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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 September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 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 [ ]
At October 31, 1995 Registrant had outstanding 7,825,628 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>
September 30, December 31,
1995 1994
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,711 $ 231
Investment securities 908 1,703
Receivables - trade and other, net of allowance for
doubtful accounts of $1,113, and $1,749 respectively 15,929 30,183
Income tax receivable 3,170 1,836
Deferred income taxes -- 991
Prepayments and other 2,324 2,854
-------- --------
Total current assets 24,042 37,798
Cash and investment securities, pledged 13,262 13,175
Property and equipment, net 25,249 30,122
Deferred site development costs 45,660 41,239
Intangible assets relating to acquired businesses, net 6,653 31,313
Other assets 4,122 1,792
-------- --------
$118,988 $155,439
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 811 $ 850
Accounts payable 12,678 12,464
Accrued liabilities 17,091 22,921
-------- --------
Total current liabilities 30,580 36,235
Deferred items 19,945 18,666
Long term debt, excluding current portion 35,299 33,493
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, none issued -- --
8 3/8% series D cumulative convertible preferred stock, $.01
par value, 1,056,240 shares authorized, 71,579 and 0
shares issued and outstanding, respectively (liquidation
preference of $3,400) 1 --
Common stock, $.01 par value, 20,000,000
shares authorized, 7,825,628 and 7,818,828
shares issued and outstanding, respectively 78 78
Additional paid-in capital 45,185 41,837
Unrealized gain (loss) on securities available for sale (371) 43
Retained earnings (deficit) (11,729) 25,087
-------- --------
Total shareholders' equity 33,164 67,045
-------- --------
$118,988 $155,439
======== ========
</TABLE>
See notes to consolidated financial statements.
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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ in 000's except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------
1995 1994 1995 1994
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Revenues $14,881 $14,146 $ 51,013 $47,077
Operating costs 14,045 9,575 51,718 35,122
------- ------- -------- -------
Gross profit (loss) 836 4,571 (705) 11,955
Selling, general and administrative expenses 3,369 2,861 13,213 8,167
Impairment losses on long-lived assets -- -- 27,153 --
------- ------- -------- -------
Income (loss) from operations (2,533) 1,710 (41,071) 3,788
Investment (income) loss (54) 13 (386) (326)
------- ------- -------- -------
Income (loss) before income taxes (2,479) 1,697 (40,685) 4,114
Income tax provision (benefit) (247) 628 (4,068) 1,522
------- ------- -------- -------
Net income (loss) $(2,232) $ 1,069 $(36,617) $ 2,592
======= ======= ======== =======
Net income (loss) per share, primary $ (.29) $ .14 $ (4.68) $ .33
======= ======= ======== =======
Dividends paid per common share $ -- $ .025 $ .025 $ .075
======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1995 1994
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(36,617) $ 2,592
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Impairment losses on long-lived assets 27,153 --
Depreciation and amortization 6,001 4,253
Deferred income tax provision 393 2,298
Gain on sale of assets (493) (46)
Changes in assets and liabilities
Receivables 12,993 4,237
Investment securities classified as trading (727) (78)
Other assets (1,869) (2,999)
Other liabilities (3,064) (4,303)
Deferred site maintenance (1,153) (7,150)
-------- --------
Total adjustments 39,234 (3,788)
-------- --------
Net cash provided by (used in) operating activities 2,617 (1,196)
-------- --------
Cash flows from investing activities:
Capital expenditures (2,450) (2,938)
Site development costs, including capitalized interest (4,421) (2,895)
Payments for business acquired -- (17,796)
Proceeds from sales of property and equipment 966 275
Proceeds from sales of investment securities 214 --
Transfers from cash and investment securities, pledged 640 1,483
-------- --------
Net cash used in investing activities (5,051) (21,871)
-------- --------
Cash flows from financing activities:
Proceeds from issuances of indebtedness 23,635 38,425
Repayments of indebtedness (22,868) (18,870)
Proceeds from common stock issuances 20 301
Proceeds from preferred stock issuances 3,322 --
Payment of cash dividends (195) (585)
-------- --------
Net cash provided by financing activities 3,914 19,271
-------- --------
Increase (decrease) in cash and cash equivalents 1,480 (3,796)
Cash and cash equivalents at beginning of period 231 4,416
-------- --------
Cash and cash equivalents at end of period $ 1,711 $ 620
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ -- $ 7
Income taxes 97 80
</TABLE>
See notes to consolidated financial statements.
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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. LONG-TERM DEBT
The Company and its bank lender amended the existing credit facility ("Credit
Agreement") effective June 30, 1995, to extend the maturity of the Credit
Agreement to December 31, 1998, and to modify other terms. The Credit Agreement
is comprised of a $27,000,000 term loan, an $8,000,000 revolving loan subject to
a borrowing base of trade accounts receivable, and a $5,000,000 letter of credit
facility. The loans accrue interest at bank prime plus a margin of one percent.
The margin on the loans increases by one quarter of one percent quarterly
subject to reductions based on the Company's aggregate repayments of principal.
Interest is payable monthly at prime and the marginal interest is deferred into
a promissory note as described below. Term loan principal repayments are due
upon the occurrence of certain contingent events including the opening of the
Ward Valley facility and sales of assets. The Credit Agreement is secured by
substantially all of the Company's assets and includes maintenance of financial
covenants relating to cash flows and net worth. The Credit Agreement restricts
the Company from additional borrowings, prohibits payment of dividends on common
stock, and limits capital expenditures. As of September 30, 1995, the Company
had borrowings of $33,982,000 outstanding under its Credit Agreement. The
Company is currently in compliance with the Credit Agreement. While the
Company's bank lender has in the past waived defaults by the Company under the
Credit Agreement, there can be no assurances that the bank lender will refrain
from exercising recourse upon any future noncompliance or default under the
Credit Agreement by the Company.
