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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
Suite 1000
HOUSTON, TEXAS 77056-5407
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
(713) 624-1900
---------------------------------------------------
(Registrants telephone number, including area code)
Indicate by a check mark whether Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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At April 30, 1995 Registrant had outstanding 7,818,828 shares of its Common
Stock.
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 231
Investment securities 1,158 1,703
Receivables, net of allowance for doubtful accounts
of $1,372, and $1,749 respectively 27,462 32,019
Deferred income taxes -- 991
Prepayments and other 3,270 2,854
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Total current assets 31,890 37,798
Cash and investment securities, pledged 12,962 13,175
Property and equipment, net 30,075 30,122
Deferred site development costs 42,755 41,239
Intangible assets relating to acquired businesses, net 31,142 31,313
Deferred income taxes 815 --
Other assets 1,790 1,792
-------- --------
$151,429 $155,439
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 33,847 $ 850
Accounts payable 14,648 12,464
Accrued liabilities 16,139 19,397
Deferred site maintenance, current portion 3,544 3,524
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Total current liabilities 68,178 36,235
Long term debt, excluding current portion 516 33,493
Deferred site maintenance, excluding current portion 18,177 18,666
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 20,000,000
shares authorized, 7,818,828 shares issued
and outstanding 78 78
Additional paid-in capital 41,837 41,837
Unrealized gain (loss) on securities available for sale (352) 43
Retained earnings 22,995 25,087
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Total shareholders' equity 64,558 67,045
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$151,429 $155,439
======== ========
</TABLE>
See notes to consolidated financial statements.
2
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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ in 000's except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1995 1994
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<S> <C> <C>
Revenues $20,028 $14,334
Operating costs 18,972 12,070
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Gross profit 1,056 2,264
Selling, general and administrative expenses 3,753 2,408
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Loss from operations (2,697) (144)
Investment income (134) (221)
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Income (loss) before income taxes (2,563) 77
Income tax provision (benefit) (666) 28
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Net income (loss) $(1,897) $ 49
======= =======
Net income (loss) per share, primary $ (.24) $ .01
======= =======
Dividends paid per common share $ .025 $ .025
======= =======
</TABLE>
See notes to consolidated financial statements.
3
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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,897) $ 49
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 2,081 1,281
Deferred income tax provision 728 85
Gain on sale of assets (41) (24)
Changes in assets and liabilities
Receivables 4,707 4,390
Investment securities classified as trading 86 --
Other assets (430) 30
Other liabilities (1,769) (7,532)
Deferred site maintenance (469) (458)
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Total adjustments 4,893 (2,228)
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Net cash provided by (used in) operating activities 2,996 (2,179)
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Cash flows from investing activities:
Capital expenditures (1,717) (953)
Site development costs (1,516) (980)
Proceeds from sale of assets 54 92
Transfers from cash and investment securities,
pledged 127 2,498
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Net cash provided by (used in) for investing
activities (3,052) 657
------- -------
Cash flows from financing activities:
Proceeds from issuances of indebtedness 8,070 --
Repayments of indebtedness (8,050) --
Proceeds from common stock issuances -- 299
Payment of cash dividends (195) (195)
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Net cash provided by (used in) financing activities (175) 104
------- -------
Decrease in cash and cash equivalents (231) (1,418)
Cash and cash equivalents at beginning of period 231 4,416
------- -------
Cash and cash equivalents at end of period $ -- $ 2,998
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ -- $ --
Income taxes 48 11
</TABLE>
See notes to consolidated financial statements.
4
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AMERICAN ECOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and disclosures
necessary to a fair presentation of these financial statements have been
included. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1994 Annual
Report on Form 10-K for the year ended December 31, 1994, as filed with the
Securities and Exchange Commission.
Certain reclassifications have been made in prior period financial statements to
conform to the current period presentation.
NOTE 2. NET INCOME (LOSS) PER SHARE
The calculation of net income (loss) per common and common equivalent share is
in accordance with the treasury stock method for the three months ended March
31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
(000's except per share amounts)
Three Months Ended
March 31,
--------------------------------
1995 1994
-------- --------
<S> <C> <C>
Net income (loss) $ (1,897) $ 49
======== ========
Weighted average shares outstanding:
Common shares outstanding at end of period 7,819 7,819
Effect of using weighted average common
and common equivalent shares outstanding -- (24)
Effect of shares issuable under stock option
plans based on the treasury stock method -- 20
-------- --------
Shares used in computing earnings (loss)
per share 7,819 7,815
======== =======
Net income (loss) per common equivalent share $ (.24) $ .01
======== =======
</TABLE>
NOTE 3. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," which is intended to establish more consistent accounting
standards for measuring the recoverability of long-lived assets. While the
potential impact of the new standard cannot be fully assessed at this time, the
Company believes that the adoption of this statement could result in a
substantial charge to operating earnings and a corresponding writedown of
goodwill. See Note 5. The Company must adopt the new statement no later than
the quarter ending March 31, 1996.
