<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1 to Current Report on Form 8-K
Dated January 16, 1995 Reporting Event of December 31, 1994
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date at earliest event reported)
December 31, 1994
Commission File Number 0-11688
AMERICAN ECOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3889638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5333 Westheimer, #1000 77056-5407
Houston, Texas
(Address of principal executive offices) (Zip Code)
(713) 624-1900
(Registrants telephone number, including area code)
The undersigned registrant hereby amends the following items of its
Current Report on Form 8-K dated January 16, 1995, reporting an event
on December 31, 1994 as set forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused
this amendment to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN ECOLOGY CORPORATION
/s/ C. Clifford Wright, Jr.
By: __________________________________
C. Clifford Wright, Jr.
Date: March 15, 1995 Vice President
<PAGE>
Item. 7 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Gibraltar Chemical Resources, Inc. Financial Statements
Report of Independent Auditors
Balance Sheets as of December 31, 1994 and 1993
Statements of Operations for the years ended December 31, 1994,
1993, and 1992
Statements of Stockholder Equity (Deficit) for the years ended
December 31, 1994, 1993, and 1992
Statements of Cash Flows for the years ended December 31, 1994,
1993, and 1992
Notes to Financial Statements (December 31, 1994, 1993, and 1992)
(b) Pro Forma Financial Information
American Ecology Corporation Pro Forma Condensed Consolidated Financial
Statements (unaudited)
Unaudited Condensed Consolidated Balance Sheet as of December 31,
1994
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the year ended December 31, 1994
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits
23 - Consent of Independent Auditors
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Gibraltar Chemical Resources, Inc.:
We have audited the accompanying balance sheets of Gibraltar Chemical Resources,
Inc. (a 100% owned subsidiary of American Ecology Corporation) as of December
31, 1994 and 1993, and the related statements of operations, stockholder's
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gibraltar Chemical Resources,
Inc. (a 100% owned subsidiary of American Ecology Corporation) as of December
31, 1994 and 1993, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in note 1 to the financial statements, the Company changed its
method of accounting for income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 3, 1995
F-1
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Balance Sheets
December 31, 1994 and 1993
(in thousands, except share data)
<TABLE>
<CAPTION>
Assets 1994 1993
------ ------- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 229 62
Trade receivables, less allowance for doubtful accounts of
$485 in 1994 and $512 in 1993 3,324 2,604
Receivable from Mobley Environmental Services, Inc. 1,186 1,186
Deferred income taxes 266 450
Other current assets 133 141
------- ------
Total current assets 5,138 4,443
Property, plant, and equipment, net 7,199 6,592
Other assets, net 369 360
------- ------
$12,706 11,395
======= ======
Liabilities and Stockholder's Equity (Deficit)
----------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 9 385
Accounts payable 2,968 2,522
Payable to Mobley Environmental Services, Inc. -- 9,016
Accrued expenses 1,699 2,040
------- ------
Total current liabilities 4,676 13,963
Accrued site maintenance cost 973 1,050
Long-term debt, excluding current maturities 10 19
------- ------
Total liabilities 5,659 15,032
------- ------
Stockholder's equity (deficit):
Common stock, $10 par value; 1,000,000 shares authorized,
1,000 issued and outstanding 10 10
Additional paid-in capital 18,892 4,196
Retained earnings (deficit) (11,855) (7,843)
-------- ------
Total stockholder's equity (deficit) 7,047 (3,637)
Commitments and contingencies
-------- ------
$ 12,706 11,395
======== ======
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Statements of Operations
Years ended December 31, 1994, 1993, and 1992
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Revenues $12,017 19,561 28,186
Cost of revenues 12,449 19,797 19,066
------ ------- ------
Gross profit (loss) (432) (236) 9,120
Selling, general, and administrative expenses 3,232 6,141 5,719
Write-down of assets - 3,811 -
------ ------- ------
Operating income (loss) (3,664) (10,188) 3,401
------ ------- ------
Other income (expenses):
Other income (expense), net 10 (170) 37
Interest income (expense), net (8) (25) (58)
------ ------- ------
2 (195) (21)
------ ------- ------
Income (loss) before corporate allocations
and income taxes (3,662) (10,383) 3,380
Mobley Environmental Services, Inc. overhead - (1,307) (1,703)
Mobley Environmental Services, Inc. interest (166) (396) (360)
----- ------- ------
Income (loss) before income taxes (3,828) (12,086) 1,317
Income tax expense (benefit) 184 (2,886) 513
----- ------- ------
Net income (loss) $(4,012) (9,200) 804
======= ======= ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Statements of Stockholder's Equity (Deficit)
Years ended December 31, 1994, 1993, and 1992
(in thousands, except share data)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- ------
<S> <C> <C> <C>
Common stock $ 10 10 10
------- ------ -----
Additional paid-in capital:
Balance at beginning of year 4,196 4,196 4,196
Conversion of intercompany advances to equity 14,696 - -
------- ------ -----
Balance at end of year 18,892 4,196 4,196
------- ------ -----
Retained earnings (deficit):
Balance at beginning of year (7,843) 1,357 553
Net income (loss) (4,012) (9,200) 804
------- ------ -----
Balance at end of year (11,855) (7,843) 1,357
------- ------ -----
Deferred compensation costs under restricted stock
purchase agreements:
Balance at beginning of year - (232) (271)
