133,697
|
|
$
|
504,042
|
Gross profit
|
|
|
31,873
|
|
|
35,896
|
|
|
37,733
|
|
|
47,625
|
|
|
153,127
|
Operating income
|
|
|
12,159
|
|
|
15,896
|
|
|
15,289
|
|
|
16,414
|
|
|
59,758
|
Net income
|
|
|
5,185
|
|
|
5,049
|
|
|
8,365
|
|
|
30,766
|
|
|
49,365
|
Earnings per share—diluted (1)
|
|
$
|
0.24
|
|
$
|
0.23
|
|
$
|
0.38
|
|
$
|
1.40
|
|
$
|
2.25
|
Weighted average common shares outstanding used in the diluted earnings per share calculation
|
|
|
21,845
|
|
|
21,890
|
|
|
21,931
|
|
|
21,927
|
|
|
21,902
|
Dividends paid per share
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.72
|
|
(1)
|
|
Diluted earnings per common share for each quarter presented above are based on the respective weighted average number of common shares for the respective quarter. The dilutive potential common shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year diluted earnings per common share amount.
|
NOTE 23. SUBSEQUENT EVENT
On January 2, 2019, the Company declared a dividend of $0.18 per common share for stockholders of record on January 18, 2019. The dividend was paid from cash on hand on January 25, 2019 in an aggregate amount of $4.0 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company’s management, including both the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a‑15e under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2018. Based on that evaluation, the Company’s management, including the Chief Executive and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as specified in SEC rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such controls that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Controls over Financial Reporting.
Management is responsible for and maintains a system of internal controls over financial reporting that is designed to provide reasonable assurance that its records and filings accurately reflect the transactions engaged in Section 404 of Sarbanes‑Oxley Act of 2002 and related rules issued by the SEC requiring management to issue a report on its internal controls over financial reporting.
There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal controls may vary over time.
Management has conducted an assessment of its internal controls over financial reporting as of December 31, 2018 based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on this assessment, management concluded that our internal controls over financial reporting, excluding ES&H of Dallas, LLC (“ES&H Dallas”) and Ecoserv Industrial Disposal, LLC (“Winnie”), were effective to provide reasonable assurance regarding the reliability of financial reporting.
SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from the date of acquisition. Accordingly, we have assessed neither ES&H Dallas’ nor Winnie’s internal control over financial reporting as of December 31, 2018. ES&H Dallas’ and Winnie’s combined financial statements constitute approximately 3% of total assets (excluding goodwill and intangible assets), 2% of revenues, and 3% of net income of the consolidated financial statements of the Company as of and for the year ended December 31, 2018.
Our independent registered public accounting firm, Deloitte and Touche LLP, has audited the effectiveness of internal control over financial reporting as of December 31, 2018, as stated in their report, which is included in Part II, Item 8 of this Annual Report on Form 10‑K.
ITEM 9B. OTHER INFORMATION
None