5
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NOTE 4. DEFERRED SITE DEVELOPMENT COSTS
The Company has been selected to locate, develop and operate the low-level
radioactive waste ("LLRW") facilities for the Southwestern Compact ("Ward Valley
facility") and the Central Interstate Compact ("Butte facility").
The license application for the Southwestern Compact was approved by the
California Department of Health Services ("DHS") in September 1993. All costs
related to the development of the Ward Valley facility have been paid and
capitalized by the Company. As of March 31, 1995, the Company had deferred
$36,425,000 of pre-operational facility development costs of which $1,435,000
was capitalized interest. These deferred costs relating to the development of
the Ward Valley facility are expected to be recovered during the facility's 20
year operating period from future waste disposal revenues based upon disposal
fees approved by the DHS in accordance with existing state rate-base
regulations. The disposal fee approval process is expected to include an
independent prudency review of all the pre-operational costs incurred by the
Company prior to their inclusion in the rate-base. The Company expects all of
the costs which it has deferred for this facility, excluding capitalized
interest, to be included as a component in the rate-base as well as their
associated costs of capital.
Allowable costs incurred by the Company for the development of the Butte
facility are reimbursed under a contract with the Central Interstate LLRW
Compact Commission and are recognized as revenues. Substantially all funding to
develop the Butte facility is being provided by the major generators of the
waste in the Central Interstate LLRW Compact. As of March 31, 1995, the Company
has contributed and capitalized approximately $6,330,000, of which $239,000 was
capitalized interest, toward the development of the Butte facility and no
additional capital investment is expected to be required from the Company prior
to granting of the license. All unreimbursed costs and fees relating to the
Butte facility have been deferred and are also expected to be realized from the
revenue of the LLRW site when operational.
The construction and operation of the Ward Valley and Butte facilities are
currently being delayed by various political and environmental opposition toward
the development of the sites and by various legal proceedings. At this time, it
is not possible to assess the length of these delays or when, or if, the Butte
facility license will be granted, and when, or if, the land for the Ward Valley
facility will be obtained, and whether the validity of the Ward Valley
facility's license will be upheld on judicial review. Although the timing and
outcome of the proceedings referred to above are not presently determinable, the
Company continues to actively urge the conveyance of the land from the federal
government to the State of California so that construction may begin, and to
actively pursue licensing of the Butte facility. The Company believes that the
Butte facility license will be granted, operations of both facilities will
commence and that the deferred site development costs for both facilities will
be realized.
In 1994, the Company began to capitalize interest in accordance with Statement
of Financial Accounting Standards No. 34, Capitalization of Interest Cost, on
the site development projects and will continue to do so while the facilities
being developed are undergoing activities to ready them for their intended use.
Interest capitalized during the three month periods ended March 31, 1995 and
1994 was $705,000 and $0, respectively.
6
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NOTE 5. INTANGIBLE ASSETS
Intangible assets relating to acquired businesses consist primarily of the cost
of purchased businesses in excess of fair value of net assets acquired
("goodwill"). Intangible assets are being amortized using the straight-line
method over periods not exceeding 40 years with the majority being amortized
over 25 years. On an ongoing basis, the Company measures realizability of
goodwill by the ability of the acquired business to generate expected future
cash flows in excess of the carrying amount of goodwill. If realizability is in
doubt, an adjustment is made to reduce the carrying value of the goodwill. The
Company is in process of measuring the realizability of goodwill related to the
Recycle Center acquired in the third quarter of 1994 due to an accumulation of
costs significantly in excess of the amount of acquisition costs originally
expected and due to subsequent operating losses. Additionally, the Company is
assessing the goodwill associated with the purchase of Waste Processor
Industries, Inc. ("WPI") in March 1993 due to continued operating losses and the
discontinuation of certain transportation and remediation operations during
1995. Any resulting adjustments made to reduce the carrying amounts of goodwill
are expected to be recognized during the second quarter of 1995 and could have a
material adverse effect on the Company's results of operations and financial
position.
NOTE 6. CREDIT AGREEMENT
The Company's secured bank credit facility ("Credit Agreement") matures January
31, 1996, and since the Company has been unsuccessful to date in obtaining
refinancing for the Credit Agreement, the $33,000,000 of debt outstanding at
March 31, 1995 is classified as current portion of long-term debt. The Company
will not be able to generate sufficient cash flows from operations to pay-off
this obligation by January 1996.