In November 1995, the Company signed a $2,000,000 promissory note payable to its
bank lender ("Fee Note") to defer fees owing to the bank for extending the
maturity of the Credit Agreement. The balance of the Fee Note was $1,000,000 at
closing of the note and will increase for deferred interest payments payable
under the Credit Agreement. The Fee Note bears interest at bank prime payable
monthly, matures on December 31, 1998, and is entitled to the benefits of the
Credit Agreement. The Bank has the option of requiring payment of the Fee Note
with shares of the Company's common stock.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources and Liquidity.
NOTE 3. SHAREHOLDERS' EQUITY
In September 1995, the Board of Directors of the Company authorized 1,052,640
shares of preferred stock designated as 8 3/8% Series D Cumulative Convertible
Preferred Stock ("8 3/8% Preferred Stock") and authorized the issuance of
105,264 of such shares and warrants to purchase 1,052,640 shares of the
Company's common stock. In September 1995, the Company sold 71,579 shares of 8
3/8% Preferred Stock with warrants in a private offering to a group comprised
principally of members of the Company's directors ("the Investing Group") and
received cash proceeds net of offering expenses of $3,322,000. In October 1995,
an additional 12,632 shares were issued with warrants to the Investing Group for
approximately $600,000, comprised of $560,000 cash and $40,000 in settlement of
a liability to one member of the Investing Group. Additionally, one member of
the Investing Group has committed to purchase an additional 21,053 shares with
warrants no later than January 5, 1996 for $1,000,000 to be
5
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comprised of approximately $865,000 cash and $135,000 in settlement of an
employment contract liability. Each 8 3/8% Preferred Stock share is convertible
at any time at the option of the holder into 8.636 shares of the Company's
common stock, equivalent to a conversion price of $5.50 on the $47.50 total per
share offering price. Dividends on the 8 3/8% Preferred Stock are cumulative
from the date of issuance and payable quarterly commencing on October 15, 1995.
The 8 3/8% Preferred Stock shares are not redeemable and the liquidation
preference is $47.50 per share plus unpaid dividends. Each share of the 8 3/8%
Preferred Stock issued includes ten warrants to purchase shares of the Company's
common stock. Each warrant entitles the holder to purchase one share of common
stock for an exercise price of $4.75. The $4.75 warrants are exercisable at any
time and expire September 12, 1999.
NOTE 4. 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.
The Company adopted this statement during the second quarter of 1995 and,
accordingly, took a substantial writedown of goodwill and certain property and
equipment in the second quarter of 1995. The impairment loss on long-lived
assets of $27,153,000 was comprised of the following:
<TABLE>
<S> <C>
Writedown of the carrying amount of goodwill resulting
from the acquisition of the Recycle Center $16,270,000
Writedown of the carrying amount of goodwill resulting from
the acquisition of WPI 5,744,000
Writedown of the carrying amount of goodwill resulting from
the acquisition of the Winona facility 3,458,000
Writedown of property and equipment at the Winona facility 1,681,000
-----------
Total impairment losses $27,153,000
===========
</TABLE>
The circumstances leading to the impairment losses include an accumulation of
costs significantly in excess of the amount of acquisition costs originally
expected for the Recycle Center and to a lesser degree, the Winona facility.
Contributing factors include a current period operating and cash flow loss, a
recent history of operating losses, and the Company's inability to achieve the
operating results anticipated prior to the respective acquisitions.
Additionally, the transportation operations of Transtec, Inc., and the chemical
remediation services operations of American Ecology Services Corporation, both
acquired as part of the WPI acquisition in March 1993, have been discontinued.
Changes in the marketplace and competitive situations in certain service lines,
particularly at the Recycle Center and the Winona facility, have contributed to
the Company's inability to achieve anticipated operating results.
The impairment losses were calculated as the excess of carrying amounts of long-
lived assets as compared to estimated fair values of the respective assets.
Fair values were determined using the present value of management's estimated
expected future cash flows.
6
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NOTE 5. 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 September 30, 1995, the Company had deferred
$39,072,000 of pre-operational facility development costs of which $2,863,000
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, plus additional, unrecognized
project interest costs of approximately $23,204,000 at September 30, 1995, to be
included as a component of the rate-base; however, there can be no assurance
that all of the costs will be approved by the DHS.
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 September 30, 1995, the
Company has contributed and deferred approximately $6,588,000, of which $496,000
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. The Company expects all of the costs which it has
deferred for this facility plus additional, unrecognized project interest costs
of approximately $10,000,000 at September 30, 1995, to be included as a
component of the rate-base; however, there can be no assurance that all of these
amounts will be realized.
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 by the State of California. Although the timing and
outcome of the matters 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.
The Company capitalizes 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 nine month periods ended September 30, 1995 and
1994 was $2,391,000 and $416,000, respectively.
7
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NOTE 6. NET INCOME (LOSS) PER SHARE
The calculation of net income (loss) per common and common equivalent share for
the three and nine months ended September 30, 1995 and 1994, respectively, is as
follows:
<TABLE>
<CAPTION>
(000's except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $(2,232) $1,069 $(36,617) $2,592
======= ====== ======== ======
Weighted average shares outstanding:
Common shares outstanding at end of period 7,826 7,819 7,826 7,819
Effect of using weighted average common
and common equivalent shares outstanding -- -- (4) --
Effect of shares issuable under stock option
plans based on the treasury stock method -- 4 -- 11
------- ------ -------- ------
Shares used in computing earnings (loss)
per share 7,826 7,823 7,822 7,830
======= ====== ======== ======
Net income (loss) per common equivalent share $ (.29) $ .14 $ (4.68) $ .33
======= ====== ======== ======
</TABLE>
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.
