<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
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)
<TABLE>
<S> <C>
DELAWARE 95-3889638
--------------------------------------------- -------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
805 W. Idaho
Suite #200
BOISE, IDAHO 83702-8916
----------------------------------------- -----------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(208) 331-0135
(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 April 30, 1996 Registrant had outstanding 7,825,628 shares of its Common
Stock.
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52 $ 229
Investment securities 495 523
Receivables - trade and other, net of allowance for
doubtful accounts of $1,373, and $1,322 respectively 13,209 16,938
Income taxes receivable 5,745 5,339
Insurance claim receivable 2,538 2,538
Prepayments and other 1,326 1,675
----------- -----------
Total current assets 23,365 27,242
Cash and investment securities, pledged 13,913 13,770
Property and equipment, net 21,273 21,764
Deferred site development costs 48,962 47,364
Intangible assets relating to acquired businesses, net 480 486
Other assets 3,490 3,499
----------- -----------
Total assets $ 111,483 $ 114,125
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loan $ 7,444 $ 6,416
Current portion of long term debt 797 780
Accounts payable 13,059 13,376
Accrued liabilities 18,012 21,022
Deferred site maintenance, current portion 1,757 1,763
----------- -----------
Total current liabilities 41,069 43,357
Long term debt, excluding current portion 31,266 28,357
Deferred site maintenance, excluding current portion 20,098 20,387
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, 105,264 shares authorized, issued and
outstanding (liquidation preference of $47.50 per share) 1 1
Common stock, $.01 par value, 20,000,000
shares authorized, 7,825,628 shares issued and outstanding 78 78
Additional paid-in capital 46,762 46,762
Unrealized gain (loss) on securities available-for-sale (743) (718)
Retained earnings (deficit) (27,048) (24,099)
----------- -----------
Total shareholders' equity 19,050 22,024
----------- -----------
Total Liabilities and Shareholders' Equity $ 111,483 $ 114,125
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 3
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ in 000's except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
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<S> <C> <C>
Revenues $ 12,150 $ 19,750
Operating costs 12,543 18,972
---------- ----------
Gross profit (loss) (393) 778
Selling, general and administrative expenses 3,317 3,753
---------- ----------
Loss from operations (3,710) (2,975)
Investment income (180) (134)
Gain on sale of assets (13) (41)
Other income (229) (237)
---------- ----------
Loss before income taxes (3,288) (2,563)
Income tax benefit (329) (666)
---------- ----------
Net loss (2,959) (1,897)
Preferred stock dividends 104 --
---------- ----------
Net loss available to common shareholders $ (3,063) $ (1,897)
========== ==========
Net loss per share, primary $ (.39) $ (.24)
========== ==========
Dividends paid per common share $ -- $ .025
========== ==========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,959) $ (1,897)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 917 2,081
Deferred income tax provision (benefit) (406) 728
Gain on sale of assets (7) (41)
Changes in assets and liabilities
Receivables 3,729 4,707
Investment securities classified as trading 28 86
Other assets 271 (430)
Accounts payable and accrued liabilities (3,328) (1,769)
Deferred site maintenance (295) (469)
----------- -----------
Total adjustments 909 4,893
----------- -----------
Net cash provided by (used in) operating activities (2,050) 2,996
----------- -----------
Cash flows from investing activities:
Capital expenditures (393) (1,717)
Site development costs, including capitalized interest (1,598) (1,516)
Proceeds from sales of property and equipment 53 54
Transfers from cash and investment securities, pledged (143) 127
----------- -----------
Net cash used in investing activities (2,081) (3,052)
----------- -----------
Cash flows from financing activities:
Proceeds from issuances of indebtedness 10,859 8,070
Repayments of indebtedness (6,905) (8,050)
Payment of cash dividends -- (195)
----------- -----------
Net cash provided by (used in) financing activities 3,954 (175)
----------- -----------
Increase (decrease) in cash and cash equivalents (177) (231)
Cash and cash equivalents at beginning of period 229 231
----------- -----------
Cash and cash equivalents at end of period $ 52 $ --
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ -- $ 7
Income taxes -- 48
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
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, 1995, 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
On June 30, 1995, the Company refinanced its prior bank debt under the terms of
a Second Amended and Restated Credit Agreement ("Credit Agreement"). The
secured bank credit facility matures on December 31, 1998 and is comprised of a
$27,000 term Loan ("Term Loan"), an $8,000,000 revolving credit loan
("Revolver"), and a $5,000,000 standby letter of credit facility. Accelerated
Term Loan principal repayments are due upon occurrence of certain contingent
events, including the opening of the Ward Valley Facility and sales of assets.