Amortization of unearned compensation - 8 39
Reclassification of deferred compensation costs in
connection with termination of restricted stock
purchase agreement - 224 -
------- ------ -----
Balance at end of year - - (232)
------- ------ -----
Total stockholder's equity (deficit) $ 7,047 (3,637) 5,331
======= ====== =====
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Statements of Cash Flows
Years ended December 31, 1994, 1993, and 1992
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,012) (9,200) 804
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 1,268 1,647 1,718
Provision for losses on accounts receivable (28) 345 65
Deferred compensation costs under restricted stock purchase
agreements - 232 39
Losses (gains) on sales of assets (4) 262 10
Write-down of assets - 3,811 -
Deferred income taxes 184 (619) 71
Decrease (increase) in trade accounts receivable (692) 1,605 139
Increase in receivable from Mobley Environmental
Services, Inc. - (1,186) -
Decrease in other current assets 8 827 362
Increase (decrease) in accounts payable 446 598 (113)
Increase (decrease) in accrued expenses (418) 240 182
Increase (decrease) in income taxes payable - (594) 302
Decrease in deferred revenue - - (278)
Increase in accrued site maintenance cost - 1,050 -
------- ------ ------
Net cash provided (used) by operating activities (3,248) (982) 3,301
Cash flows from investing activities:
Capital expenditures (1,823) (1,270) (2,324)
Proceeds from sale of property and equipment 11 17 8
Costs associated with obtaining permits and other governmental
approvals (68) (71) (57)
------- ------ ------
Net cash used by investing activities (1,880) (1,324) (2,373)
Cash flows from financing activities:
Net repayments on revolving lines of credit and
short-term borrowings - - (17)
Principal payments on long-term debt (385) (385) (385)
Net advances from (payments to) Mobley Environmental
Services, Inc. and American Ecology Corporation 5,680 2,644 (607)
------- ------ ------
Net cash provided (used) in financing activities 5,295 2,259 (1,009)
------- ------ ------
Net increase (decrease) in cash and cash equivalents 167 (47) (81)
Cash and cash equivalents at beginning of period 62 109 190
------- ------ ------
Cash and cash equivalents at end of period $ 229 62 109
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993, AND 1992
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - Gibraltar Chemical Resources, Inc.
(the "Company") was formed in June 1980 as a Texas corporation. In July
1991 the shareholders received Class B common stock of Mobley
Environmental Services, Inc. (MESI) in exchange for all of the issued and
outstanding shares of the Company. As a result of this transaction, the
Company became a wholly-owned subsidiary of MESI. On December 31, 1994,
100% of the outstanding common stock of the Company was sold by MESI to
American Ecology Corporation (AEC). Shortly thereafter, the name of the
Company was changed to American Ecology Environmental Services
Corporation.
DESCRIPTION OF BUSINESS - The Company collects, stores, treats, recycles,
and disposes of a wide range of hazardous and nonhazardous liquid wastes
generated from a variety of industries.
REVENUE RECOGNITION - Waste management services revenues are generally
recognized upon the receipt and acceptance of waste material at the
Company's treatment and disposal facility. Appropriate treatment and
disposal costs are accrued.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are
recorded at cost and depreciated using the straight-line method over their
estimated useful lives ranging from three to thirty years. Costs
associated with the drilling and construction of deepwell disposal
facilities are capitalized and depreciated on a straight-line basis over
periods ranging from ten to fifteen years.
Management, after a review of relevant facts and circumstances, makes a
determination whether an indication of impairment exists with respect to
any asset or group of assets of the Company. If impairment indicators are
present, management assesses whether future cash flows expected to result
from the operation of the assets, including any proceeds from their
eventual disposition, are at least equal to their carrying value. The
impairment provision is based upon a determination of fair value or, if
fair value is not determinable, the present value of the expected future
cash flows from the operation of assets. Should expected future cash
flows be less than the assets' carrying value, an impairment is recorded
through a charge to operations and a reduction of the carrying value of
the assets. See note 2 for additional information.
MAINTENANCE AND REPAIRS - Major repairs to deepwell disposal facilities are
estimated and accrued by monthly charges to expense. Periodic costs
incurred for such items are charged against the related accrued expenses.
All other maintenance and repair costs are charged to expense as incurred.
Renewals and betterments are capitalized.
INCOME TAXES - Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (Statement 109). Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
F-6
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
Prior to 1993, the Company accounted for its income taxes in accordance
with APB Opinion No. 11. Pursuant to the deferred method under APB
Opinion No. 11, deferred income taxes were recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable in the year
of the calculation. Under the deferral method, deferred taxes were not
adjusted for subsequent changes in tax rates.
The change in the method of accounting for income taxes in 1993 did not
have a significant effect on the financial position or operations of the
Company.
OTHER ASSETS - Other assets are stated at unamortized cost. Bond issuance
costs are amortized over the term of their respective bond indentures.
The costs of obtaining and complying with waste management permits are
capitalized and amortized over ten years using the straight-line method.