Although the Company is currently in compliance with the financial covenants
contained in the Credit Agreement, current projections of operating results and
cash flows indicate that it is likely that the Company will not be able to
comply with certain covenants regarding financial ratios as of the end of the
second quarter of 1995. The Company will require forbearance from its bank
lender to meet working capital and debt obligations as they become due and may
enter into a workout agreement with the bank which would likely change the
Credit Agreement to a reducing, non-revolving line of credit loan, extend the
maturity date, and possibly require liquidating certain of the Company's assets.
While the Company is working closely with its bank lender on these matters,
there is no assurance that the bank will provide such forbearance, agree to a
workout arrangement, or refrain from exercising agreed to recourse upon the
Company's noncompliance with the Credit Agreement. Such recourse, if any, could
have a material adverse effect on the Company's results of operations and
financial position. The Company's financial statements as of March 31, 1995 do
not contain any adjustments that might result from the outcome of the
aforementioned uncertainties.
See Capital Resources and Liquidity section of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Other than the information set forth in Part II, Item I, herein, there have been
no other significant changes to any commitments and contingencies as described
in Note 11 to the financial statements included in the Company's 1994 Annual
Report on Form 10-K.
7
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
CAPITAL RESOURCES AND LIQUIDITY
For the three months ended March 31, 1995, the Company generated cash flows from
operations of $2,996,000. The Company invested $1,717,000 in capital
expenditures and $1,516,000 in site development costs for the Ward Valley
facility of which $705,000 was capitalized interest.
As of March 31, 1995 the Company had a working capital deficit of $36,288,000
due principally to the current liability classification of the Company's
$33,000,000 of indebtedness under its secured bank credit facility ("Credit
Agreement") which is scheduled to mature on January 31, 1996. The Company will
not be able to generate sufficient cash flow from operations to fund this
obligation at the maturity date. During late 1994 and the first quarter of
1995, the Company was offering a private placement of taxable debt securities in
order to refinance the Credit Agreement. During this same time period, the
Company was also offering debt through a private placement of long-term tax-
exempt debt securities for refinancing the purchase of the Recycle Center.
However, due to the current financial marketplace and the credit risks
associated with the Company's site development projects in Ward Valley,
California and Butte, Nebraska and other financial risk factors including the
financial performance of the Company, management of the Company currently
believes that the success of such refinancings are remote until the transfer of
land for the Ward Valley project occurs or the bank lender provides letter of
credit support for the tax-exempt offering. The Company is exploring other
means of raising capital and has taken significant measures to reduce costs in
an effort to improve liquidity and operating results. Such measures include
personnel reductions at the corporate office including certain members of senior
management, sales personnel in the Gulf Coast Region, operating and
administrative personnel at the Winona facility acquired on December 31, 1994,
and personnel at certain operating sites and sites under development.
Additionally, the Company intends to suspend the payment of cash dividends and
defer certain planned capital expenditures. In addition, the Company is
discontinuing certain unprofitable operations including a transportation
terminal in Ohio and its related sales offices, and a remediation services
division in Texas, all acquired as part of the purchase of WPI. To the extent
feasible, the assets of these divisions will be utilized by other operations or
sold. As a result of the organizational changes described above, the Company
anticipates the recognition of a non-recurring charge in the second quarter of
1995 for employee severance costs. As discussed in Note 3 and Note 5 to the
consolidated financial statements, the Company is in process of evaluating the
realizability of goodwill acquired as part of the purchases of the Recycle
Center and WPI. Any resulting adjustments made to reduce the carrying amounts of
goodwill are expected to be recognized during the second quarter of 1995 and
could have a material adverse effect on the Company's results of operations and
financial position.
Although the Company is currently in compliance with the financial covenants
contained in the Credit Agreement, current projections of operating results and
cash flows indicate that it is likely that the Company will not be able to
comply with certain covenants regarding financial ratios as of the end of the
second quarter of 1995. The Company will require forbearance from its bank
lender to meet working capital and debt obligations as they become due and may
enter into a workout agreement with the bank which would likely reduce the
Credit Agreement to a reducing, non-revolving line of credit loan, extend the
maturity date, and possibly require liquidating certain of the Company's assets.
While the Company is working closely with its bank lender on these matters,
there is no assurance that the bank will provide such forbearance, agree to a
workout arrangement, issue a letter of credit for tax-exempt debt security
support, or refrain from exercising agreed to recourse upon the Company's
noncompliance with the Credit Agreement. Such recourse, if any, could have a
material adverse effect on the Company's results of operations and financial
position. The Company's financial statements as of March 31, 1995 do not
contain any adjustments that might result from the outcome of the aforementioned
uncertainties.
8
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The Company has been funding the restoration and replacement of the Recycle
Center's processing building and related equipment which was damaged in a fire
which occurred in July 1994. As of March 31, 1995, the Company had recorded
approximately $4.7 million as a receivable from the Recycle Center's insurance
carrier for claims relating to replacement and repair costs, contaminated waste
disposal costs, and business interruption costs of which $3.0 million was
received in May 1995. The final determination of the amount of proceeds from
business interruption claims and the timing of receipt of the claims is subject
to negotiations with the insurance carrier.
