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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 June 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 July 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>
June 30, December 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,011 $ 231
Investment securities 1,431 1,703
Receivables, net of allowance for doubtful accounts
of $1,371, and $1,749 respectively 20,524 32,019
Deferred income taxes 1,498 991
Prepayments and other 2,679 2,854
-------- --------
Total current assets 28,143 37,798
Cash and investment securities, pledged 13,137 13,175
Property and equipment, net 26,541 30,122
Deferred site development costs 44,377 41,239
Intangible assets relating to acquired businesses, net 6,485 31,313
Other assets 2,184 1,792
-------- --------
$120,867 $155,439
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 11,137 $ 850
Accounts payable 14,063 12,464
Accrued liabilities 19,266 22,921
-------- --------
Total current liabilities 44,466 36,235
Deferred items 19,047 18,666
Long term debt, excluding current portion 25,056 33,493
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, 7,825,628 and 7,818,828
shares issued and outstanding, respectively 78 78
Additional paid-in capital 41,863 41,837
Unrealized gain (loss) on securities available for sale (151) 43
Retained earnings (deficit) (9,492) 25,087
-------- --------
Total shareholders' equity 32,298 67,045
-------- --------
$120,867 $155,439
======== ========
See notes to consolidated financial statements.
</TABLE>
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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ in 000's except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
------ ------ --------- --------
<S> <C> <C> <C> <C>
Revenues $ 16,104 $18,597 $ 36,132 $32,931
Operating costs 18,701 13,477 37,673 25,547
-------- ------- -------- -------
Gross profit (loss) (2,597) 5,120 (1,541) 7,384
Selling, general and administrative expenses 6,091 2,898 9,844 5,306
Impairment losses on long-lived assets 27,153 -- 27,153 --
-------- ------- -------- -------
Income (loss) from operations (35,841) 2,222 (38,538) 2,078
Investment income (198) (118) (332) (339)
-------- ------- -------- -------
Income (loss) before income taxes (35,643) 2,340 (38,206) 2,417
Income tax provision (benefit) (3,155) 866 (3,821) 894
-------- ------- -------- -------
Net income (loss) $(32,488) $ 1,474 $(34,385) $ 1,523
======== ======= ======== =======
Net income (loss) per share, primary $ (4.15) $ 0.19 $ (4.40) $ .20
======== ======= ======== =======
Dividends paid per common share $ -- $ .025 $ .025 $ .05
======== ======= ======== =======
</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>
Six Months Ended June 30,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(34,385) $ 1,523
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 4,369 2,780
Deferred income tax provision 204 468
Gain on sale of assets (530) (31)
Changes in assets and liabilities
Receivables 11,580 1,570
Investment securities classified as trading (334) 287
Other assets (383) (1,848)
Other liabilities (2,863) (4,576)
Deferred site maintenance (829) (1,652)
-------- --------
Total adjustments 38,367 (3,002)
-------- --------
Net cash provided by (used in) operating activities 3,982 (1,479)
-------- --------
Cash flows from investing activities:
Capital expenditures (2,179) (1,922)
Site development costs, including capitalized interest (2,970) (1,893)
Investment in Quadrex Recycle Center -- (20,245)
Proceeds from sale of assets 900 152
Transfers from cash and investment securities, pledged 372 1,195
-------- --------
Net cash used in investing activities (3,877) (22,713)
-------- --------
Cash flows from financing activities:
Proceeds from issuances of indebtedness 18,870 30,800
Repayments of indebtedness (17,020) (10,800)
Proceeds from common stock issuances 20 300
Payment of cash dividends (195) (390)
-------- --------
Net cash provided by financing activities 1,675 19,910
-------- --------
Increase (decrease) in cash and cash equivalents 1,780 (4,282)
Cash and cash equivalents at beginning of period 231 4,416
-------- --------
Cash and cash equivalents at end of period $ 2,011 $ 134
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ -- $ --
Income taxes 86 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
Effective June 30, 1995, the Company and its bank lender agreed to terms of an
amendment to its existing credit facility ("Credit Agreement") to extend the
maturity of the Credit Agreement to January 31, 1997 and to modify other terms.