8
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
The Company has incurred recurring losses from operations, had a working capital
deficit of $6,538,000 as of September 30, 1995, and is currently experiencing
difficulty paying its on-going obligations as they become due. The Company has
been successful in improving some of its short-term operating results which may
help relieve this situation. Of course, the Company cannot be certain about its
ability to further improve short-term operating results. The Company's
financial statements as of September 30, 1995, do not contain any adjustments to
asset carrying amounts or for the amount of liabilities that might result from
asset liquidations or discontinued operations. Management's actions and plans
to address these issues are as follows:
Credit Agreement
- ----------------
Effective June 30, 1995, the Company and its bank lender amended the existing
Credit Agreement to extend the maturity of the Credit Agreement to December 31,
1998, and to modify certain other terms. A description of the Credit Agreement
as so amended is set forth in Note 2 of "Item 1 - Financial Statements". As of
September 30, 1995, the Company had available borrowings of $1,018,000 under its
Credit Agreement.
Equity Investments
- ------------------
In September 1995, the Company completed a definitive agreement for $5,000,000
in equity investments to be made by a group of investors comprised principally
of members of the Company's directors. A description of the preferred stock and
warrants issued is set forth in Note 3 of "Item 1 - Financial Statements". From
these equity investments, the Company received net cash proceeds of
approximately $3,322,000 in September 1995 and $560,000 in October 1995, and
will receive $865,000 no later than January 5, 1996. The funds received to date
have been used for general working capital needs.
Strategic Plan
- --------------
The Company has adopted a strategic plan focusing on its low-level radioactive
waste disposal and processing operations and its chemical waste disposal and
processing operations as separate operations. The Company is being reorganized
under those respective divisions. One purpose of the reorganization is to
facilitate potential strategic alliances with other companies which may provide
additional sources of capital and open greater opportunities.
Senior Management Changes
- -------------------------
The Company has made substantial senior management changes. These include
installation of a new Chief Executive Officer, a new President and Chief
Operating Officer, and a new General Counsel, as well as new managers to head
the LLRW and chemical waste operations.
Measures to Reduce Costs
- ------------------------
The Company has taken several steps during the year to reduce costs. These
include reducing personnel, among them certain members of senior management, and
various sales, operating, and administrative personnel. The Company plans to
decentralize responsibility to the LLRW and chemical waste operating groups and
transfer most of the functions currently performed at the corporate office to
the operating divisions to drastically reduce corporate overhead. Other than
the capital required for developing the Ward
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Valley facility and for regulatory compliance at the Winona facility, the
Company has deferred almost all other capital expenditures planned for 1995. In
addition, the Company discontinued certain unprofitable operations including a
transportation terminal in Ohio and its related sales offices and the
remediation services division in Texas. The Company is also evaluating the
viability of certain other operations and their current potential to perform at
an acceptable level. As a consequence of the personnel reductions and the
reorganization, the corporate office space in Houston, Texas, will be subleased.
The Company believes that it has a viable plan to improve its cost structure and
operating results. However, considering, the Company's recent losses and
insufficient cash flow from operations, there can be no assurance that this plan
will resolve the Company's liquidity problem in a timely fashion. The Company
will more likely than not need to raise additional financing or sell assets.
There can be no assurance, however, that any such financing or asset sales will
be consummated. In either event, the Company may experience increasing cash
flow problems which could cause the Company to materially reduce the current
level of its operating activities.
For the three months ended September 30, 1995, the Company had negative cash
flows from operations of $1,365,000. For the nine months ended September 30,
1995, the Company generated cash from operations of $2,617,000, spent $2,450,000
for capital expenditures, invested $2,030,000 in site development costs for the
Ward Valley facility and incurred capitalized interest of $2,391,000 related to
the Ward Valley and Butte facilities. The Company realized net proceeds of
$966,000 from the sales of excess site equipment at various facilities and sales
of transportation equipment primarily from the discontinued transportation
business in Ohio.
FUTURE CONSIDERATIONS
- ---------------------
As a result of the changes to its management and operations in 1995, the Company
believes that the future operating results of its existing businesses will
improve, although no assurances can be given that such improvements will occur.
In addition, the Company expects to receive an income tax refund currently
estimated at approximately $4,000,000 during the second quarter of 1996. The
Company is also currently negotiating insurance claims relating to the July 1994
fire at the Recycle Center and expects to settle such claims in the near future.
The Company offered an unsolicited proposal in the second quarter of 1995 to the
Department of Energy ("DOE") to dispose of large volumes of LLRW from the DOE's
Hanford site into the Company's Richland, Washington, facility which is located
on the Hanford Reservation. Although the Company believed and still believes
the economics of its proposal should be very attractive to the DOE, DOE rejected
the Company's proposal. The Company, however, will continue to pursue this
opportunity.
See Part II, Item 1, Legal Proceedings - Compact Related Disputes, for an update
regarding the status of the land transfer for the proposed Ward Valley LLRW
disposal facility.
10
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RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
- ----------------------------------------------------------------------
The Company reported a net loss of $2,232,000 for the three months ended
September 30, 1995, compared to net income of $1,069,000 for the three months
ended September 30, 1994. Exclusive of material unusual events and non-
recurring accounting adjustments in both periods, the Company incurred losses
from operations of $2,220,000 and $942,000 for the three month periods ended
September 30, 1995 and 1994, respectively.
REVENUES
- --------
Revenues for the third quarter of 1995 increased $735,000, or 5%, compared to
the third quarter of 1994.