Future cash flows are subject to uncertainty. Although no assurances can be
given, the Company currently believes that cash generated from operations,
together with amounts that may be borrowed under the Credit Agreement, will be
sufficient to fund its working capital and debt service requirements for the
remainder of 1995.
In 1994, the U.S. Department of Interior asked the National Academy of Sciences
("NAS") to conduct an independent review of certain geological issues related to
the suitability of the Ward Valley site. The NAS convened a panel in 1994 and
conducted hearings on the project in June and September of that year. On May 11,
1995, the NAS report was published. The report concluded that it is "highly
unlikely" that the proposed Ward Valley low-level radioactive waste disposal
facility would contaminate groundwater beneath the site or the Colorado River.
The Committee majority recommended further testing and monitoring, which,
according to the report, can occur during the project construction and operation
phases. A minority dissent report recommended testing before the site is
approved. Company management believes that the report provides a sound basis for
the U.S. Department of Interior to transfer the land for the Ward Valley project
to the State of California. The Company cannot predict whether the U.S.
Department of Interior will transfer the land to the State of California based
upon the NAS report.
RESULTS OF OPERATIONS
For the three months ended March 31, 1995, the Company reported a net loss of
$1,897,000 or a $.24 loss per share as compared with net income of $49,000 or
$.01 earnings per share for the three months ended March 31, 1994.
REVENUES
Total revenues for the three months ended March 31, 1995 increased $5,694,000 as
compared with the three months ended March 31, 1994.
Hazardous waste revenues increased $3,294,000, or 37%, due principally to a
$3,273,000 increase in revenues attributable to the Winona facility which was
acquired on December 31, 1994. Hazardous solid waste disposal revenues
decreased by approximately 9% due to reductions in solid waste volumes of
approximately 22% which was partially offset by an increase in average disposal
prices of approximately 15%. The reductions in volume were principally due to
lesser hazardous waste event volumes received in this period compared with the
prior period. The decrease in hazardous solid waste disposal revenues was
offset by an increase in remediation revenues due principally to large
remediation contracts in process in the West Coast region with ultimate disposal
occurring at the Beatty, Nevada facility. Hazardous remediation revenues in the
Gulf Coast Region decreased $704,000 due to phasing out of this division during
the period.
Low-level radioactive waste ("LLRW") revenues increased by $2,400,000, or 43%,
for the first quarter of 1995 as compared to the first quarter of 1994 due
principally to a $2,325,000 increase in revenue from the Recycle Center which
was acquired on September 19, 1994. Included in the Recycle Center's revenue
for the period was $800,000 of estimated business interruption claim receivable
from the insurance carrier for fire damages which occurred in July 1994.
Revenues from the naturally occurring radioactive materials ("NORM") disposal
business increased by $1,267,000 for the 1995 period due to the penetration of
the NORM disposal market in late 1994 and the completion of certain large
disposal contracts during the first quarter of 1995. The LLRW revenue increases
were partially offset by decreases in revenues from the packaging and
transportation services division of approximately $660,000 due to changes in the
LLRW markets as a result of the Low-Level Act and closure of the Barnwell, South
Carolina LLRW facility to waste generated outside of the Southeast Compact.
9
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OPERATING COSTS AND GROSS PROFIT
Total operating costs as a percentage of revenues for the three months ended
March 31, 1995 and 1994 were 95% and 84% respectively.
The hazardous waste services division had a gross loss of $491,000 for the 1995
first quarter as compared to a gross profit of $1,447,000 for the first quarter
of 1994. The decrease in gross profit is attributable to the acquisition of the
Winona facility, a decrease in operating margin at the Beatty, Nevada disposal
facility, phase out costs of the Gulf Coast's remediation services division, and
increased operating losses in the transportation businesses. The Winona
facility incurred a gross loss of approximately $370,000 the first quarter of
1995. In an effort to restore the Winona facility to profitable operating
results, the Winona facility's sales force is being reorganized and a reduction
of certain operations and administrative personnel occurred during the second
quarter of 1995. The Beatty facility's operating profit decreased as compared
to the 1994 period due to lower disposal revenues and a greater proportion of
revenues derived from lower margin remediation and transportation services.
The LLRW services division had a gross profit of $1,547,000 for the first
quarter of 1995 as compared to $817,000 for the first quarter of 1994. The
increase in gross profit is principally attributable to high operating margins
in the NORM disposal business due to the Company's ability to dispose of NORM
waste at the Company's Richland, Washington facility. There is no assurance
that the Company will be able to continue obtaining material volumes of NORM
waste for disposal or that the State of Washington will not pass regulation to
limit the amount of NORM volumes eligible for disposal at the Richland facility.