The amendment to the Credit Agreement will be executed at the completion of
funding the $4,000,000 loan from the group of directors as described below. 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. Interest is payable monthly at a rate
ranging from bank prime to bank prime plus one percent. A $5,000,000 term loan
principal repayment is due on February 28, 1996 and an additional $5,000,000 is
due on May 30, 1996. Other term loan principal repayments of $100,000 are due
monthly beginning April 1996, $200,000 beginning July 1996, and $300,000
beginning October 1996. Based on these terms, $10,300,000 of the total
$35,000,000 of outstanding debt under the Credit Agreement is classified as
current portion of long term debt on the consolidated balance sheet as of June
30, 1995. Other term loan principal repayments are due upon the occurrence of
certain contingent events. 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. Except as described below, the Credit Agreement
restricts the Company from additional borrowings, prohibits payment of
dividends, and limits capital expenditures. As of June 30, 1995, the Company had
no available borrowings under its Credit Agreement. In June 1995, the bank
lender informed the Company that the bank lender believed the Company was in
default under the Credit Agreement because the bank lender believed that the
Company's financing plan, which was submitted by the Company to the bank lender
as required by the Credit Agreement, did not adequately address the bank
lender's concerns. The Company did not believe it was in default under the
Credit Agreement but nonetheless responded in more detail to the bank lender's
concerns. The bank lender subsequently waived the alleged default and 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.
On August 21, 1995, a group of directors of the Company agreed to loan the
Company an aggregate of $5,000,000, $4,000,000 of which is due to be funded to
the Company within twenty days from August 21, 1995, and $1,000,000 which is due
to be funded to the Company by January 5, 1996. The loans are secured equally
and ratably with the debt under the Company's Credit Agreement. However, the
agreed to terms of the amendment to the Credit Agreement effectively subordinate
the repayments to the directors until such time as the bank lender is paid in
full. The loans bear interest at 18% payable quarterly and principal is due in
August 1998. The Company is also obligated to issue the lenders a number of
warrants to purchase Company common stock. The value formula used to determine
the number of warrants issued was determined by an independent investment
banking firm. The agreement with the group of directors contains a provision
which allows any or all members of the group of directors to agree with the
Company's bank lender to have the bank lender provide the $5,000,000 in funds,
or any part thereof, to the Company in exchange for personal guarantees and
collateral to be provided by the group of directors.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations-Capital Resources and Liquidity.
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.
5
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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.
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 June 30, 1995, the Company had deferred
$37,748,000 of pre-operational facility development costs of which $2,130,000
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 $22,304,000 at June 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.
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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 June 30, 1995, the Company
has contributed and deferred approximately $6,629,000, of which $369,000 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 $9,367,000 at June 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, 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 six month periods ended June 30, 1995 and 1994
was $1,530,000 and $187,000, respectively.
7
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NOTE 5. 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 and six months ended
June 30, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
(000's except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net income (loss) $(32,488) $1,474 $(34,385) $1,523
======== ====== ======== ======
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 (5) -- (6) (12)
Effect of shares issuable under stock option
plans based on the treasury stock method -- 11 -- 15
-------- ------ -------- ------
Shared used in computing earnings (loss)
per share 7,821 7,830 7,820 7,822
======== ====== ======== ======
Net income (loss) per common equivalent share $ (4.15) $ .19 $ (4.40) $ .20
======== ====== ======== ======
</TABLE>
NOTE 6. 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 $16,323,000 as of June 30, 1995, is currently unable to pay its on-
going obligations as they become due, and faces uncertainties regarding its
ability to improve short term operating results. The Company's financial
statements as of June 30, 1995 do not contain any adjustments to asset carrying
amounts or for the amount of liabilities that might result from asset
liquidations or the Company's inability to continue as a going concern.
Management's plans in regard to these matters are described below.
Effective June 30, 1995, the Company and its bank lender agreed to terms of an
amendment to its existing Credit Agreement to extend the maturity of the Credit
Agreement to January 31, 1997 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 June 30, 1995, the Company had no available
borrowings under its Credit Agreement. The Company will not be able to generate
sufficient cash flows from operations to make the required principal repayment
of $5,000,000 due at February 28, 1996, the $5,000,000 principal repayment due
on May 30, 1996, or to fund the remaining obligation on its maturity. In order
to comply with the principal repayment terms of the Credit Agreement, the
Company will be required to liquidate certain assets or obtain additional cash
infusions from either private equity placements or other indebtedness as
permitted by the bank lender.
On August 21, 1995, a group of directors of the Company agreed to loan the
Company an aggregate of $5,000,000, $4,000,000 of which is due to be funded to
the Company within twenty days from August 21, 1995, and $1,000,000 which is due
to be funded to the Company by January 5, 1996. The loans are secured equally
and ratably with the debt under the Company's Credit Agreement. However, the
agreed to terms of the amendment to the Credit Agreement effectively subordinate
the repayments to the directors until such time as the bank lender is paid in
full. The loans bear interest at up to 18% and principal is due in August 1998.
The Company is also obligated to issue the lenders a number of warrants to
purchase Company common stock. The value formula used to determine the number of
warrants issued was determined by an independent investment banking firm. The
agreement with the group of directors contains a provision which allows any or
all members of the group of directors to agree with the Company's bank lender to
have the bank lender provide the $5,000,000 in funds, or any part thereof, to
the Company in exchange for personal guarantees and collateral to be provided by
the group of directors. The $5,000,000 proceeds will be used for the Company's
general working capital needs.