Upon closing of the Credit Agreement on June 30, 1995, the lender bank agreed
to accept a note, known as the Fee Capitalization Note, from the Company to
capitalize the fees associated with the Credit Agreement. The note, which
provides for borrowings up to $4,000,000, includes an initial amount of
$1,000,000 representing the fees (including previously deferred fees) to
compensate the bank for the restructured commitment. The Fee Capitalization
Note 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
Capitalization Note with shares of the Company's common stock.
As of March 31, 1996 the Company had borrowings of $38,433,000 outstanding
under its Credit Agreement. The outstanding balance under the Revolver is
included as a component of current liabilities based on the terms of the Credit
Agreement.
Interest on the Term Loan and Revolver is accrued daily at a rate equal to the
bank's prime rate, as it changes, plus 1% with that rate increasing by 0.25%
each calendar quarter. As of March 31, 1996 the Company's actual accrual
interest rate was 9.75%. Each month, the Company pays interest at a rate, known
as the pay rate, which is equal to the bank's prime rate, as it changes. As of
March 31, 1996, the actual interest rate was 8.25%. The incremental difference
between the accrual rate and the pay rate calculated each month is capitalized
into the Fee Capitalization Note. Each month, the Company accrues and pays
interest on the Fee Capitalization Note at a rate equal to the bank's prime
rate, as it changes, which was 8.25% at March 31, 1996.
On February 7, 1996 the Company entered into an agreement (First Amendment to
Second Amended and Restated Credit Agreement) with its bank for the issuance of
a note, the Advance Note, in the amount of $4,000,000. This note was issued to
provide the Company working capital funds over and above the availability of
the Revolver and matures on the earlier of June 30, 1996 or upon obtaining the
tax refund attributable to carrybacks of 1995 tax losses or other receipts, as
defined. Interest on the Advance Note accrues at a rate equal to the bank's
prime rate, as it changes, plus 1.5% and is paid monthly by the Company. The
Advance Note is entitled to the benefits of the Credit Agreement. Also on
February 7, 1996 the bank issued a $1,100,000 standby letter of credit on
behalf of the Company.
Borrowings under the Credit Agreement are secured by substantially all of the
Company's assets. Additionally, the holders of the Company's 8 3/8% Series D
Cumulative Convertible Preferred Stock have pledged the preferred stock as
security for the Credit Agreement. The Credit Agreement requires, among other
things, the maintenance of certain financial covenants including (i) minimum
consolidated net worth, as defined, of $18 million through June 30, 1996 and
minimum consolidated net worth to remain at the June 30, 1996 level for the
remainder of 1996, subject to certain adjustments thereafter, and (ii) minimum
monthly and quarterly earnings, as defined, of $250,000 and $1 million,
respectively, for the third and fourth quarters of 1996, subject to certain
adjustments thereafter. Further, the Credit Agreement requires the Company to
maintain a lock box arrangement for cash receipts with the bank and restricts
the Company from additional borrowings, prohibits payment of dividends on
common stock, and limits capital expenditures. Under the terms of the Credit
Agreement, the bank may accelerate the maturity of debt in the event of
violation of any covenant of the Credit Agreement or if a material adverse
event is deemed by the bank to have occurred. The Company has obtained waivers
from the bank for certain financial and other covenant violations during 1995
and for the first and second quarters of 1996. If the Company is unable to
remain in compliance with the terms of the Credit Agreement or is unable to
obtain additional waivers in the event of a default and the bank accelerates
maturity of the Credit Agreement, the Company does not have adequate financial
resources to retire the debt. As a result, the Company's operations may be
negatively impacted. While management believes the Company will be able to
remain in compliance with the terms of the Credit Agreement or obtain waivers
in the event of default, there are no assurances such levels of compliance will
be achieved or further forebearance will be provided by the bank.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources and Liquidity.