The Recycle Center contributed $278,000 to operating profit for the first
quarter of 1995. The Recycle Center's results include the benefit of the
recognition in revenues of $800,000 during the quarter for management's estimate
of its anticipated business interruption claim receivable from the insurance
carrier for damages resulting from a fire which damaged a processing building
and related equipment in July 1994. The Company anticipates that the Recycle
Center's processing building will be operational during the third quarter of
1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the quarter ended
March 31, 1995 were $3,753,000, an increase of $1,345,000 compared with the
first quarter of 1994. The increase is due principally to incremental selling
costs ($642,000) and goodwill amortization ($244,000) relating to the
acquisitions of both the Winona facility and the Recycle Center in late 1994.
Additionally, there were relocation costs in the 1995 period relating to moving
management personnel to the Recycle Center and an increase in professional fees
at the corporate office due to changes in senior management. As mentioned
previously, in early 1995 the Company took measures to reduce overhead
including personnel reductions at the corporate office and sales personnel in
the Gulf Coast Region. As a result of these and other organizational changes,
the Company anticipates the recognition of a non-recurring charge in the second
quarter of 1995 for employee severance costs.
INVESTMENT INCOME
Investment income is comprised principally of interest income earned on various
investments in securities held-to-maturity, and dividend income and capital
gains and losses earned on the Company's preferred stock portfolio classified as
trading securities. Investment income recognized during the three months ended
March 31, 1995 decreased from the three months ended March 31, 1994 due
principally to the decrease in outstanding investments in securities held-to-
maturity. As of March 31, 1995, the Company reported an unrealized loss of
$477,000, $352,000 net of tax, on securities available-for-sale as a
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component of shareholders' equity. The realized gain or loss of securities
available-for-sale would be included as a component of investment income upon
sale.
INCOME TAXES
For the three months ended March 31, 1995, the Company reported an effective
income tax benefit rate of 26% as compared to an effective income tax provision
rate of 37% for all of 1994. The 1995 effective income tax rate has been
estimated for the first quarter and may vary significantly for the remainder of
1995 dependent upon results of operations and the Company's ability to utilize
net operating loss carryforwards.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
Richland, Washington Facility. In 1964, the Washington Department of Ecology
("WDOE") leased from the US Department of Energy ("DOE") a 1,000 acre portion of
the Hanford Reservation. In 1965, the WDOE subleased 100 acres of that property
to the Company for use as a LLRW disposal facility under the regulation of the
Washington Department of Health pursuant to the Atomic Energy Act. In 1990 the
DOE applied to the EPA for a permit under the Resource Conservation and Recovery
Act of 1976, as amended ("RCRA") and other laws and regulations to obtain the
appropriate regulatory approvals needed to proceed with the environmental
cleanup of the Hanford Reservation. In 1994, in a consent order among the
Environmental Protection Agency ("EPA"), DOE and WDOE, the EPA and DOE issued a
corrective action permit that includes all of the land owned by the DOE at the
Hanford Reservation, including that portion leased to WDOE, which includes the
100 acres subleased to the Company for its LLRW disposal facility. Thirteen
trenches at the Company's LLRW disposal facility have been included in the final
permit as solid waste management units which will require further investigation
to determine whether releases of any hazardous wastes or constituents have
occurred. Because portions of the Company's facility remain included in the
final permit issued to the DOE, the Company is potentially subject to proposed
permit conditions for site investigation and possible cleanup should any
releases be discovered even though the Company is not a permittee and though it
was not involved in the activities contributing to the DOE Hanford facility
contamination that are the subject of the DOE Hanford consent order. It is the
Company's opinion that it has legal defenses to the inclusion of its Hanford
site in the DOE permit and to any corrective action that may be proposed of the
site pursuant to the DOE permit. The Company has appealed to the Environmental
Hearing Board of the EPA the terms of the permit that apply to any of the
Company's facilities. By agreement of all the parties, appeals have been stayed
in order for the Company to negotiate a settlement with DOE and EPA to resolve
corrective action concerns. If the Company is unsuccessful in the negotiation
or the challenge to the permit, the cost of conducting the site investigation
and any corrective action could be material.
The Company was assessed a substantial property tax increase by the Benton
County Assessor's Office and has filed suit challenging the property tax
increase imposed by the Benton County Assessor on improvements at the Company's
leased disposal facility on the Hanford Reservation. The County Treasurer
issued tax statements based upon these assessments for payments covering the
years 1989, 1990 and 1991, which totaled $1.7 million. The Company sued Benton
County and the Assessor and Treasurer to enjoin them from collecting these
taxes. The Benton County Superior Court issued an injunction in favor of the
Company. The County appealed to the Court of Appeals. The Court of Appeals
ruled in favor of the County and reversed the decision of the Benton County
Superior Court by holding that the injunction should not have been issued
pending the Company's pursuit of administrative remedies. The Company has
appealed the Court of Appeal's decision to the Washington Supreme Court.