The Company's Board of Directors is pursuing a strategic plan for the Company
which involves focusing the Company on its core low-level radioactive waste
disposal and processing operations and, through transactions such as
divestitures, joint ventures or other business combinations, reducing the
Company's operations in the chemical waste business with the long-term goal of
exiting that line of business in its entirety. The proceeds of any such
divestitures would be used first to reduce debt. In connection with its
strategic plan, the Company is in process of restructuring its existing
subsidiaries to form new subsidiaries which will hold all of the Company's
chemical waste operations and LLRW operations, respectively. One of the purposes
of such restructuring is to facilitate potential business combinations with
interested parties which may provide additional sources of capital for either of
these lines of business or for both businesses. The Company is in various stages
of discussions with multiple parties regarding such business combinations. In
addition, the Company is currently pursuing private equity placements in order
to reduce its working capital deficit and fund operations; however, there is no
assurance that the capital required will be available to the Company.
Additionally, the Company has taken several steps in the first and second
quarter of 1995, and is continuing to take additional steps to address the
Company's profitability. First, substantial management changes were made. The
Board of Directors named a new Chief Executive and Chief Operating Officer, and
new managers of Gulf Coast chemical operations, Gulf Coast transportation
operations, and Recycle Center operations were named. Second, the Company took
measures to reduce costs. Such measures include personnel reductions at the
Corporate Office including certain members of senior management and various
sales, operating and administrative personnel at operating sites. Other than
capital required for regulatory compliance at the Winona facility, the Company
has deferred most other capital expenditures planned for 1995. The Company
discontinued certain unprofitable operations including a transportation terminal
in Ohio and its related sales offices, and the remediation services division in
Texas. As a result of corporate personnel reductions and a reorganization of
certain departments, one-half of the corporate office space is in the process of
being subleased. Additionally, a portion of the Company's health insurance
benefits cost was shifted to employees.
9
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Based on the above steps, the Company believes that it has developed a viable
plan to address the Company's cost structure and improve operating results.
However, considering, among other things, the Company's recent losses, and
insufficient cash flow from operations, there can be no assurance that
this plan will be successfully implemented. The Company does not expect to
generate sufficient cash flow from operations to sustain its operations until
1996. To make the required principal repayments under its Credit Agreement, the
Company must raise additional financing or sell assets. There can be no
assurance, however, that any such financing or asset sales will be consummated,
or if consummated, that sufficiently adequate capital will be raised, and 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 six months ended June 30, 1995, the Company generated cash from
operations of $3,982,000. The Company spent $2,179,000 for capital expenditures,
invested $1,440,000 in site development costs for the Ward Valley facility and
incurred capitalized interest of $1,530,000 related to both the Ward Valley
facility and the Butte facility. The Company realized net proceeds of $900,000
from the sales of excess site equipment at various facilities and sales of
vehicles and other 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.
Additionally, the Company is in process of pursuing new business. The Company
has made an unsolicited proposal to the Department of Energy ("DOE") to dispose
of large volumes of LLRW located at the DOE's Hanford site into the Company's
Richland, Washington facility which is located on the Hanford Reservation. The
Company believes that the economics of its proposal should be very attractive to
the DOE; however, non-economic factors could affect the DOE's decision regarding
acceptance of the Company's proposal.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
The Company reported a net loss of $32,488,000 for the three months ended June
30, 1995 compared to net income of $1,474,000 for the three months ended June
30, 1994. The 1995 results included pretax charges totaling $31,611,000 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 a loss from operations of $4,230,000 for the
1995 period as compared to income from operations of $773,000 for the 1994
period.
REVENUES
Revenues for the second quarter of 1995 decreased $2,493,000, or 13%, compared
to the second quarter of 1994.
10
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Hazardous waste revenues decreased $537,000. The discontinuation of
transportation operations in the Midwest and remediation services in the Gulf
Coast during the first quarter of 1995 resulted in decreased revenues of
$1,929,000. Disposal and related transportation and field services revenues at
the Beatty, Nevada disposal facility and the Robstown, Texas disposal facility
decreased $1,220,000 due to composite volume declines of nearly 50%, offset in
part by higher average prices of approximately 60%. An increase in revenues of
$2,797,000 was attributable to the Winona facility which was acquired on
December 31, 1994.