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<PAGE> 6
NOTE 3. DEFERRED SITE DEVELOPMENT COSTS
The Company has been selected to locate, develop and operate the low-level
radioactive waste ("LLRW") facilities for the Southwestern Compact ("Ward Valley
facility") and the Central Interstate Compact ("Butte facility").
The license application for the Southwestern Compact was approved by the
California Department of Health Services ("DHS") in September 1993. All costs
related to the development of the Ward Valley facility have been paid and
capitalized by the Company. As of March 31, 1996, the Company had deferred
$42,270,000 of pre-operational facility development costs of which $4,591,000
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 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 ("CIC") 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 CIC. As of March 31, 1996, the Company has contributed
and deferred approximately $6,692,000, of which $600,000 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 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.
In the event the Butte facility license is not granted, operations of either
facility do not commence or the Company is unable to recoup its investments
through legal recourse, the Company would suffer losses that would have a
material adverse effect on its financial position and results of operations.
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 while the facilities being developed are
undergoing activities to ready them for their intended use. Interest
capitalized during the three month periods ended March 31, 1996 and 1995 was
$942,000 and $705,000, respectively.
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<PAGE> 7
NOTE 4. NET LOSS PER SHARE
The calculation of net loss per common and common equivalent share for
the three months ended March 31, 1996 and 1995, respectively, is
as follows:
<TABLE>
<CAPTION>
(000's except
per share amounts)
Three Months Ended
March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net loss $ (2,959) $ (1,897)
Adjustments to net loss:
Preferred stock dividends 104 --
---------- ----------
Adjusted net loss available to common shareholders (3,063) (1,897)
Weighted average shares outstanding:
Common shares outstanding at end of period 7,826 7,819
Effect of using weighted average common
and common equivalent shares outstanding 4 --
---------- ----------
Shares used in computing loss
per share 7,822 7,819
========== ==========
Net loss per common equivalent share $ (.39) $ (.24)
========== ==========
</TABLE>
NOTE 5. 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 13 to the financial statements included in the Company's 1995
Annual Report on Form 10-K.
- 7 -
<PAGE> 8
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 $17,704,000 as of March 31, 1996, 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 March 31, 1996, 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
March 31, 1996, the Company had available borrowings of $1,840,000 under
its Credit Agreement.
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 businesses. The Company has been reorganized
under those respective lines and conducts its radioactive waste disposal and
processing under the name U.S. Ecology Company and conducts its chemical
business under the name American Ecology Chemical Services Company. 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 appointed two new officers, a Treasurer and a Vice-President of
Administration.
Measures to Reduce Costs
The Company continues the effort which began early in 1995 to reduce costs.
These include further reducing personnel, among them certain members of senior
management, and various sales, operating, and administrative personnel. The
Company is decentralizing responsibility to the LLRW and chemical waste
operating groups and has transferred most of the functions formerly 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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<PAGE> 9
Valley facility and for regulatory compliance at the Winona facility, the
Company has deferred almost all other capital expenditures planned for 1996. 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, effective March 1, 1996, the
corporate office was relocated to smaller space in Boise, Idaho and negotiations
are in progress to sublease the corporate office space in Houston, Texas.
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 March 31, 1996, the Company had negative cash flows
from operations of $2,050,000, spent $393,000 for capital expenditures, invested
$656,000 in site development costs for the Ward Valley facility and incurred
capitalized interest of $942,000 related to the Ward Valley and Butte
facilities.
FUTURE CONSIDERATIONS
As a result of the changes to its management and operations in 1996, 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 federal income tax refunds of
approximately $6,700,000 during the second quarter of 1996. In April 1996,
$5,947,000 of such tax refunds were received and $4,000,000 of the proceeds was
used to pay down a short-term bank loan entered into in February 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 has a $2,538,000 receivable recorded for these claims at
March 31, 1996. In May 1996, the Company received a $1,800,000 portion of the
claim, which will be used to replace property and equipment damaged in the fire.