Management
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believes that the County's assessments were improper and intends to vigorously
defend this matter in the courts and through any appropriate administrative
process, if necessary.
Winona, Texas Facility. The Company purchased the stock of Gibraltar Chemical
Resources, Inc. ("Gibraltar") since renamed American Ecology Environmental
Services Corporation, from Mobley Environmental Services, Inc. ("Mobley") on
December 31, 1994. The Company's stock purchase agreement with Mobley provides
that Mobley will indemnify the Company, without limitation as to amount, for any
damages or costs, including legal fees, associated with certain pre-closing
liabilities, including the claims set forth hereunder. Pursuant to its stock
purchase agreement with Mobley, the Company has also been named as an additional
insured for pre-closing claims under Mobley's pollution liability insurance
policy. The policy has a $10 million aggregate limit and a $5 million per loss
limit.
In 1992, a citizens group filed a petition with the Texas Natural Resource
Conservation Commission ("TNRCC") for revocation of the Winona facility's
deepwell permits alleging that a geological fault exists in the vicinity of the
Winona facility's deepwells and other alleged grounds. The EPA has previously
concluded in its proceedings relating to the Winona facility's second injection
well that no such fault exists. The Company believes the petition is without
merit.
A group called Mothers Organized to Stop Environmental Sins filed a lawsuit in
1994 against the Company in the United States Eastern District Court for the
State of Texas alleging that the Winona facility violated certain permits and
regulations, and contributed to the handling, storage, treatment, transportation
and disposal of solid and hazardous waste that presents an imminent and
substantial endangerment to health and the environment. The plaintiffs have
requested that the facility be shut down and civil penalties be imposed on the
Company. The Company has filed an answer denying these allegations and a motion
for summary judgment and believes the suit is without merit. The Company
intends to vigorously defend this litigation. However, if the plaintiffs were
to ultimately prevail on their claim and be awarded the remedies sought, such
outcome could have a material adverse effect on the Company's consolidated
financial position and results of operations.
Four lawsuits, including one purported class action, were filed against
Gibraltar, in 1992 and 1993 which were subsequently transferred to State
District Court in Smith County, Texas, by certain persons in Winona, Texas. The
suits assert various theories of liability including subsurface trespass,
nuisance, and negligence for alleged air emissions. The suits also allege that
the plaintiffs have experienced personal injuries, diminution in property
values, and other economic losses which are alleged to have been caused by
operation of the Winona facility. The plaintiffs assert various grounds for
recovery, including allegations that their property has been used without their
consent as a hazardous waste facility, and seek unspecified actual and punitive
damages. The Company disputes the material allegations of the plaintiffs' suits
and intends to vigorously defend this litigation. To date, the Company and
Mobley have settled certain of the plaintiffs' claims in these actions for
amounts that were not material and which were funded by the Mobley insurance
policy referred to above.
Compact Related Disputes. The Company is involved in numerous challenges and
legal proceedings in connection with its siting efforts for LLRW facilities for
the Southwest Compact and Central Interstate Compact. For a description of these
proceedings, see "Business - Low-Level Radioactive Waste Services - Disposal
Services - Ward Valley, California Facility" and "-Butte, Nebraska Facility" in
the Company's 1994 Annual Report on Form 10-K.
In 1994, the U.S. Department of Interior asked the National Academy of Sciences
("NAS") to conduct an independent review of certain geological issues related to
the suitability of the Ward Valley site. The NAS convened a panel in 1994 and
conducted hearings on the project in June and September of that year. On May 11,
1995, the NAS report was published. The report concluded that it is "highly
unlikely" that the proposed Ward Valley low-level radioactive waste disposal
facility would contaminate groundwater beneath the site or the Colorado River.
The Committee majority recommended further testing and monitoring, which,
according to the report, can occur during the project construction and operation
phases. A minority dissent report recommended testing before the site is
approved. Company management believes that the report provides a sound basis for
the U.S. Department of Interior to transfer the land for the Ward Valley project
to the State of California. The Company cannot predict whether the U.S.
Department of Interior will transfer the land to the State of California based
upon the NAS report.