Low-level radioactive waste ("LLRW") revenues decreased $1,956,000. Brokerage
services decreased $1,794,000 due to the closing of Chem-Nuclear's Barnwell,
South Carolina disposal facility to waste generated outside of the Southeast
Compact for the period from January to June 1995. Additionally, LLRW
remediation project revenues decreased $940,000 from the 1994 period due to 1994
successes in this service market which have not recurred in 1995. Revenues for
the Richland, Washington disposal facility decreased $427,000 due to the timing
of recognition of regulated revenues which is based on a proportion of expected
volumes to be received by the facility. An increase in LLRW revenues of
$1,111,000 was attributable to the Recycle Center which was acquired in
September 1994. An adjustment of $1,000,000 was made during the second quarter
of 1995 to reduce revenues for the Recycle Center to reverse a portion of
amounts previously recognized for an estimated business interruption claim
receivable from the insurance carrier for fire damages which occurred in July
1994.
OPERATING COSTS AND GROSS PROFIT (LOSS)
Total operating costs as a percentage of revenues for the three months ended
June 30, 1995 and 1994 were 116% and 73%, respectively. Both periods' operating
costs included unusual events or non-recurring adjustments.
Operating costs increased $5,224,000 for the second quarter of 1995 compared to
the second quarter of 1994. An increase of $6,889,000 was due to the
acquisitions of the Recycle Center and the Winona facility in September and
December 1994, respectively. Operating costs for the Recycle Center included
non-recurring charges of $447,000 comprised of an estimated settlement for
backpay for certain union employees of the Quadrex Recycle Center which were not
hired by the American Ecology Recycle Center and $100,000 for severance costs of
certain Recycle Center employees. Additionally, the second quarter of 1995
operating costs included a charge of $260,000 for the excess of carrying value
over the estimated net realizable value of real property held for sale, charges
totaling $230,000 for writedowns of permit costs associated with the
discontinued transportation and remediation services businesses and for
estimated litigation losses associated with claims against WPI, and a $75,000
charge for the costs of relocating the LLRW packaging and transportation
business office from Ohio to the Recycle Center.
Operating costs for the second quarter of 1994 included a $1,000,000 settlement
to be paid to the Company by the Commonwealth of Kentucky regarding the Maxey
Flats LLRW disposal site. The Company also received insurance settlements of
$328,000 relating to medical claims and environmental costs of the Company's
closed sites during this period.
Exclusive of the operating cost increases due to acquired businesses in 1994 and
non-recurring charges, operating costs for the second quarter of 1995 would have
been $11,247,000, or 89 % of revenues excluding the revenues of the acquired
businesses in 1994, compared to operating costs of 80% of revenues for the
second quarter of 1994. The decline in operating profit between the periods is
attributable to decreased disposal revenues at the hazardous disposal
facilities, a decline in LLRW remediation project services and the costs of
discontinuing the transportation operations of Transtec, Inc.
11
<PAGE>
As a result of the impairment losses on long-lived assets recognized in the
second quarter of 1995 related to property and equipment, future depreciation
expense is expected to be reduced by approximately $200,000 annually.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the second quarter of
1995 were $6,091,000 compared to $2,898,000 for the second quarter of 1994.
Included in SG&A for the 1995 period are several unusual events and non-
recurring accounting adjustments which increased SG&A by $2,346,000. These
expenses related principally to severance of 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 expenses, SG&A
was $3,745,000, an increase of $847,000 as compared to the second quarter of
1994. The increase of $847,000 was due principally to selling costs of
$532,000, goodwill amortization of $244,000 related to the acquisitions of both
the Recycle Center and the Winona facility in September and December 1994,
respectively, and amortization of deferred debt issuance costs of $185,000.
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.
IMPAIRMENT LOSSES ON 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 a chemical
remediation services operation, both acquired as part of the WPI acquisition in
March 1993, have been discontinued. Changes in the marketplace and competitive
situations in certain
12
<PAGE>
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.
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 June 30, 1995, the Company reported an unrealized
loss of $204,000, $151,000 net of tax, on securities available-for-sale as a
component of shareholders' equity. The realized gain or loss of securities
available-for-sale will be included as a component of investment income upon
sale.
INCOME TAXES
For the three months ended June 30, 1995, the Company reported an effective
income tax benefit rate of 9% compared to an effective tax rate of 37% for the
1994 period. The 1995 rate was substantially lower than the statutory rates due
to the significant portion of the quarter's loss attributable to non-deductible
goodwill writedowns and to the Company's inability to recognize net operating
loss carryforwards.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
The Company reported a net loss of $34,385,000 for the six months ended June 30,
1995 compared to net income of $1,523,000 for the six months ended June 30,
1994. The 1995 results included pretax charges totaling $30,875,000 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 a loss from operations of $7,663,000 for the
1995 period as compared to income from operations of $275,000 for the 1994
period.
REVENUES
Revenues for the six months ended June 30, 1995 increased $3,201,000, or 10%,
compared to the six months ended June 30, 1994.