Low-level radioactive waste ("LLRW") revenues decreased $291,000. An increase
in LLRW revenues of $1,374,000 was attributable to the Recycle Center which was
acquired in September 1994. The Company's third quarter revenue from its
contract with the Central Interstate Low Level Radioactive Waste Commission
decreased by $873,000 as a result of the Company's completion of a contract
milestone associated with the Company's Butte, Nebraska facility's license
application. When the Butte facility's license is granted, facility development
activities and associated revenues will resume. LLRW remediation project
revenues decreased $351,000 due to the completion of certain projects. Revenues
for the Richland, Washington, disposal facility were $1,100,000 for the quarter,
a decrease of $213,000 from the prior year period due to how the timing of
regulated revenues are recognized by the facility. Approximately, one-third of
the volumes for 1995 are expected to be received by the Richland facility in the
fourth quarter of 1995, consequently, one-third of the approximate $5,100,000
regulated revenue requirement is expected to be recognized in the fourth quarter
of 1995. Other LLRW revenue decreases of $228,000 are principally related to a
decline in the Company's LLRW brokerage services in 1995.
Chemical waste revenues increased $1,026,000. An increase in revenues of
$2,852,000 was attributable to the Winona, Texas, facility which was acquired on
December 31, 1994. Disposal revenues generated by the Company's chemical waste
landfill operation in Beatty, Nevada, increased by approximately $450,000 due
principally to volume increases. However, revenues for the Beatty facility
decreased overall by $676,000 due principally to a decrease in field services
revenues of $1,022,000. Revenues for the 1995 period decreased $1,452,000 due to
the discontinuation of unprofitable Midwest transportation operations and
unprofitable Gulf Coast remediation services during the first quarter of 1995.
OPERATING COSTS
- ---------------
Total operating costs increased $4,470,000 for the third quarter of 1995 as
compared to the third quarter of 1994 for a variety of reasons. An increase in
operating costs of approximately $4,800,000 due to the acquisitions of the
Recycle Center and the Winona facility in September and December 1994,
respectively. This was offset in part by a reduction in operating costs of
approximately $1,500,000 from the discontinuation of the transportation and
remediation services businesses during the first quarter of 1995. While the
Recycle Center and Winona facility have incurred operating losses since their
acquisition, these losses have decreased substantially year to date. The
Recycle Center in particular is demonstrating a positive trend in operating
results on increased revenues from recapturing a portion of the market share
lost prior to being acquired. In addition to regaining market share and
leveraging its niche technical services, the Recycle Center intends to enter
relatively high margin service markets such as scanning potentially radioactive
soils and then disposing of them.
Other decreases in operating costs resulted from the decline in site development
activities related to the Butte facility, decreases in subcontracted field
services and transportation costs at the Beatty facility, and decreases in LLRW
brokerage and remedial services. The operating margins of the Beatty and
Robstown chemical disposal facilities were consistent between the 1995 and 1994
periods.
11
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
For the quarter ended September 30, 1995 selling, general and administrative
expenses ("SG&A") increased $508,000 as compared to the quarter ended September
30, 1994. Included in the SG&A for the third quarter of 1995 was a non-
recurring charge of $313,000 for severance costs related to terminating certain
corporate senior management.
During the same period, corporate overhead decreased by approximately $360,000
due to reductions in corporate personnel, a decrease in amortization of deferred
debt issuance costs and other cost saving measures taken by the Company in 1995
as described under the caption Capital Resources and Liquidity.
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. As of September 30, 1995, the Company reported an
unrealized loss of $412,000, ($371,000 net of tax), on securities available-for-
sale as a component of shareholders' equity. The realized gains or losses on
securities available-for-sale are included as a component of investment income
when realized.
INCOME TAXES
- ------------
For the three months and nine months ended September 30, 1995, the Company
reported an effective income tax benefit rate of 10% compared to an effective
tax rate of 37% for the comparable 1994 periods. The 1995 tax benefit rate is
substantially lower than the statutory rates due to the significant portion of
the year's loss attributable to non-deductible goodwill writedowns and to the
Company's inability to recognize deferred tax benefits for net operating loss
carryforwards.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
- ---------------------------------------------------------------------
The Company reported a net loss of $36,617,000 for the nine months ended
September 30, 1995 compared to net income of $2,592,000 for the nine months
ended September 30, 1994. The 1995 results included pretax charges totaling
$31,188,000 for unusual events and non-recurring adjustments of which
$27,153,000 related to impairment losses on long-lived assets. Exclusive of
material unusual events and non-recurring accounting adjustments in both
periods, the Company incurred losses from operations of $9,883,000 and $667,000
for the nine month periods ended September 30, 1995 and 1994, respectively.
Approximately $5,200,000 of the increase in the adjusted loss from operations
for the nine months ended September 30, 1995, as compared to the nine months
ended September 30, 1994, is attributable to the operating results of the
Recycle Center and the Winona facility which were acquired in September and
December 1994, respectively.
12
<PAGE>
REVENUES
- --------
Revenues for the nine months ended September 30, 1995, as compared to the nine
months ended September 30, 1994, increased $3,936,000, or 8%.
LLRW revenues increased $153,000 for the 1995 period as compared to the 1994
period. A $5,071,000 increase in revenues was attributable to the Recycle
Center due to recognizing nine months of operations in 1995 versus one partial
month during the third quarter of 1994. LLRW brokerage services decreased
$2,625,000 due to the closing of the Barnwell, South Carolina, disposal facility
for the period from January to June 1995. Additionally, LLRW remediation
project revenues decreased $1,456,000 from the 1994 period due to the completion
of certain projects. Revenues from the naturally occurring radioactive materials
("NORM") disposal business increased $1,313,000 for the 1995 period due to the
successful penetration of the NORM disposal market in late 1994 and the
completion of several large disposal contracts during the first quarter of 1995.