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<PAGE> 10
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The Company reported a net loss of $2,959,000 for the three months ended
March 31, 1996, compared to a net loss of $1,897,000 for the three months ended
March 31, 1996.
REVENUES
Revenues for the first quarter of 1996 decreased $7,600,000, or 62% decline,
compared to the first quarter of 1995.
Low-level radioactive waste ("LLRW") revenues decreased $3,873,000. LLRW
remediation project revenues decreased due to the completion of certain
projects. Revenues for the Richland, Washington, disposal facility were
$1,118,000 for the quarter, a decrease of $65,000 from the prior year period due
to severe weather conditions in the Northwest.
Chemical waste revenues increased $3,539,000. Disposal revenues generated by the
Company's chemical waste landfill operation in Beatty, Nevada, decreased by
approximately $450,000 due principally to weather related volume reductions.
OPERATING COSTS
Total operating costs decreased $6,429,000 for the first quarter of 1996 as
compared to the first quarter of 1995 for a variety of reasons. While the
Winona facility has incurred operating losses since its acquisition, these
losses have decreased. The Recycle Center for the first time should make a
profit this next quarter and 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 is entering the
relatively high margin service markets of 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.
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<PAGE> 11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the quarter ended March 31, 1996 selling, general and administrative
expenses ("SG&A") decreased $436,000 as compared to the quarter ended March
31, 1995.
During the same period, corporate overhead decreased by approximately $36,000
due to reductions in corporate personnel, a decrease in amortization of
deferred debt issuance costs and other cost saving measures taken by the
Company over the last 12 months 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 March 31, 1996, the Company reported an
unrealized loss of $180,000, 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 ended March 31, 1996, the Company reported an effective
income tax benefit rate of 10%. The 1996 tax benefit rate is substantially
lower than the statutory rates due to the Company's inability to recognize
deferred tax benefits for net operating loss carryforwards.
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<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company's business inherently involves risks of unintended or unpermitted
discharge of materials into the environment. In the ordinary course of
conducting its business activities, the Company becomes involved in judicial
and administrative proceedings involving governmental authorities at the
federal, state and local levels (including, in certain instances, proceedings
instituted by citizens or local governmental authorities seeking to overturn
governmental action where governmental officials or agencies are named as
defendants together with the Company or one or more of its subsidiaries, or
both). In the majority of the situations where regulatory enforcement
proceedings are commenced by governmental authorities the matters involved
relate to alleged technical violations of licenses or permits pursuant to which
the Company operates or of laws or regulations to which its operations are
subject, or are the result of different interpretations of the applicable
requirements.
In addition, the Company and certain of its subsidiaries are involved in
civil litigation relating to the conduct of their business. While the outcome
of any particular lawsuit or governmental investigation cannot be predicted
with certainty, the Company believes that the ultimate disposition of these
matters will not have a material adverse effect upon the consolidated financial
position of the Company.
Richland, Washington Facility. In 1964, the Washington Department of Ecology
("WDOE") leased from the 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 Low-Level Radioactive Waste ("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 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, Washington facility is located on land owned by
the 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 may require further investigation to determine whether
releases of any hazardous wastes 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 that may preclude 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 those terms
of the permit that may potentially apply to any of the Company's facilities.
That appeal has been stayed during protracted negotiations with the EPA, DOE,
Washington Department of Ecology 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 for
hazardous constituents under RCRA. All parties to the appeal before the EAB
have 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 the EPA to modify
the permit if necessary. The order specifically allows any party to resume the
appeal if negotiations fail. The EPA does not believe a modification is
necessary (thereby obviating the need for the Company to file another appeal at
this time). The Company is presently negotiating an agreement with state
agencies for a Company investigation of the site. Depending on the results of
the site investigation, the cost of conducting the site investigation and any
corrective action, if any, could be material. As part of its negotiations, the
Company is seeking to have all the costs of investigations and any resultant
corrective actions included in its rate base. As of December 31, 1995, the
Company had not recognized any liability in its financial statements for any
costs associated with the site investigation because the site investigation
terms have not been determined and the costs of any site investigation may be
recovered in the rate base.