Hazardous waste revenues increased $2,757,000. An increase in revenues of
$5,817,000 was attributable to the Winona facility which was acquired on
December 31, 1994. The discontinuation of transportation operations in the
Midwest and remediation services in the Gulf Coast during the first quarter of
1995 resulted in decreased revenues of $2,619,000. Disposal and related
transportation and field services revenues at the Beatty, Nevada disposal
facility and the Robstown, Texas disposal facility decreased $630,000 due to
composite volume declines of 37%, offset in part by higher average disposal
prices of approximately 37%.
13
<PAGE>
Low-level radioactive waste ("LLRW") revenues increased $444,000. An increase in
LLRW revenues of $3,631,000 was attributable to the Recycle Center which was
acquired in September 1994. An adjustment of $200,000 was made during the 1995
period to reduce revenues for the Recycle Center to reverse a portion of amounts
previously recognized for an estimated business interruption claim receivable
from the insurance carrier for fire damages which occurred in July 1994.
Brokerage services decreased $2,454,000 due to the closing of the Barnwell,
South Carolina disposal facility to waste generated outside of the Southeast
Compact for the period from January to June 1995. Additionally, LLRW
remediation project revenues decreased $1,105,000 from the 1994 period due to
1994 successes in this service market which have not recurred in 1995. Revenues
from the naturally occurring radioactive materials ("NORM") disposal business
increased by $1,361,000 for the 1995 period due to the 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 $590,000 due to the timing of recognition
of regulated revenues which is based on a proportion of expected volumes to be
received by the facility.
OPERATING COSTS AND GROSS PROFIT (LOSS)
Total operating costs as a percentage of revenues for the six months ended June
30, 1995 and 1994 were 104% and 78%, respectively. Both periods' operating
costs included unusual events or non-recurring adjustments.
Operating costs increased $12,126,000 for the six months ended June 30, 1995
compared to the six months ended June 30, 1994. An increase of $12,578,000 was
due to the acquisitions of the Recycle Center and the Winona facility in
September and December 1994, respectively. Operating costs for the Recycle
Center included a non-recurring charge of $547,000 comprised of an estimated
settlement for backpay for certain union employees of the Quadrex Recycle Center
which were not hired by the American Ecology Recycle Center and for severance
costs of certain Recycle Center employees. Additionally, the 1995 period's
operating costs included a charge of $260,000 for the excess of carrying value
over the estimated net realizable value of real property held for sale, charges
totaling $230,000 for writedowns of permit costs associated with the
discontinued transportation and remediation services businesses and for
estimated litigation losses associated with claims against WPI, and a $75,000
charge to accrue the costs of relocating the LLRW packaging and transportation
business office from Ohio to the Recycle Center.
Operating costs for the 1994 period included a $1,000,000 settlement to be paid
to the Company by the Commonwealth of Kentucky regarding the Maxey Flats LLRW
disposal site. The Company also received insurance settlements of $328,000
relating to medical claims and environmental costs of the Company's closed sites
during this period.
Exclusive of the operating cost increases due to acquired businesses in 1994 and
non-recurring charges, operating costs for the 1995 period would have been
$24,530,000, or 91 % of revenues excluding the revenues of the acquired
businesses in 1994, compared to operating costs of 82% of revenues for the 1994
period. The decline in operating profit between the periods is attributable to
decreased disposal revenues at the hazardous disposal facilities, a decline in
LLRW remediation project services and the costs of discontinuing the
transportation operations of Transtec, Inc.
As a result of the impairment losses on long-lived assets recognized in the
second quarter of 1995 related to property and equipment, future depreciation
expense is expected to be reduced by approximately $200,000 annually.
14
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the six months ended
June 30, 1995 were $9,844,000 compared to $5,306,000 for the six months ended
June 30, 1994. Included in SG&A for the 1995 period are several unusual events
and non-recurring accounting adjustments which increased SG&A by $2,410,000.
These expenses related principally to severance of 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 expenses, SG&A
was $7,434,000, an increase of $2,128,000 as compared to the 1994 period. The
increase of $2,128,000 was due principally to selling costs of $1,174,000 and
goodwill amortization of $488,000 related to the acquisitions of both the
Recycle Center and the Winona facility in September and December 1994,
respectively, amortization of deferred debt issuance costs of $350,000, and an
increase in professional fees at the corporate office 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.
IMPAIRMENT LOSSES ON 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 is discussed in more detail under Results of Operations for the Three
Months Ended June 30, 1995.
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 June 30, 1995, the Company reported an unrealized
loss of $204,000, $151,000 net of tax, on securities available-for-sale as a
component of shareholders' equity. The realized gain or loss of securities
available-for-sale will be included as a component of investment income upon
sale.