Revenues for the Richland, Washington, disposal facility decreased $803,000 due
to the way regulated revenues are recognized by the facility. Approximately one-
third of the volumes for 1995 are expected to be received by the Richland
facility in the fourth quarter of 1995, consequently, one-third of the
approximate $5,100,000 regulated revenue requirement is expected to be
recognized in the fourth quarter of 1995. A decrease in revenues of $1,081,000
resulted from the Company's completion of a contract milestone with the Central
Interstate Low-Level Radioactive Waste Commission in early 1995. When the Butte
facility's license is granted, facility development activities and associated
revenues will resume.
Chemical waste revenues increased $3,858,000 for the 1995 period as compared to
the 1994 period for a variety of reasons. A $8,619,000 increase in revenues was
attributable to the Winona facility which was acquired on December 31, 1994.
The discontinuation of Midwest transportation operations and Gulf Coast
remediation services during the first quarter of 1995 resulted in decreased
revenues of $3,800,000. Disposal and related transportation and field services
revenues at the Beatty, Nevada, disposal facility, the Robstown, Texas, disposal
facility, and Gulf Coast transportation operations decreased $1,458,000 due to a
25% decline in disposal volumes, offset in part by higher average disposal
prices. In 1995, the Company realized net gains of $493,000 on sales of excess
disposal and transportation equipment which has been recognized as revenues.
OPERATING COSTS
- ---------------
Total operating costs increased $16,596,000 for the nine months ended September
30, 1995 as compared to the nine months ended September 30, 1994. Operating
costs for the 1995 period included non-recurring charges totaling $1,112,000.
These were comprised of (1) $547,000 charge for an estimated settlement for
backpay for certain union employees of the Quadrex Recycle Center and for
severance costs of certain Recycle Center employees, (2) a charge of $260,000
for the excess of carrying value over the estimated net realizable value of real
property held for sale, (3) charges totaling $230,000 for writedowns of permit
costs associated with the discontinued transportation and remediation services
businesses and for the estimated litigation expenses associated with claims
against WPI, and (4) a $75,000 charge to accrue the costs of relocating the LLRW
brokerage, packaging, and transportation business office from Ohio to the
Recycle Center.
Operating costs for the 1994 period were reduced by $3,980,000 which was
comprised of (1) $3,065,000 of deferred site maintenance accrual reversals due
to changes in current cost estimates, (2) a $1,000,000 settlement in favor of
the Company with the Commonwealth of Kentucky regarding the Maxey Flats LLRW
disposal site, and (3) insurance settlements of $328,000 relating to medical
claims and environmental costs of the Company's closed Sheffield and Maxey Flats
sites. These items were offset in part by a writedown of $211,000 in permitting
costs for a canceled project at the Robstown facility and a
13
<PAGE>
write-off of $202,000 for airspace purchased in 1993 from American Nuclear which
declared bankruptcy. Exclusive of these amounts, operating costs were 99% and
83% of revenues for the nine months ended September 30, 1995 and 1994,
respectively.
An increase in operating costs of approximately $17,300,000 for the 1995 period
as compared to the 1994 period was due to the acquisitions of the Recycle Center
and the Winona facility in September and December 1994, respectively. This was
offset by a reduction in operating costs of approximately $3,200,000 due to the
discontinuation of the transportation and remediation services businesses during
the first quarter of 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses ("SG&A") for the nine months ended
September 30, 1995 were $13,213,000 compared to $8,167,000 for the nine months
ended September 30, 1994. Included in SG&A for the 1995 period are charges for
several unusual events and non-recurring accounting adjustments which increased
SG&A by $2,723,000. These charges related principally to severance for certain
corporate executives and other corporate personnel, recognition of a loss for a
portion of the corporate office lease and furniture which is in process of being
subleased, and a writedown of deferred debt issuance costs related to the bank
credit facility which was amended effective June 30, 1995. Exclusive of these
charges, SG&A was $10,490,000, an increase of $2,323,000 as compared to the 1994
period. This increase was due principally to selling costs of $1,629,000 and
goodwill amortization of $506,000 related to the Recycle Center and the Winona
facility acquisitions in September and December 1994, respectively, amortization
of deferred debt issuance costs of $350,000, and an increase in professional
fees due to changes in senior management.
As a result of the impairment losses on long-lived assets recognized in the
second quarter of 1995, future goodwill amortization is expected to be reduced
by approximately $1,040,000 annually. As part of corporate overhead cost
reduction efforts, the Company is in the process of subleasing the corporate
office space and relocating the remaining corporate personnel. The estimated
loss of the lease obligation for the unused portion of the office space and
furniture was recognized as of June 30, 1995. Additional losses for the
remainder of the office space lease will likely be recognized as of December 31,
1995.
14
<PAGE>
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, the Environmental Protection
Agency ("EPA") issued a corrective action permit that includes most 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. Since the Company's Richland facility is located on land
owned by DOE, the EPA considered the Company's disposal site to be part of the
"facility" covered by the RCRA permit. 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 relating to the LLRW disposal facility that may be
proposed pursuant to the DOE permit. Both the Company and the DOE have appealed
to the Environmental Appeals Board ("EAB") of the EPA the terms of the permit
that apply to any of the Company's facilities. That appeal has been stayed
during protracted negotiations with EPA, DOE, Washington Department of Ecology
("WDOE") and, Washington Department of Health. The purpose of the negotiations
is to determine whether an agreeable process for site investigation can be
negotiated. It appears at this time that all parties will agree upon a method
of sampling below certain trenches and testing those samples for hazardous
constituents under RCRA. All parties to the appeal before the EAB requested a
two year stay while the negotiations are completed and the Company conducts the
site investigation. The EAB recently issued an order dismissing the Company's
appeal without prejudice to raising the identical issues in any subsequent
appeal and remanding the matter to EPA to modify the permit if necessary. The
order specifically allows any party to resume the appeal if negotiations fail.