In 1992, the Benton County assessor issued property tax assessments on
improvements owned by the Company and located on the Company's leasehold at the
Hanford Reservation. The increased property taxes totaled $1.7 million for the
years 1989, 1990 and 1991. Prior to 1989, the annual taxes had been about
$5,400. The Company sued Benton County and the Assessor and Treasurer to enjoin
them from collecting these taxes. An injunction was granted by the Benton
County Superior Court but overturned by the State Court of Appeals which ruled
that the Company should first pursue all of its administrative remedies.
Accordingly, the Company has prosecuted its
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<PAGE> 13
appeal to the State Board of Tax Appeals. A hearing was held in November 1995.
A decision is expected in 1996. The Company has recently been assessed an
additional $1.9 million in taxes for 1992, 1993 and 1994. Management believes
that Benton County's assessments were improper and intends to vigorously defend
this matter in the courts and through any appropriate administrative process,
if necessary. The Company has not recognized any liability in its financial
statements for any of the tax assessments discussed above.
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 was also
named as an additional insured for a one year period (1995) 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 a hearing on the renewal was held November 28, 1995. The renewal of
the Permits is required under Part B of RCRA 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 TNRCC, and the Company expects
a final determination in 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.
A group called Mothers Organized to Stop Environmental Sins filed a lawsuit
in 1994 against the Company in the United States Eastern District Court for the
State of Texas alleging that the Winona facility violated certain permits and
regulations, and contributed to the handling, storage, treatment,
transportation and disposal of solid and hazardous waste that presents an
imminent and substantial endangerment to health and the environment. The
plaintiffs have requested that the facility be shut down and civil penalties
imposed on the Company. The Company has filed a Motion for Summary Judgment in
this matter and the Court has granted a partial summary judgment but has yet to
rule on all issues presented in the Motion. In December 1995, legal counsel
was retained by the Company in connection with a potential conflict of interest
which arose from the October merger of a law firm retained by the Company in
other matters with the law firm representing the plaintiff's counsel. The
Company is in the process of preparing a motion to disqualify plaintiffs'
counsel in this matter. The case is in its initial phases of discovery and it
is too early to accurately evaluate this case. The Company believes there is
no factual background to support this claim and intends to vigorously defend
this case.
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 altered
and punitive damages. 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. 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.
In 1992, a citizens group filed a petition with the 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
- 13 -
<PAGE> 14
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.
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 - Proposed Ward Valley, California Facility" and "- Proposed
Butte, Nebraska Facility".
A claim has been made by the Central Interstate Low-Level Radioactive Waste
Commission ("Commission") against the Company in a letter dated May 1, 1995, in
the amount $195,000, resulting from bonuses paid by the Company to certain of
its employees for the period July 1987 through December 1993. The Commission
apparently reimbursed the Company for the payment of these bonuses and now is
claiming that the reimbursement was not authorized under the contract between
the Company and the Commission. The Company has disputed the claim and
believes such reimbursement was proper. The parties have attempted to
negotiate a settlement but as of this time none has been reached. The Company
believes that a settlement can be reached. There has been no threat of suit as
of this time.
In August 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 Recycle Center that were not
indicative of normal operations. In August 1995, the Southeast Compact
Commission agreed to recalculate 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 paid during 1996. The Company had
previously recognized this liability in its consolidated financial statements.
Other Litigation. The City of San Antonio 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 dome stadium and
sports complex, commonly known as the Alamodome. The City 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 alleged that its
consultants failed to advise the City that the site selected for construction
of the Alamodome was environmentally contaminated, thereby breaching their
contracts and committing torts. The City also alleged that following the
discovery of actual or potential environmental problems, that the consultants
and project manager failed to act properly in handling allegedly contaminated
soil and groundwater. Various citizen groups raised concerns over the on-site
landfill and lobbied the TNRCC to force the City to move the landfill off-site.