HAZARDOUS WASTE TAXES - Taxes and fees collected on the disposal of
hazardous wastes and remitted to governmental agencies are not included in
revenues or cost of revenues.
STATEMENTS OF CASH FLOWS - For purposes of reporting cash flows, the
Company considers investments with original maturities of three months or
less to be cash equivalents.
(2) RESTRUCTURING AND SALE OF COMPANY
Restructuring
In the third quarter of 1993, management of MESI developed and began
implementation of a restructuring plan for the Company (the
"Restructuring"). The Restructuring was precipitated by an overall
general decline during 1992 and 1993 in the hazardous waste services
industry, reflecting an increasingly competitive and changing marketplace
and trends toward recycling/recovery and waste minimization by industrial
waste generators, as well as the effects of a recessionary economy. These
conditions led several other hazardous waste management firms, including
some of the Company's competitors, to announce similar restructuring
programs during 1993. In addition to these broader negative economic and
industry factors, the Company was significantly affected in recent years
by various regulatory issues. These included matters surrounding one of
the Company's deepwells, a regulatory enforcement action, a negotiated
regulatory order which mandated significant improvements to the Company's
facilities, and an emergency order in September 1993 which temporarily
suspended the Company's authorization to receive wastes (see note 11 for
additional information).
A principal component of the Restructuring called for much of the low-
volume, small-lot packaged waste previously processed in the Company's
fuels blending operations to be collected and transshipped to other waste
treatment and disposal facilities for management. Based on past operating
results in this part of the Company's business, a market shift toward more
difficult-to-handle waste streams, as well as the Company's inability to
fund the capital necessary to expand and enhance its drum-handling
capabilities, the Company determined that it could no longer effectively
compete in this segment of the hazardous waste management services market.
(Continued)
F-7
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
As part of the Restructuring, the Company recorded a non-cash pre-tax
charge of $3,811,000 during the 1993 third quarter related to the
abandonment and write-down of certain assets. In determining whether an
impairment loss was indicated with respect to various groups of assets
used in the Company's operations, management made an assessment of the
present value of the expected future cash flows to be derived from the
operation of the assets and concluded that the carrying value of such
assets should be reduced.
As a result of the Restructuring and the diminished revenue levels stemming
from the September 1993 Emergency Order (see note 11), the number of
employees was significantly reduced early in the 1993 fourth quarter
through the elimination of certain jobs. In connection with these
staffing reductions, the Company recorded charges in the third quarter of
1993 of $80,000 on a pre-tax basis, primarily for severance and related
costs.
Other Related Charges
The Company recorded certain other expenses during 1993, including the
accrual of certain legal and consulting costs, principally relating to
regulatory actions; various required repairs to the facility, primarily
involving tank containment areas and one of the Company's two deepwells;
additions to the reserve for bad debts to cover specific problem accounts;
accruals for potential additional regulatory fines; abandonment of plans
to expand its facilities; and various other charges. These other costs
totaled approximately $3,114,000 and are included in cost of revenues and
selling, general, and administrative expenses in the accompanying
statement of operations for the year ended December 31, 1993.
Sale of the Company
MESI sold 100% of the outstanding common stock of the Company to AEC on
December 31, 1994, pursuant to the terms of an agreement dated May 10,
1994, and subsequently amended September 2, 1994 (Stock Purchase
Agreement). The following advances were considered contributions and
recorded as additional paid-in capital in connection with the sale:
Amounts advanced by MESI $ 9,182,114
Amounts advanced by AEC 2,805,359
Liabilities of Company assumed by AEC 2,709,325
-----------
$14,696,798
===========
MESI makes extensive warranties and representations in the Stock Purchase
Agreement, including the absence of any liabilities arising prior to
closing other than those disclosed to the purchaser. After the closing
and for 1 1/2 years thereafter (or in the case of tax, environmental, and
ERISA claims, for 3 1/2 years after closing), MESI is required to
indemnify AEC for all losses resulting from (i) breaches of warranties and
representations made by MESI and the Company and (ii) pending or future
claims or proceedings (including environmental claims) resulting from
circumstances existing prior to closing. The maximum liability of MESI
under such indemnity with respect to undisclosed claims is $3.0 million.
However, there is no maximum with respect to disclosed liabilities. MESI
also indemnifies AEC for any losses arising from the
(Continued)
F-8
<PAGE>
Company's trade accounts receivable as of December 31, 1994, in excess of the
established allowance for doubtful accounts. Under the terms of the Stock
Purchase Agreement, AEC executed a note, payable to MESI, due December 31, 1995,
in the amount of $550,000 for the purpose of securing MESI's obligations for any
purchase price adjustments and to indemnify AEC, if necessary, for the
aforementioned matters.
(3) OTHER ASSETS
Other assets included the following as of December 31, 1994 and 1993 (in
thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
----- ----
<S> <C> <C>
Bond issuance costs, net of amortization of $115 in 1993 $ - 3
Costs of permits and other governmental approvals, net
of amortization of $461 in 1994 and $449 in 1993 369 357
---- ---
Total $369 360
==== ===
</TABLE>
Amortization expense for the years ended December 31, 1994, 1993, and 1992,
amounted to $59,000, $90,000, and $114,000, respectively. Additionally,
during 1993, the Company recorded a $100,000 write-down of deferred
charges related to certain permits and other items.