EPA does not believe a modification is necessary (thereby alleviating the need
for the Company to file another appeal at this time). If the site investigation
occurs, there are two possible results. The first possibility is that nothing
is found and no further action is necessary. The second possibility is that
hazardous components have moved to certain depths below the trenches, in which
case, some corrective action will be proposed by EPA or WDOE. There is a wide
range of possibilities, but the Company would most likely propose merely capping
the trenches and monitoring the situation which is already contemplated in the
Company's proposed closure plan. As of September 30, 1995, the Company had not
recognized any liability in its financial statements for any costs associated
with the site investigation.
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 a tax statement 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. An injunction was granted by the superior court but overturned by the
state Court of Appeals which ruled that the Company should first pursue its
administrative remedies.
15
<PAGE>
Accordingly, the Company has prosecuted its appeals to the State Board of Tax
Appeals. A hearing was held on November 1, 1995, and a decision is expected
shortly.
The Company is the plaintiff in a lawsuit currently pending in Washington State.
The lawsuit concerns a regulation amended by the Washington State Department of
Health in July of 1995. The new regulation severely limits the Company's
ability to accept naturally occurring and accelerator produced radioactive
material waste (NORM/NARM wastes) at its waste disposal site in Richland,
Washington. The Company leases the site for its waste disposal facility from
the State of Washington for the stated purpose of operating a low level
radioactive waste site. NORM waste has been an important source of revenue for
the Company at Richland in the last several years. Because of the regulation's
impropriety and its potential economic impact on the Company, the Company
decided to vigorously challenge the regulation. A complaint was filed on
September 6, 1995, in the Superior Court of the State of Washington for the
County of Thurston. The complaint's first count alleges that certain officials
of the Washington State Department of Health promulgated the regulation ultra
vires, outside the scope of their statutory authority, and in bad faith, thereby
tortiously interfering with the contractual relationship between the State of
Washington and the Company. The second count is against the Washington State
Department of Health and alleges that the regulation lacks statutory authority,
is arbitrary and capricious, not promulgated in compliance with pertinent
rulemaking procedures, and violates various Washington State constitutional
provisions.
The rates charged by the Richland facility are set by the Washington Utility
Transportation ("WUTC"). In 1994 and 1995 the Company negotiated a settlement
with waste generators that was approved by the WUTC establishing the rates for
those two years. The rates for 1996 were to be set by the WUTC through a rate
setting procedure. The WUTC required that the parties meet to negotiate a
settlement, if possible. The negotiations within the "collaborative group"
resulted in a settlement, which was approved by the WUTC in September 1995. The
settlement relates to rate design and rate-setting methodology issues. Among
other things, the settlement adopts a rate-making formula that will allow the
Company to revise its rates annually to reflect actual quantities of waste
disposed at the site and changes in inflation. The settlement also preserves
the 29% operating margin approved by the WUTC in an earlier proceeding. The
settlement does not resolve the issue of the Company's overall revenue
requirement at the Richland site, which is to be determined in hearings before
the WUTC later this year. The Company filed its proposed rates in May 1995,
seeking a $6.498 million revenue requirement for the site. Opposing testimony
was recently filed by Commission Staff and intervenors which proposes downward
adjustments to that figure. Hearings are scheduled for early December, with a
Commission ruling in February 1996.
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' 1994 Annual Report on Form 10-K.
In an October 5, 1995 ruling, California's Second District Court of Appeals
reversed a trial court judgment requiring that the Ward Valley disposal facility
license approval and related actions be set aside and reconsidered in light of a
scientific report discussing the possibility of contamination of the Colorado
River. The Court concluded that there was insufficient basis to remand the
matter, and that petitioners' other grounds for setting aside the state's
approval of the project were correctly determined by the trial court to be
without merit. The trial court was directed to enter judgment denying the
petition for writ of mandate, effectively reinstating the Company's license to
construct and operate the disposal facility subject to completion of the federal
land transfer. A request for reconsideration filed by project opponents was
denied by the Court of Appeal. Opponents may now petition the California
Supreme Court to review the case The state Supreme Court has discretion to
accept or deny such a petition. The Company intends to oppose such review. The
primary remaining action is the transfer of federal lands to state ownership.
Due
16
<PAGE>
to the site's presence in designated critical habitat of the desert tortoise, a
federally listed "threatened" species review under the Endangered Species Act
must precede any final agency decision to transfer the land. Following formal
consultation with the Bureau of Land Management and the U.S. EPA, the U.S. Fish
and Wildlife Service issued a biological opinion concluding that the proposed
land transfer and related project development "is not likely to jeopardize the
continued existence of the desert tortoise or result in the destruction or
adverse modification of critical habitat." Following the May 31, 1995
announcement from the Department of Interior of its intention to transfer the
property subject to certain state assurances, the Department of Interior and the
State of California entered negotiations on an agreement specifying the
conditions under which the transfer would occur. The Governor has objected to
proposed conditions which would involve a continuing review role by the
Department of Interior following the transfer, and has written members of
Congress requesting that the property be conveyed to California through
legislation. Transfer legislation has subsequently been introduced in the U.S.
Congress which, if enacted, would also limit the scope of potential legal
challenges to the transfer. Prior to disposal unit construction, a construction
authorization is required from the U.S. EPA pursuant to federal Clean Air Act
National Emission Standards for Hazardous Air Pollutants. The Company has
submitted compliance documentation to U.S. EPA, which has delayed action pending
completion of consultation with the Fish and Wildlife Service regarding desert
tortoise impacts, Final agency action is anticipated based on completion of the
consultation. The Company believes the land will be transferred and the U.S.