INCOME TAXES
For the six months ended June 30, 1995, the Company reported an effective income
tax benefit rate of 10% compared to an effective tax rate of 37% for the 1994
period. The 1995 rate was substantially lower than the statutory rates due to
the significant portion of the period's loss attributable to non-deductible
goodwill writedowns and to the Company's inability to recognize net operating
loss carryforwards.
15
<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. 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 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. Depending on the success of either the permit challenge or a
negotiated alternative, 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. 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. The Company is now pursuing those remedies, and a
hearing before the Board of Tax Appeals is scheduled for later this year. The
County has subsequently submitted tax statements to the Company for 1992, 1993
and 1994, in the aggregate amount of an additional $1.9 million. Management
believes that the County's assessments were improper and intends to vigorously
defend this matter in the courts and through any appropriate administrative
process.
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
16
<PAGE>
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 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. On August 4, 1995, a jury in one of the lawsuits
found that the Company's Winona facility did not commit any trespass of the
plaintiffs' property and awarded nothing in damage.
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. On May 31, 1995, Interior Secretary Bruce Babbitt announced his
intentions to transfer the Ward Valley site property to the State of California,
subject to commitments by the state to implement certain recommendations set
forth in the NAS Report. The Secretary also indicated that no further hearings
were necessary prior to the land
17
<PAGE>
transfer. Consistent with this announcement, the federal Bureau of Land
Management's California director issued the Proposed Ward Valley Land
Classification Decision on June 30, 1995 for comment by affected parties. The
proposed decision is to convey the property by direct sale to the California
Department of Health Services (DHS), as requested by Governor Wilson. A
competing claim by the California State Lands Commission is to be denied. The
Company has formally indicated its support for the proposed decision.
Currently, state and federal officials are meeting to define the specific terms
and state commitments required to satisfy the conditions set forth by Secretary
Babbitt on May 31. The Company believes the land will be transferred but cannot
predict when the land transfer will be completed or the potential for litigation
challenging the action in federal court.
Litigation challenging the DHS' September 1993 decision to license disposal
facility construction and operation has been briefed to the Second District
Court of Appeals. Oral arguments will be held in Los Angeles on August 24,
1995.
The Company has received invoices from the Southeast Compact Commission for
approximately $1.5 million and a notice that an additional $1.5 million could
also be subsequently invoiced. The invoices relate to an access fee for the
Barnwell, South Carolina LLRW 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 registered an objection to the Commission's action with the Department
on the basis of South Carolina law. Subsequently, the State of South Carolina
has withdrawn from the Southeast Compact Commission and is providing access to
all LLRW generators in the United States except those in North Carolina. The
Southeast Compact Commission no longer has regulatory or administrative
authority over the Barnwell facility. 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.
18
<PAGE>
Significant discovery is underway. Based on discovery to date, the Company does
not believe that the claims against its subsidiary are meritorious and intends
to vigorously defend against such claims. Furthermore, the Company is pursuing 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. 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 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.
In early 1994, the Company received a notice from an individual purporting to
own debt secured by certain real property in Midlothian, Texas. The individual
alleged 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 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
19
<PAGE>
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.
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
The Company held its Annual Meeting of Stockholders on May 24, 1995. At such
meeting, Jack J. Agresti, George L. Ball, Patricia M. Eckert, John H. Harris,
Jr., Edward F. Heil, Jack K. Lemley, Ira J. Kaufman, John J. Scoville and Paul
F. Schutt were elected to serve as directors of the Company for the next year.
Subsequently, the Board of Directors expanded the size of the Board to ten
members and elected Harry J. Phillips, Jr. to the Board. The appointment of
Arthur Andersen LLP as the Company's independent public accountants for the year
ending December 31, 1995 was ratified.
The voting on such items were as follows:
<TABLE>
<CAPTION>
(1) Election of Directors
<S> <C> <C>
Voted Against or
For Withheld Authority
--------- --------------------
Jack J. Agresti 7,688,592 34,538
George L. Ball 7,689,093 34,037
John H. Harris, Jr. 7,702,346 20,784
Edward F. Heil 7,692,489 30,641
Jack K. Lemley 7,690,176 32,954
Ira J. Kaufman 7,690,909 32,221
Paul F. Schutt 7,692,496 30,634
John J. Scoville 7,692,356 30,774
Patricia M. Eckert 7,687,668 35,462
</TABLE>
20
<PAGE>
(2) Ratify Appointment of Independent Auditors
For Against Abstain
--------- ------- -------
7,697,783 6,898 11,105
ITEM 6 Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Amendment to the American Ecology Corporation 401(K)
Savings Plan dated August 15, 1995
11.1 Statement Re: Computation of Per Share Earnings.
27 Financial Data Schedule
b. Reports on Form 8-K
None.