The Company has received invoices from the Southeast Compact Commission for
approximately $1.5 million and a notice that an additional $1.5 million will be
invoiced in the aggregate in the second and third quarter of 1995. The invoices
relate to an access fee for the Barnwell, South Carolina LLRW
12
<PAGE>
disposal facility in the Southeast Compact utilized by Quadrex Corporation, the
previous parent company of the Recycle Center. The fee for each generator is
calculated pursuant to a Commission formula which is based on the historical
amount of LLRW shipped to the Barnwell facility by such generator. The Company
believes that it did not assume such access fees liabilities relating to pre-
acquisition volumes of Quadrex in its asset acquisition of the Recycle Center
and that the Company has legitimate defenses to this claim. The Company appealed
the Commission's invoices and in February 1995 at an appeal hearing, the
Commission again concluded that the full access fees were payable by the
Company. As a result of the fee dispute, on March 29, 1995, the Southeast
Compact Commission directed the Department of Health and Environmental Control
of the State of South Carolina to deny the Company access to the Barnwell, South
Carolina LLRW disposal facility. The Company has appealed the Commission's
action to the Department under South Carolina law. On May 2, 1995, the Southeast
Compact Commission agreed to review a Company settlement proposal and agreed to
reinstate access to the Barnwell facility for the Company until a decision is
reached. The Company believes it has no material liability in connection with
this matter and intends to vigorously defend any material assessment or attempt
to deny access to the Barnwell facility.
Other Litigation. The City of San Antonio (the "City") filed suit against
several parties related to environmental issues in connection with the
acquisition, development and construction of a bus transit station and multi-
purpose stadium and sports complex, commonly known as the Alamodome. The City
has named as the defendants: the former owner of the property, various
consultants involved in the project, the project manager, and a subsidiary of
the Company which served as the construction contractor for the project. The
City has alleged several theories of recovery, including breach of contract,
negligent misrepresentation and gross negligence. The City alleges its
consultants failed to advise the City that the selected site was contaminated,
thereby breaching their contracts and committing torts. The City alleges
further that following the discovery of actual or potential environmental
problems, the City's consultants and project manager failed to act properly in
handling allegedly contaminated soil and groundwater. The City has also alleged
that construction of the landfill did not conform to contract requirements. The
City has decided to exhume the onsite landfill and dispose of it at another
location. Minimal discovery has been taken. The Company does not believe that
the claims against its subsidiary are meritorious and intends to vigorously
defend against such claims. Furthermore, the Company intends to pursue a
counterclaim to recover sums related to its construction of the on-site
landfill.
In November 1994, the Company was named as a defendant in a purported class
action lawsuit by former employees of Quadrex that relates to unpaid medical
benefits and an underfunded pension plan of Quadrex. Based on information
available to it, the Company believes that the aggregate amount of these claims
are less than $1 million. The Company purchased the assets of the Quadrex
Recycle Center from Quadrex on September 19, 1994. However, the asserted claims
in the purported class action were specifically excluded by the purchase
agreement pursuant to which the Company purchased the assets of the Recycle
Center. Some of the former Quadrex employees on whose behalf the suit was
brought are now employees of the Company. The Company does not believe it has
any liability in this matter and intends to contest the matter vigorously. The
Company's purchase agreement with Quadrex provides that Quadrex will indemnify
the Company for any damages or costs, including legal fees, associated with a
claim of this sort. However, because Quadrex filed for bankruptcy protection in
February 1995, it is very likely that the Company will not realize the benefits
of such indemnification.
The Company has received a notice from an individual purporting to own debt
secured by certain real property in Midlothian, Texas. The individual alleges
that a predecessor of the Company's subsidiary, Texas Ecologists, Inc. caused
environmental contamination of the property in the early 1970's. The Company
believes it has no liability in connection with the matter and intends to
contest the matter vigorously. In connection with its investigation of the
matter, the Company also conducted its own
13
<PAGE>
assessment of the property with an independent environmental consultant and
concluded that any contamination on the property falls below material levels.
Other Matters. In 1990, the Company was sued by certain landowners owning
property adjacent to the Company's Robstown, Texas disposal facility. The
landowners have alleged that there has been migration of pollutants through
groundwater which has contaminated water resources on their respective property.
These landowners have alleged theories including nuisance per se, negligence and
trespass. The Company's investigation has found no migration of pollutants onto
the adjacent landowners' properties and the Company intends to contest this
matter vigorously.
In 1992, the Company received notice from the EPA alleging that the Company had
violated financial assurance and liability insurance requirements at the closed
Sheffield, Illinois hazardous waste disposal site formerly operated by the
Company. The EPA is seeking a penalty of approximately $1 million and ordering
compliance. Both the EPA and the Company have filed cross-motions for an
accelerated decision by the administrative law judge regarding the issue of
liability. Though the ultimate outcome of this matter is uncertain, the Company
believes these insurance requirements are not applicable to this closed site and
intends to vigorously contest this matter.