(4) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31,
1994 and 1993 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Land $ 580 580
Buildings and improvements 2,552 2,559
Machinery and equipment, including deepwell
facilities 11,234 10,494
Furniture, fixtures, and other 625 625
Construction in progress 1,830 765
------- ------
16,821 15,023
Less accumulated depreciation 9,622 8,431
------- ------
Net property, plant, and equipment $ 7,199 6,592
======= ======
</TABLE>
Depreciation expense totaled $1,209,000, $1,557,000, and $1,594,000 for the
years ended December 31, 1994, 1993, and 1992, respectively.
(Continued)
F-9
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
(5) NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993, consisted of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Sabine River Authority Liquid Waste Disposal Revenue bonds,
Series 1982, interest at 70% of a bank's prime rate,
due April 1994, secured by deepwell facility $ - 375
Other 19 29
---- ---
Total long-term debt 19 404
Less current maturities 9 385
---- ---
Total long-term debt, excluding current
maturities $ 10 19
==== ===
</TABLE>
The aggregate maturities of long-term debt for the years subsequent to
December 31, 1994, are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
1995 $ 9
1996 10
----
Total $19
====
</TABLE>
(6) ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1994 and 1993
(in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
------ ------
<C> <C>
Salaries, wages, and benefits $ 717 330
Taxes other than income taxes 196 222
Repairs and maintenance 193 498
Third party destruction and disposal costs 516 531
Other -- 459
------ -----
Total $2,672 3,090
====== =====
</TABLE>
(7) INCOME TAXES
The Company has been included in the consolidated tax returns of MESI
through December 31, 1994. As of December 31, 1994 and 1993, the Company
has a receivable from MESI in the amount of $1,186,000 which represents
refunded federal income taxes attributable to the Company's losses.
As of January 1, 1995, the Company will be included in AEC's consolidated
return. The remaining deferred tax asset at December 31, 1994, represents
a benefit to be received by AEC.
(Continued)
F-10
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
Income tax expense (benefit) for the years ended December 31, 1994, 1993,
and 1992, consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Federal:
Current $ - (2,267) 398
Deferred 162 (531) 62
----- ------ ---
162 (2,798) 460
----- ------ ---
State:
Current - - 44
Deferred 22 (88) 9
----- ------ ---
22 (88) 53
----- ------ ---
Total $ 184 (2,886) 513
===== ====== ===
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 34% to income before income taxes as a
result of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(1,301) (4,109) 448
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the
valuation allowances for deferred tax assets 1,226 835 -
State income taxes, net of federal income tax
expense (benefit) 14 (58) 35
Other, net 245 446 30
------ ----- ---
Total income tax expense (benefit) $ 184 (2,886) 513
====== ====== ===
</TABLE>
Deferred income tax expense (benefit) results from timing differences in
the recognition of income and expense for tax and financial reporting
purposes. The sources of these timing differences for the year ended
December 31, 1992, were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1992
--------
<S> <C>
Depreciation $ 39
Other, net 32
------
$ 71
======
</TABLE>
(Continued)
F-11
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1994 and
1993, are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible accounts receivable $ 187 197
Asset write downs 762 762
Net operating loss carryforward 1,232 -
Miscellaneous accruals and other 662 821
------ -----
Total gross deferred tax assets 2,843 1,780
Less valuation allowance (2,061) (835)
------ -----
Deferred tax assets 782 945
------ -----
Deferred tax liabilities:
Plant and equipment -- depreciation 461 432
Other 55 63
------ -----
Total gross deferred tax liabilities 516 495
------ -----
Net deferred tax asset $ 266 450
====== =====
</TABLE>
The Company had a valuation allowance for deferred tax assets in the amount
of $835,000 as of January 1, 1994. The net change in the total valuation
allowance for the year ended December 31, 1994, was an increase of
$1,226,000. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities and projected future taxable income
in making this assessment. Subsequently recognized tax benefits relating
to the valuation allowance for deferred tax assets as of December 31,
1994, will be included as an income tax benefit in the statement of
operations in future periods.
At December 31, 1994, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $3,624,000, which are
available to offset future federal taxable income, if any, through 2008.
Additionally, the Company has $96,000 of general business tax credit
carryforwards as of December 31, 1994.
F-12
<PAGE>
(8) LEASES
------
The Company leases certain equipment used in its operations. Future
minimum rentals under operating leases for transportation equipment
consist of fixed monthly charges plus mileage fees. Future minimum
rentals for each of the years in the period ended December 31, 1998, and
in the aggregate are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
1995 $ 297
1996 262
1997 262
1998 262
-----
Total $1,083
=====
</TABLE>
Total rentals approximated $663,000, $894,000, and $1,102,000 for the years
ended December 31, 1994, 1993, and 1992, respectively. Contingent rentals
were $113,000, $99,000, and $108,000 for the years ended December 31,
1994, 1993, and 1992, respectively.