EPA construction authorization will be granted. It cannot accurately predict
when or by what mechanism the land transfer will be completed or the potential
for litigation challenging these actions in federal court or otherwise. It also
cannot predict the final disposition of challenges to its license in the
California Supreme Court.
On August 22, 1995 the Company and the Southeast Compact Commission reached a
mutually acceptable agreement on past access fee assessments incurred by Quadrex
Corporation, the previous parent company of the Recycle Center. The Company had
received and objected to invoices from the Southeast Compact for approximately
$1.5 million and a notice that an additional $1.5 million could also be
subsequently invoiced. In disputing the assessment fees the Company argued that
the fees were calculated on abnormal past waste volumes shipped to the Barnwell,
South Carolina disposal facility. The assessment calculations included
extraordinary cleanup events at the Quadrex facility that were not indicative of
normal operations. At the August 22, 1995 meeting of the Southeast Compact
Commission, the Commission agreed to re-calculate the fee assessment on an
average of normal historical waste disposal volumes. This action resulted in a
total access fee liability of $206,156 which the Company has agreed to pay. The
Company had previously recognized this liability in its consolidated financial
statements.
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.
Permit renewal filings were made for the Winona, Texas facility in November,
1994, and the hearing on the renewal has been set to commence on November 28,
1995. The renewal of these permits is required under Part B of the Federal
Resource Conservation and Recovery Act and other environmental regulatory laws.
There is active opposition in the local area to the renewal of these permits.
This matter will be determined by the Texas Natural Resource Conservation
Commission, and the Company would not expect a final determination any earlier
than late 1996. If these permits are not ultimately renewed, such result could
have a material adverse effect on the Company's consolidated financial position
and results of operations.
17
<PAGE>
Four lawsuits, including one purported class action, were filed against
Gibraltar, in 1992 and 1993, which are pending in State District Court in Smith
County, Texas, by certain persons in Winona, Texas. In August 1995, another
lawsuit was filed in Dallas county, Texas by other Winona citizens. The suits
assert various theories of liability, including subsurface trespass, nuisance
per se, negligence, gross negligence, and fraudulent concealment 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, and seek unspecified actual and punitive
damages. In September 1994, a federal lawsuit was filed under the Eastern
District of Texas by the Winona Citizens group seeking regulatory enforcement
through the court. This suit seeks to enjoin the facility from operations and
have penalties imposed. This suit alleges that the State of Texas has not
properly enforced regulatory requirements against the facility. 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.
On August 4, 1995, a jury in one of the lawsuits found that the Company's Winona
facility did not use or possess the plaintiffs' property and awarded nothing in
damage.
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. There has been a recent filing with TNRCC by the
opponents asking that there be a decision made on the revocation request. At
this time we know of no response by the agency to that filing. The Company
believes the petition is without merit.
Other Litigation. 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 Complaint filed by the
plaintiffs has been amended, and they are asserting their claims pursuant to the
Employee Retirement Income Security Act (ERISA) and the Labor Management
Relations Act (LMRA). They have also asserted a state law lien claim. In July
1995 the plaintiffs filed a motion seeking class certification and the Company
has filed a response requesting the court to deny the plaintiffs' motion. The
Company is denying any liability in this matter. The Company has filed a motion
to dismiss the state lien law claim, which was the original claim filed against
the Company by the plaintiffs. However, as of yet, the Court has not decided
that motion. 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 has filed
for bankruptcy protection in February of 1995, it is very likely that the
Company will not realize the benefits of such indemnification.
A hearing is currently scheduled on December 12, 1995 before an administrative
law judge of the National Labor Relations Board (NLRB) relating to an unfair
labor practice complaint issued by a Regional Director for the NLRB. The
Complaint alleges that the Company and Quadrex have operated as joint employers
at the Oak Ridge, Tennessee facility during the period April 8, 1994 to
September 1, 1994. As a result of this contention, the NLRB asserts that the
Company was obligated at all times since April 8, 1994 to assume and abide by
the collective bargaining agreement negotiated by the Union and Quadrex. If the
NLRB prevails in this action, the Company will be liable for any and all
variances from the collective
18
<PAGE>
bargaining agreement since April 8, 1994. The Company recognized a liability of
$447,000 in its consolidated financial statements as of June 30, 1995 for the
estimated settlement of this claim.
Other Matters. In 1992, the U.S. EPA initiated an administrative enforcement
action against US Ecology and alleged in its complaint that the Company had
failed to comply with certain regulatory requirements to provide financial
assurances for closure and post-closure costs as well as liability insurance
relating to its hazardous waste management facility in Sheffield, Illinois. The
EPA is seeking a penalty of approximately $1 million and ordering compliance.
The Company ceased operating that facility in 1983 and it has been undergoing
closure and corrective action pursuant to regulatory requirements and a RCRA
3008(h) Consent Order since that time. Because the Sheffield facility has not
been an interim status facility under the RCRA regulations since November of
1985, the Company has responded that the interim status regulatory requirements
for financial assurance and liability insurance do not apply to the facility.
Moreover, the Company has objected to the penalties demanded by U.S. EPA in its
complaint as entirely unwarranted. Recently, the administrative law judge has
ruled that the Sheffield facility is subject to the RCRA regulatory requirements
for financial assurance and liability insurance, notwithstanding its loss of
interim status in 1985. The Company has appealed that decision to the
Environmental Appeals Board. The penalty amount, if any, has yet to be
litigated or decided. Though the 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.