In April 1995, management of the Company became aware that the Company had held
certain hazardous waste containers at certain of its transportation terminals
for periods greater than the 10-day temporary storage periods permitted by TNRCC
regulations. The Company has reported the matter to the TNRCC. The Company has
also put in place procedures to safeguard against future violations of this type
and, upon completion of its review of the matter, may put in place additional
safeguard procedures if so warranted. While the Company believes the steps that
it has taken are appropriate and responsive, it is possible that the TNRCC may
seek to impose a fine on the Company in connection with the matter. The Company
is not in a position to assess the amount of such a fine. However, a fine of
sufficient magnitude could have a material adverse effect upon the consolidated
financial position of the Company.
In addition to the above-described litigation the Company and its subsidiaries
are involved in various other administrative matters of litigation, including
personal injury and other civil actions, as well as other claims, disputes and
assessments that could result in additional litigation or other proceedings.
The Company and its subsidiaries are also involved in various other
environmental matters or proceedings, including permit application proceedings
in connection with the establishment, operation, closure and post-closure
activities of certain sites, as well as other matters or claims that could
result in additional environmental proceedings.
While the final resolution of any matter may have an impact on the Company's
consolidated financial results for a particular reporting period, management
believes that the ultimate disposition of the matters will not have a materially
adverse effect upon the consolidated financial position of the Company.
There have been no other significant changes to any commitments and
contingencies as described in Note 11 to the financial statements included in
the Company's 1994 Annual Report on Form 10-K.
ITEM 2 Changes in Securities
The Company's credit facility provides that the Company may not pay any cash
dividends on its capital stock except for dividends on its common stock up to
$200,000 per quarter. The credit facility also prohibits cash dividends after
May 1, 1995 if the Company has not completed a debt or equity placement by that
date. As noted in Part I, Item 2, the Company has not completed such a
placement of securities and therefore is restricted from paying cash dividends.
14
<PAGE>
ITEM 6 Exhibits and Reports on Form 8-K
a. Exhibits
11.1 Statement Re: Computation of Per Share Earnings.
27 Financial Data Schedule
b. Reports on Form 8-K
Amendment No. 2 to the Form 8-K filed on October 4, 1994 reporting the
closing of the acquisition of the Recycle Center was filed on January
26, 1995 with revised proforma financial information on the Recycle
Center.
A Form 8-K reporting the closing of the acquisition of the Gibraltar
Chemical Resources, Inc. was filed on January 13, 1995. Amendment No.
1 to that Form 8-K with historical and proforma financial information
on Gibraltar Chemical Resources, Inc. was filed on March 15, 1995.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN ECOLOGY CORPORATION
(REGISTRANT)
Date: May 15, 1995 By: /s/ Jack K. Lemley
--------------------------------------
Jack K. Lemley
Chief Executive Officer, President
and Chief Operating Officer
Date: May 15, 1995 By: /s/ C. Clifford Wright, Jr.
--------------------------------------
C. Clifford Wright, Jr.
Vice President,
Chief Financial Officer and Treasurer
Date: May 15, 1995 By: /s/ Harry O. Nicodemus, IV
--------------------------------------
Harry O. Nicodemus, IV
Vice President,
Chief Accounting Officer and Controller
16
<PAGE>
EXHIBIT 11.1
AMERICAN ECOLOGY CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Primary Computation Fully Diluted Computation
---------------------------- ----------------------------
Three Months Ended March 31, Three Months Ended March 31,
---------------------------- ----------------------------
1995 1994 1995 1994
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $(1,897) $ 49 $(1,897) $ 49
======= ====== ======= ======
Weighted average shares outstanding:
Common shares outstanding at end of period 7,819 7,819 7,819 7,819
Effect of using weighted average common and
common equivalent shares outstanding -- (24) -- (24)
Effect of shares issuable under stock option plans
based on the treasury stock method -- 20 -- 25
------- ------ ------- ------
Shares used in computing earnings (loss) per share 7,819 7,815 7,819 7,820
======= ====== ======= ======
Earnings (loss) per share $ (0.24) $0.01 $ (0.24) $ 0.01
======= ====== ======= ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Balance Sheet as of March 31, 1995 and the Consolidated
Statement of Operations for the three months ended March 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 1,158
<RECEIVABLES> 28,834
<ALLOWANCES> 1,372
<INVENTORY> 0
<CURRENT-ASSETS> 31,890
<PP&E> 50,820
<DEPRECIATION> 20,745
<TOTAL-ASSETS> 151,429
<CURRENT-LIABILITIES> 68,178
<BONDS> 516
<COMMON> 78
0
0
<OTHER-SE> 64,480
<TOTAL-LIABILITY-AND-EQUITY> 151,429
<SALES> 20,028
<TOTAL-REVENUES> 20,028
<CGS> 18,972
<TOTAL-COSTS> 18,972
<OTHER-EXPENSES> 3,611
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,563)
<INCOME-TAX> (666)
<INCOME-CONTINUING> (1,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,897)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