(9) RELATED PARTY TRANSACTIONS AND FINANCIAL DEPENDENCE
---------------------------------------------------
Prior to December 31, 1994, the Company was financially dependent upon MESI
which owned 100% of the common stock of the Company. Advances were made
to the Company by MESI and certain expenses such as overhead were
allocated to the Company. Interest was charged on certain of the
advances. These allocated expenses may not be reflective of actual cost
and have been disclosed separately in the statement of operations.
AEC also made advances to the Company during 1994. Beginning January 1,
1995, the Company will be dependent on AEC for future advances to fund its
current operations and capital requirements.
(10) EMPLOYEE BENEFIT PLANS
----------------------
MESI had a contributory profit-sharing plan for the benefit of
substantially all employees of the Company. Contributions to the plan
were made at the discretion of the Compensation Committee of the Board of
Directors of MESI and totaled $39,000, $50,000, and $189,000 for the years
ended December 31, 1994, 1993, and 1992, respectively.
Additionally, MESI had a medical benefit plan which is funded by employer
and participant contributions and was supplemented by stop-loss insurance.
Contributions were determined by the plan administrator based upon the
actual claim experience and administrative costs of the plan.
(11) COMMITMENTS AND CONTINGENCIES
-----------------------------
Outstanding Letters of Credit
-----------------------------
The Company is required to provide financial assurance to secure
closure/post-closure obligations associated with its hazardous waste
facility. At December 31, 1994, letters of credit had been provided by
MESI for such financial assurance and totaled
F-13
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
approximately $1,267,000. Subsequent to December 31, 1994, such letters of
credit were canceled as a result of the sale of the Company (discussed in
note 2) and financial assurance was provided by AEC. Additionally, at
December 31, 1994, financial assurance aggregating $1,000,000, in the form
of letters of credit and cash deposits, had been provided by MESI to its
insurance carrier in connection with its workers' compensation, general
liability, and auto liability insurance policies, including those covering
the Company.
Indemnification by MESI
As discussed more fully in note 2, all of the outstanding common stock of
the Company was sold effective December 31, 1994, to AEC by MESI. Under
the terms of the Stock Purchase Agreement, MESI has agreed to indemnify
AEC for certain claims existing at the date of closing or arising from
circumstances existing on or prior to the closing. Additionally, a
portion of the purchase price in the form of a note payable to MESI will
be held in escrow until December 31, 1995, for the purpose of securing
MESI's obligations under such indemnity provisions.
Petitions for "No-Migration" Exemptions
On December 28, 1989, the Environmental Protection Agency (EPA) granted the
Company "no-migration" exemptions for an existing injection well and a
second permitted (but then unconstructed) injection well at its Winona,
Texas, hazardous waste facility. A lawsuit was subsequently filed in
federal district court by certain individuals and citizens groups which
challenged the EPA's decision to grant the "no-migration" exemptions. In
June 1992, the court remanded to the EPA for additional administrative
proceedings the portion of the lawsuit relating to the second injection
well. The results of those proceedings are described in the following
paragraphs.
The portion of the lawsuit relating to the Company's original hazardous
waste injection well was resolved in its favor on August 3, 1993, when the
Court affirmed EPA's decision to grant the "no-migration" exemption for
the well. As a result of the Court's ruling, the Company can continue to
dispose of restricted hazardous wastes in this well.
By Order dated June 30, 1992, the court vacated the EPA's final approval of
the second hazardous waste injection well and remanded the administrative
record to the EPA for further proceedings. On February 5, 1993, the EPA
denied, without prejudice, a petition submitted by the Company for a "no-
migration" exemption for this second hazardous waste injection well. As a
result, the Company is prohibited from disposing of restricted hazardous
wastes in that well. In its decision, the EPA ruled that the well failed
to meet the construction requirements. Subsequently, the Company and the
EPA began discussing various alternatives for resolving the mechanical
integrity issue, including increased frequency of mechanical integrity
testing, and the Company submitted a permit amendment request to include
the increased testing frequency in the Texas Natural Resource Conservation
Commission (TNRCC) permit for the second deepwell. Such amended permit
was issued on February 22, 1995, and the public has the opportunity to
comment before the EPA reissues the "no-migration" exemption for the well.
(Continued)
F-14
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
Citizens' Group Petition for Permit Revocation
During 1992, a citizens group filed a petition with the Texas Water
Commission (TWC), which has since been consolidated into TNRCC, alleging
that a geological fault exists in the vicinity of the Company's deepwells
and other alleged grounds for revocation of the Company's deepwell
permits. The EPA has concluded in their proceedings relating to the
Company's second injection well that no such fault exists and the District
Court's action referred to above confirmed the validity of the EPA's
reviews of geological and other technical data related to the Company's
injection wells. The Company and MESI believe the petition is without
merit; however, failure to prevail in such action could have a material
adverse effect on the Company's financial condition and results of
operations.