Since 1987, the Company has been engaged in litigation with many of its former
insurers regarding coverage for environmental damages at two facilities formerly
operated by the Company. The Company has been seeking coverage for costs
arising from its Sheffield, Illinois waste facility which ceased receiving waste
in 1983. Most of the defendant-insurers entered into settlement agreements with
the Company. Several of the insurers continued to litigate, however, and moved
for summary judgment on the grounds that the Company either knew of its loss at
the Sheffield facility before the subject insurance policies were issued or
failed to notify the insurers of the occurrences at the Sheffield facility as
soon as practicable. In September 1995, the Bureau County Circuit Court granted
summary judgment in favor of the remaining insurers on grounds of both known
loss and late notice. The Company has filed a notice of appeal from that ruling
with respect to certain of those insurers.
The Company has been litigating against the same insurers with respect to the
Maxey Flats waste disposal facility which the Company operated in Kentucky
through the mid-1970s. All but two of the insurers have entered into settlement
agreements with the Company regarding that dispute. The Circuit Court of
Jefferson County has denied several major motions of the insurers for summary
judgment and discovery is now proceeding with respect to the remaining issues in
the litigation.
On October 2, 1995, Boston Edison Company ("Boston Edison") filed a compliant
against U.S. Ecology, Inc. (the "Company") in the United States District Court
of Massachusetts alleging claims related to the Company's alleged failure to
indemnify Boston Edison for various costs arising out of the shipping and burial
of waste materials at the Maxey Flats Nuclear Disposal Site. The Company had
entered into a series of contracts with Boston Edison to provide radioactive
waste disposal services at this site. Boston Edison alleges that the Company
breached these contracts because the Company failed to indemnify Boston Edison
for its costs. Boston Edison also alleges that the Company committed an unfair
and deceptive trade practice in the state of Massachusetts because of its
failure to indemnify Boston Edison as required by these contracts. Finally,
Boston Edison seeks a declaratory judgement that would set forth the contractual
rights and liabilities of the parties. Boston Edison claims $600,000 in past
and future costs for the alleged breach of the contracts. It also seeks treble
damages equal to three times the acetal damages caused by the Company's alleged
violation of the Massachusetts Deceptive Trade Practices Act. At this time, we
are not in a position to predict a favorable or unfavorable outcome of this case
or the amount of potential loss, if any, which might result to the Company if
the outcome in this matter was unfavorable. The Company intends to answer the
complaint and defend this action vigorously.
19
<PAGE>
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, financial assurance requirements, as well as other
matters or claims that could result in additional environmental proceedings.
Due to the Company's current financial condition and liquidity issues,
management is unable to conclude that the outcome of these claims, disputes and
other matters described above and adjustments, if any, which may result from
these matters will not have a material adverse effect on the operations or
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 is prohibited from paying cash dividends pursuant to the credit
facility after May 1, 1995.
ITEM 4 Submission of Matters to a Vote of Security Holders
None
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
Form 8-K of the Company dated September 12, 1995 (reporting
a definitive Purchase Agreement providing for the investment
of $5,000,000 by a group of directors of the Company)
20
<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: November 20, 1995 By: /s/ Jack K. Lemley
------------------------------------
Jack K. Lemley
Chief Executive Officer
Date: November 20, 1995 By: /s/ Edmund J. Gorman
____________________________________
Edmund J. Gorman
President and Chief Operating Officer
(acting Chief Financial Officer)
21
<PAGE>
EXHIBIT 11.1
AMERICAN ECOLOGY CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Primary Computation Fully Diluted Computation
------------------------------------- --------------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
----------------- ----------------- ----------------- ------------------
1995 1994 1995 1994 1995 1994 1995 1994
------- ------ -------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $(2,232) $1,069 $(36,617) $2,592 $(2,232) $1,069 $(36,617) $2,592
======= ====== ======== ====== ======= ====== ======== ======
Weighted average shares
outstanding:
Common shares outstanding
at end of period 7,826 7,819 7,826 7,819 7,826 7,819 7,826 7,819
Effect of using weighted
average common and
common equivalent shares
outstanding -- -- (4) -- -- -- (4) --
Effect of shares issuable
under stock option plans
based on the treasury
stock method -- 4 -- 11 -- 4 -- 13
------- ------ -------- ------ ------- ------ -------- ------
Shares used in computing
earnings (loss) per
share 7,826 7,823 7,822 7,830 7,826 7,823 7,822 7,832
======= ====== ======== ====== ======= ====== ======== ======
Earnings (loss) per share $ (0.29) $ 0.14 $ (4.68) $ 0.33 $ (0.29) $ 0.14 $ (4.68) $ 0.33
======= ====== ======== ====== ======= ====== ======== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THREE
MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JUL-01-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 1,711 1,711
<SECURITIES> 908 908
<RECEIVABLES> 20,212 20,212
<ALLOWANCES> 1,113 1,113
<INVENTORY> 0 0
<CURRENT-ASSETS> 24,042 24,042
<PP&E> 48,399 48,399
<DEPRECIATION> 23,150 23,150
<TOTAL-ASSETS> 118,988 118,988
<CURRENT-LIABILITIES> 30,580 30,580
<BONDS> 35,299 35,299
<COMMON> 78 78
0 0
1 1
<OTHER-SE> 33,085 33,085
<TOTAL-LIABILITY-AND-EQUITY> 118,988 118,988
<SALES> 51,013 14,881
<TOTAL-REVENUES> 51,013 14,881
<CGS> 51,718 14,045
<TOTAL-COSTS> 51,718 14,045
<OTHER-EXPENSES> 39,725 3,183
<LOSS-PROVISION> 641 186
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (40,685) (2,479)
<INCOME-TAX> (4,068) (247)
<INCOME-CONTINUING> (36,617) (2,232)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (36,617) (2,232)
<EPS-PRIMARY> (4.68) (.29)
<EPS-DILUTED> (4.68) (.29)
</TABLE>