21
<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: August 19, 1995 By: /s/ Jack K. Lemley
__________________________________
Jack K. Lemley
Chief Executive Officer, President
and Chief Operating Officer
Date: August 22, 1995 By: /s/ C. Clifford Wright, Jr.
__________________________________
C. Clifford Wright, Jr.
Vice President,
Chief Financial Officer and Treasurer
Date: August 22, 1995 By: /s/ Harry O. Nicodemus, IV
__________________________________
Harry O. Nicodemus, IV
Vice President,
Chief Accounting Officer and Controller
22
<PAGE>
AMENDMENT TO THE AMERICAN ECOLOGY CORPORATION
---------------------------------------------
401(K) SAVINGS PLAN RESTATED JANUARY 1, 1993
--------------------------------------------
WHEREAS, American Ecology Corporation ("Employer") has heretofore adopted
the American Ecology Corporation 401(k) Savings Plan Restated January 1, 1993
(the "Plan"); and
WHEREAS, pursuant to Section 8.1 of the Plan, the Employer has reserved the
right to amend the Plan; and
WHEREAS, the Employer desires to amend the Plan to provide that Employer
contributions to the Plan shall be made in common stock of the Employer.
NOW, THEREFORE, the Plan is hereby amended as follows, effective on
September 1, 1995, except as specifically otherwise provided herein:
1. The second sentence in Section 4.1(d) of the Plan is amended in its
entirety as follows:
"From and after September 1, 1995, all contributions under Section 4.1(a)
and Section 4.1(c) by the Employer shall be made in cash or such other
property as is acceptable to the Trustee. From and after September 1, 1995,
the contributions by the Employer under Section 4.1(b) shall be made in the
form of ACommon Stock.A Common Stock shall mean the common stock of
American Ecology Corporation. The Plan may acquire and hold common stock in
accordance with Sections 407 and 408 of ERISA."
2. The third sentence in Section 4.12(a) shall be amended to add the
following at the end thereof:
", except that contributions in Common Stock shall remain invested in
Common Stock absent other investment directions by a Participant."
3. New Subsection 4.11(j) shall be added as follows:
"(j) Notwithstanding the foregoing from and after August 15, 1995, amounts
in a Participant's Rollover Account shall be distributed in accordance with
the provisions herein applicable to a Participant's Elective Account."
1
<PAGE>
4. New Section 6.14 shall be added as follows:
"6.14 Loans: Effective January 1, 1996, a Participant, the Beneficiary
of a Participant, alternate payee or any Aparty in interestA (as, defined
in ERISA Section 3(14)) who is a former Participant (hereinafter
ABorrowerA) may make application to the Administrator to borrow from the
Participant's Elective Contribution Account, the Participant's Rollover
Account, if any, and the Vested portion of the Participant's Account
containing the Employer's Non-Elective Contribution, maintained by or for
the Borrower in the Trust Fund, and the Administrator in its sole
discretion may permit such a loan. Loans shall be granted in a uniform and
non-discriminatory manner on terms and conditions determined by the
Administrator which shall not result in more favorable treatment of highly
compensated employees and shall be set forth in written procedures
promulgated by the Administrator in accordance with applicable governmental
regulations. All such loans shall also be subject to the following terms
and conditions:
(a) The amount of the loan, when added to the amount of any
outstanding loan or loans to the Borrower from any other plan of the
Employer or an Affiliated Employer which is qualified under Section 401(a)
of the Code, shall not exceed the lesser of (i) $50,000, reduced by the
excess, if any, of the highest outstanding balance of loans from all such
plans during the one-year period ending on the day before the date on which
such loan was made over the outstanding balance of loans from the Plan on
the date on which such loan was made or (ii) fifty percent (50%) of the
present value of the Borrower's total Vested account balance under the
Plan. In no event shall a loan of less than $1,000 be made to a Borrower. A
Borrower may not have more than one (1) loan outstanding at a time under
this Plan, and a Borrower will be limited to a maximum of one (1) loan per
year from this Plan.
(b) The loan shall be for a term not to exceed five (5) years, and
shall be evidenced by a note signed by the Borrower. The loan shall be
payable in periodic installments and shall bear interest at a reasonable
rate which shall be determined by the Administrator on a uniform and
consistent basis and set forth in the procedures in accordance with
applicable governmental regulations. Payments by a Borrower who is an
Employee will be made by means of payroll deduction from the Borrower's
compensation. If a Borrower is not receiving compensation from the
Employer, the loan repayment shall be made in accordance
2
<PAGE>
with the terms and procedures established by the Administrator. A Borrower
may repay an outstanding loan in full at any time.