TNRCC Enforcement Action and Lawsuit
On November 4, 1992, the State of Texas filed a lawsuit against the Company
styled State of Texas v. Gibraltar Chemical Resources, Inc. stemming from
an enforcement action by the Texas Air Control Board (TACB), which has
since been consolidated into TNRCC, alleging certain violations of the
Texas Clean Air Act and certain TACB regulations. The lawsuit was
subsequently amended to include certain Notices of Violation issued by the
TNRCC and allegations on noncompliance with a July 1993 Agreed Order and a
September 1993 Emergency Order, both of which are discussed below. On
July 11, 1994, this litigation was tentatively settled through mediation
supervised by the District Court of Smith County, Texas, and an Agreed
Final Judgment was entered on December 22, 1994. The Agreed Final
Judgment enjoins the Company from certain acts and omissions related to
its ongoing operations. Additionally, under the terms of the judgment,
the Company is obligated for $1,150,000 in assessed fines and attorneys'
fees. Of such amount, $450,000 was paid by the Company and $200,000 was
paid by MESI in January 1995. Under the terms of the Stock Purchase
Agreement referred to in note 2, MESI will be responsible for funding the
remaining balance of $500,000; consequently, this liability is not
recorded in the Company's books.
1993 Agreed Order and Subsequent Events
In July 1993, the Company entered into an order (the "Agreed Order"),
negotiated and agreed to with the TWC and TACB (now the TNRCC), concerning
several broad areas related to its hazardous waste facilities and
operations. The Agreed Order required the Company to make certain capital
expenditures and various other modifications to its facilities, operating
policies, and procedures.
On September 23, 1993, following an upset condition in one of the Company's
storage tanks and a subsequent investigation, the TNRCC issued an
emergency order (the "Emergency Order") temporarily removing the Company's
authorization to receive wastes until a certification could be made by
independent environmental engineering consultants that the facility could
operate in accordance with its permit and with the aforementioned Agreed
Order. The two independent consultants hired by the Company concluded its
operations were in compliance with applicable permits and orders, and on
October 29, 1993, the TNRCC agreed that the Company could resume full
operations of its facilities. Among other things, the Emergency Order,
along with a subsequent order issued on June 2, 1994, by the Executive
Director of the TNRCC, required the formation of a Citizens' Advisory
Committee by the Company and the TNRCC and the implementation of an
ambient air monitoring program, which became operational in December 1994.
(Continued)
F-15
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
Class 3 Permit Modification
On December 1, 1993, the TNRCC issued an order allowing the Company to
withdraw its Class 3 Permit Modification request for a substantial
facility expansion. Certain protesting parties to this proceeding
requested the TNRCC require the Company to reimburse the parties
approximately $250,000 for costs incurred prior to the Company's
withdrawal request. The TNRCC denied the request, and the protesting
parties appealed the denial in State District Court. In February 1995,
the Court affirmed the previous TNRCC ruling in favor of the Company. The
Company, upon consultation with legal counsel, believes that the petition
is without merit and that any damages would not be material to its
financial position or results of operations.
Renewal of and Compliance with Permits and Orders
In June 1994, the TNRCC announced that it would consider the issue of
revocation of the Company's RCRA Part B Permit during the agency's review
of the applications to renew such permit. The permit renewal applications
were filed in November 1994. The Company's failure to obtain renewal of
and maintain compliance with its permits and orders to which it is
subject, including the aforementioned RCRA Part B Permit, Agreed Final
Judgment, Agreed Order, and Emergency Order, could have a substantial
adverse impact on the Company.
Other Litigation and Claims
A suit was filed against the Company in August 1992, styled Moncrief v.
Gibraltar Chemical Resources, Inc. et al, in State District Court in Smith
County, Texas, by certain persons who own land in the vicinity of the
Company's hazardous waste facility. The suit asserts that the value of
the plaintiffs' land has been diminished as a result of the alleged
emission of objectionable odors from the Company's facility. The
plaintiffs assert various grounds for recovery of damages and seek
compensatory and punitive damages. MESI and the Company dispute the
material allegations of the plaintiffs' suit and intend to vigorously
defend this litigation. Discovery is ongoing in this case and the case
has not been set for trial.
A suit styled Erwin v. Gibraltar Chemical Resources, Inc. et al, was filed
in November 1992, in State District Court in Smith County, Texas, against
the Company and MESI by certain owners of land adjacent to the Company's
hazardous waste facility. The suit alleges that the plaintiffs have
experienced personal injuries, diminution in property values, and other
economic losses which are alleged to have been caused by the Company's
operation of its facility. The plaintiffs assert various grounds for
recovery, including allegations that their property has been used without
their consent for the storage of hazardous wastes, and seek unspecified
actual and punitive damages. Out-of-court settlements were reached with
several of the plaintiffs during 1994, but efforts to settle with the
remaining plaintiffs have thus far been unsuccessful. The Company and
MESI dispute the material allegations of plaintiffs' suit and intend to
continue to vigorously defend this litigation.
(Continued)
F-16
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
On October 18, 1993, two class action suits were filed against MESI, the
Company, and Mobley Co. (a subsidiary of MESI) in the State District Court
of Harris and Smith counties in Texas. Both of these suits are styled
Williams v. Mobley Environmental Services, Inc. et al. The named
plaintiffs are the same in each suit, such plaintiffs being certain
individuals residing in Smith County who are suing for themselves and on
behalf of all other persons similarly situated. Both the petitions allege
various acts of negligence, fraudulent concealment, nuisance and trespass,
and various others resulting from operations of the Company's hazardous
waste facility. The Company, MESI, and Mobley Co. (a wholly-owned
subsidiary of MESI) were served in the Harris County suit on March 28,
1994, but such suit has subsequently been transferred to Smith County.