In June 1994, the TNRCC wrote a letter to the City stating that the agency
believed that the on-site landfill should be removed. During the summer and
fall of 1995, the on-site landfill was removed. In January 1996, the Company's
insurance carrier and the City of San Antonio reached an agreement to settle
the City's claim against the Company. Prior to such settlement, however, one
of the defendants filed a cross claim against the Company. The Company has
filed two motions for Summary Judgment and a hearing was held March 29, 1996 on
one such motion. The Company is unable to predict the outcome of this cross
claim.
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 Quadrex
Recycle Center. Some of the former Quadrex employees on whose behalf the suit
was brought are now employees of the Company. The
- 14 -
<PAGE> 15
Company does not believe it has any liability in this matter and as such has
not recognized any liability in its financial statements. The Company 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 September 1994, an unfair labor practice charge was filed against the
Company by the Oil, Chemical and Atomic Workers International Union ("Union").
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 National Labor
Relations Board ("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. A hearing was held on December 12, 1995
before an administrative law judge of the NLRB. If the NLRB prevails in this
action, the Company will be liable for any and all variances for the collective
bargaining agreements since April 8, 1994. The Company recognized a liability
of $447,000 in its consolidated financial statements during 1995 for the
estimated settlement of this claim.
The Company has received a notice from an individual purporting to own debt
secured by certain real property in Midlothian, Texas. The individual alleges
that a predecessor of the Company's subsidiary, Texas Ecologists, 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.
In April 1995, management learned that one of its subsidiaries had not
always complied with the transit time limitations allowed for hazardous waste
being transferred from generators to final disposal sites. These requirements
are under the regulatory supervision of the TNRCC and the Company promptly
reported the situation to the TNRCC. As a result of an internal review of this
matter, the Company determined that there was a substantial number of instances
where the transit time limitations were exceeded over approximately eight
months from June 1994 through February 1995. As a direct result of this
circumstance, the Company has reorganized the operations of the subsidiary,
including the replacement of a number of personnel, and the adoption of
stronger internal systems for monitoring the movement of boxes and
transportation vehicles. At this time, the Company does not know whether the
TNRCC will ultimately assess any fines against the Company for exceeding
transit time limitations. While the Company believes the steps that it has
taken are appropriate and responsible, it is possible that the TNRCC may seek
to impose a fine on the Company in connection with the matter. The Company is
not in a position to assess the amount of such a fine. However, a fine of
sufficient magnitude could have a material adverse effect upon the consolidated
financial position of the Company.
In 1990, the Company was sued by certain landowners owning property adjacent
to the Robstown, Texas facility. The landowners have alleged that there has
been migration of pollutants through groundwater which has contaminated the
subterranean reservoir and other water resources on their respective
properties. These landowners have alleged theories including nuisance per se,
negligence and trespass. The case had a trial date in September 1995.
However, the landowners' counsel withdrew prior to the trial date and to our
knowledge, they have yet to obtain new counsel. The case has been continued.
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 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.
- 15 -
<PAGE> 16
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. As of December 31, 1995, the Company had not recognized any liability
in its financial statements for the penalty.
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-1970's. All but two of the insurers have entered into
settlement agreements with the Company regarding that dispute. The Circuit
Court of Jefferson County, Kentucky 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.
In October 1995, Boston Edison Company ("Boston Edison") filed a complaint
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 declatory judgment 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 actual
damages caused by the Company's alleged violation of the Massachusetts
Deceptive Trade Practices Act. At this time, the Company is 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.
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 established operation, closure
and post-closure activities of certain sites, as well as other matters or
claims that could result in additional environmental proceedings.
- 16 -
<PAGE> 17
Management has established reserves as deemed necessary for the matters
discussed above based on management's estimates of the outcome. It is
reasonably possible that the Company's estimates for such matters will change
in the near term. 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.
ITEM 2 Changes in Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
None
ITEM 6 Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
None
-17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN ECOLOGY CORPORATION
(REGISTRANT)
Date: May 21, 1996 By: /s/ Jack K. Lemley
-------------------------------------
Jack K. Lemley
Chairman of the Board and
Chief Executive Officer
Date: May 21, 1996 By: /s/ Edmund J. Gorman
-------------------------------------
Edmund J. Gorman
President and Chief Operating Officer
(Principal Financial and
Accounting Officer)
-18-
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