(c) In the event an installment payment is not paid within seven (7)
days following the monthly due date, the Administrator shall give written
notice to the Borrower sent to his last known address. If such installment
payment is not made within thirty (30) days thereafter, the Administrator
shall proceed with foreclosure in order to collect the full remaining loan
balance or shall make other arrangements with the Borrower as the
Administrator deems appropriate. Foreclosure need not be effected until
occurrence of a distributable event under the terms of the Plan and no
rights against the Borrower or the security shall be deemed waived by the
Plan as a result of such delay.
(d) The unpaid balance of the loan, together with interest thereon,
shall become due and payable upon the date of distribution of the
Borrower's account under the Plan and the Trustee shall first satisfy the
indebtedness from the amount payable to the Borrower or to the Borrower's
Beneficiary before making any payments to the Borrower or to the Borrower's
Beneficiary.
(e) Any loan to a Borrower under the Plan shall be adequately secured.
Such security may include a pledge of a portion of the Borrower's right,
title and interest in the Trust Fund which shall not exceed fifty percent
(50%) of the present value of the Borrower's Vested account balance under
the Plan as determined immediately after the loan is extended. Such pledge
shall be evidenced by the execution of a promissory note by the Borrower
which shall grant the security interest and provide that, in the event of
any default by the Borrower on a loan repayment, the Administrator shall be
authorized to take any and all appropriate lawful actions necessary to
enforce collection of the unpaid loan.
(f) A request by a Borrower for a loan shall be made in writing to the
Administrator and shall specify the amount of the loan. If a Borrower's
request for a loan is approved by the Administrator, the Administrator
shall furnish the Trustee with written instructions directing the Trustee
to make the loan in a lump-sum payment of cash to the Borrower. The cash
for such payment shall be obtained by redeeming proportionately as of the
date of payment the investment fund or investment funds, or
3
<PAGE>
portions thereof, that are credited to the particular account of such
Borrower.
(g) A loan to a Borrower shall be considered an investment of the
separate account(s) of the Borrower from which the loan is made. All loan
repayments shall be credited pro rata to such separate account(s) and
reinvested exclusively in shares of one or more of the investment funds in
accordance with the Borrower's most recent investment direction made in
accordance with Section 4.12."
IN WITNESS WHEREOF, the Employer has executed this amendment on August 15,
1995.
AMERICAN ECOLOGY CORPORATION
By:_____________________________________
C. Clifford Wright, Jr.
Vice President, Chief Financial
Officer and Treasurer
4
<PAGE>
EXHIBIT 11.1
AMERICAN ECOLOGY CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Primary Computation Fully Diluted Computation
---------------------------------------------- -----------------------------------------
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
------------------------ -------------------- ------------------- ------------------
1995 1994 1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $(32,488) $1,474 $(34,385) $1,523 $(32,488) $1,474 $(34,385) $1,523
======== ====== ======== ====== ======== ====== ======== ======
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
common equivalent shares
outstanding (5) -- (6) (12) (5) -- (6) (12)
Effect of shares issuable
under stock option plans
based on the treasury
stock method -- 11 -- 15 -- 11 -- 18
-------- ------ -------- ------ -------- ------ -------- ------
Shares used in computing
earnings (loss) per
share 7,821 7,830 7,820 7,822 7,821 7,830 7,820 7,825
======== ====== ======== ====== ======== ====== ======== ======
Earnings (loss) per share $ (4.15) $ 0.19 $ (4.40) $0.19 $ (4.15) $ 0.19 $ (4.40) 0.19
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND THREE MONTHS ENDED JUNE
30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 APR-01-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 2,011 2,011
<SECURITIES> 1,431 1,431
<RECEIVABLES> 21,895 21,895
<ALLOWANCES> 1,371 1,371
<INVENTORY> 0 0
<CURRENT-ASSETS> 28,143 28,143
<PP&E> 47,700 47,700
<DEPRECIATION> 21,159 21,159
<TOTAL-ASSETS> 120,867 120,867
<CURRENT-LIABILITIES> 44,466 44,466
<BONDS> 25,056 25,056
<COMMON> 78 78
0 0
0 0
<OTHER-SE> 32,220 32,220
<TOTAL-LIABILITY-AND-EQUITY> 120,867 120,867
<SALES> 36,132 16,104
<TOTAL-REVENUES> 36,132 16,104
<CGS> 37,673 18,701
<TOTAL-COSTS> 37,673 18,701
<OTHER-EXPENSES> 36,542 32,931
<LOSS-PROVISION> 455 313
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (38,206) (35,643)
<INCOME-TAX> (3,821) (3,155)
<INCOME-CONTINUING> (34,385) (32,488)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (34,385) (32,488)
<EPS-PRIMARY> (4.40) (4.15)
<EPS-DILUTED> (4.40) (4.15)
</TABLE>