None of the defendants have been served in the suit originally filed in
Smith County. Discovery is in its initial stages in this matter and while
the Company and MESI intend to vigorously defend the case, the Company is
unable to determine the likelihood of an unfavorable outcome.
Also on October 18, 1993, a suit was filed against the Company, MESI, and
Mobley Co. in State District Court in Harris County, Texas, styled Steich
v. Gibraltar Chemical Resources, Inc. et al. The three named plaintiffs
are residents of Smith County, Texas, who have allegedly lived in the
vicinity of the Company's hazardous waste facility. The suit was moved to
the District Court in Smith County on August 2, 1994. The plaintiffs'
petition alleges various acts of nuisance, trespass, and fraudulent
concealment. Discovery is in its initial stages in this matter and while
the Company and MESI intend to vigorously defend the case, the Company is
unable to determine the likelihood of an unfavorable outcome.
A suit styled Glazer v. Gibraltar Chemical Resources, Inc. et al was filed
on September 6, 1994, in the United States District Court for the Eastern
District of Texas -- Tyler Division against the Company by an individual
and Mothers Organized to Stop Environmental Sins (MOSES), under the
citizens' suit provisions of the Clean Air Act and the Resource
Conservation and Recovery Act. The suit alleges repeated and continuing
violations of these federal environmental protection statutes by the
Company and an imminent and substantial endangerment of public health and
the environment caused by the Company's improper transportation, storage,
treatment, and disposal of solid and hazardous wastes. The plaintiffs
request that the Company's hazardous waste facility be shut down
permanently, civil penalties be imposed, and plaintiffs' costs of
litigation be awarded. Discovery in this case is in its initial stages.
While the Company and MESI dispute the material allegations of plaintiffs'
suit and intend to vigorously defend this litigation, the Company is
unable to determine the likelihood of an unfavorable outcome. However,
should the plaintiffs prevail in this suit, it would have a substantial
adverse impact on the Company.
On May 21, 1994, a former employee of the Company filed a lawsuit styled
Barney Lee Sutton v. Gibraltar Chemical Resources, Inc. in Smith County,
Texas, alleging that he was wrongfully terminated from his job. The
plaintiff seeks compensatory and punitive damages as a result of the
incident. The Company and MESI believe that the discharge was performance
related and that the claim is without merit. While the Company and MESI
are vigorously defending the case, the Company is unable to determine the
likelihood of an unfavorable outcome.
(Continued)
F-17
<PAGE>
GIBRALTAR CHEMICAL RESOURCES, INC.
Notes to Financial Statements
There are various claims and legal actions pending and threatened against
the Company which have arisen in the ordinary course of its business. The
Company, upon consultation with legal counsel, believes that any damages
arising from such claims would not be material to its financial position
or results of operations.
F-18
<PAGE>
AMERICAN ECOLOGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited condensed consolidated balance sheet as of December 31,
1994 and the unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 1994, reflect the consolidated financial
position and results of operations, respectively, of American Ecology
Corporation and subsidiaries ("AEC") as if the acquisition of Gibraltar Chemical
Resources, Inc. "(Gibraltar"), had occurred, in the case of the balance sheet,
on December 31, 1994, and in the case of the statements of operations, on
January 1, 1994.
The pro forma financial statements are based on certain assumptions and
preliminary estimates which are subject to change. These statements do not
purport to be indicative of the consolidated results of operations of AEC that
might of occurred, nor are they necessarily indicative of AEC's results of
operations in the future.
F-19
<PAGE>
AMERICAN ECOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
($ IN 000'S)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and cash equivalents $ 231
Receivables, net 32,619
Other current assets 5,396
--------
Total current assets 38,246
--------
Cash and marketable securities, pledged 13,175
Property and equipment, net 30,149
Intangible assets relating to acquired businesses, net 31,286
Deferred site development costs 41,239
Other assets 2,005
--------
Total assets $156,100
========
LIABILITIES AND EQUITY
- ----------------------
Current portion of long term debt $ 850
Other current liabilities 36,046
--------
Total current liabilities 36,896
--------
Long term debt, net 33,493
Deferred site maintenance, net 18,666
Total equity 67,045
--------
Total liabilities and equity $156,100
========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-20
<PAGE>
AMERICAN ECOLOGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
PRO FORMA
AEC GIBRALTAR ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues $71,891 $12,027 $-- $83,918
Operating costs 54,181 12,449 -- 66,630
------- ------- ------- -------
Gross profit (loss) 17,710 (422) -- 17,288
Selling, general and administrative 12,362 3,232 138(a) 15,732
------- ------- ------- -------
Income (loss) from operations 5,348 (3,654) (138) 1,556
Investment income (287) -- -- (287)
Interest expense -- 174 (174)(b) --
------- ------- ------- -------
Income (loss) before income taxes 5,635 (3,828) 36 1,843
Income tax provision (benefit) 1,785 184 (1,587)(c) 382
------- ------- ------- -------
Net income (loss) $ 3,850 $(4,012) $ 1,623 $ 1,461
======= ======= ======= =======
Shares used in per share computation 7,851 7,851
======= =======
Net income per share - primary $.49 $.19
======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-21
<PAGE>
AMERICAN ECOLOGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. GIBRALTAR CHEMICAL RESOURCES, INC.
On December 31, 1994, American Ecology Corporation ("AEC"), acquired 100% of the
common stock of Gibraltar Chemical Resources, Inc. ("Gibraltar"), from Mobley
Environmental Services, Inc. Gibraltar's assets include fuels blending, solvent
recycling, and deepwell injection operations which service the hazardous and
industrial waste disposal markets. Gibraltar operates a facility in Winona,
Texas and collection and technical operations in El Paso, Texas and Laredo,
Texas.
The purchase price at closing was comprised of $2,963,873 of cash, a non-
interest bearing note in the principal amount of $550,000 payable by AEC to
Mobley on December 31, 1995, and repayment of Gibraltar indebtedness of
$2,793,000 to an affiliate of Mobley. The total acquisition cost of
approximately $10,628,000 included pre-acquisition working capital advances on
behalf of Gibraltar, direct acquisition costs, and liabilities assumed. The
excess of acquisition costs over the estimated fair value of net assets acquired
was approximately $3,441,000.
Gibraltar's assets and liabilities have been accounted for at estimated fair
market value, which approximated carrying value, in accordance with the purchase
method of accounting. In allocating purchase price, the assets acquired and
liabilities assumed in connection with Gibraltar have been initially assigned
and recorded based on preliminary estimates of fair value and may be revised as
additional information concerning the valuation of such assets and liabilities
becomes available. As a result, the financial information included in the pro
forma financial statements is subject to adjustment as subsequent revisions in
estimates of fair value, if any, are necessary. The actual operating results of
Gibraltar will be included in AEC's results of operations beginning January 1,
1995.
The funds used to purchase Gibraltar were provided by borrowings by AEC made
pursuant to a bank credit agreement. The bank credit facility matures on
January 31, 1996 and is comprised of a $30,000,000 term loan, a $5,000,000
revolving credit facility and $5,000,000 in standby letters of credit. Interest
is payable quarterly and the interest rate is equal to either the base rate (the
greater of the bank's prime rate or the federal funds rate plus .5%) plus a
margin of 0% to .75%, or a Eurodollar rate plus a margin of 2% to 3%. The
marginal rate increases are based on a debt coverage ratio. The Company's
actual interest rate as of December 31, 1994 was approximately 8.7%. These
rates are subject to increase by .25% to .75% and the bank may enforce financial
and other restrictions on the Company if the Company is unable to refinance the
term portion of the facility by May 1, 1995. The facility includes maintenance
of financial covenants, which, among other things, could restrict payment of
dividends, and is secured by substantially all of the Company's assets.
2. PRO FORMA ADJUSTMENTS AND MANAGEMENT ASSUMPTIONS
The pro forma balance sheet reflects the acquisition occurring on December 31,
1994 and the pro forma statement of operations assumes the acquisition had
occurred on January 1, 1994. Permitted pro forma adjustments include only the
effects of events directly attributable to a transaction that are factually
supportable and expected to have a continuing impact. AEC believes that this
pro forma information is not indicative of future results of operations, nor the
results of historical operations had the acquisition of Gibraltar been
consummated as of the assumed dates. These statements should be read in
conjunction with the historical financial statements and notes thereto of AEC
and Gibraltar as filed with the Securities and Exchange Commission.
F-22
<PAGE>
The following pro forma adjustments and management assumptions are reflected in
the pro forma financial statements:
BALANCE SHEET
Because the Gibraltar acquisition occurred on December 31, 1994, the transaction
is reflected in AEC's unaudited consolidated balance sheet as of December 31,
1994, and accordingly, no pro forma adjustments are necessary for fair
presentation of the combined entities' financial position.
STATEMENT OF OPERATIONS
(a) To reflect amortization of intangible assets relating to the Gibraltar
acquisition over a 25 year period.
(b) To reverse interest expense of Gibraltar assumed capitalized in
accordance with AEC interest capitalization policy.
(c) To reflect reversal of Gibraltar's income tax provision and record the
benefit for Gibraltar's loss before income taxes at AEC's estimated
effective tax rate of 37%.
F-23
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Gibraltar Chemical Resources, Inc.:
We consent to the incorporation by reference in the registration statements on
Forms S-8 (Nos. 33-55762, 33-58076, and 33-11578) of American Ecology
Corporation of our report dated March 3, 1995, with respect to the balance
sheets of Gibraltar Chemical Resources, Inc. (a 100% owned subsidiary of
American Ecology Corporation) as of December 31, 1994 and 1993, and the related
statements of operations, stockholder's equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1994, which report
appears in the Form 8-K of American Ecology Corporation dated on or about March
14, 1995.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 14, 1995
