<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 June 30, 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
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(Exact name of registrant as specified in its charter)
DELAWARE 95-3889638
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(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)
(208) 331-8400
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(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 June 30, 1996 Registrant had outstanding 7,904,172 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,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,754 $ 229
Investment securities 852 523
Receivables - trade and other, net of allowance for
doubtful accounts of $1,293 and $1,322 respectively 15,737 16,938
Income tax receivable 740 5,339
Insurance claim receivable 727 2,538
Prepayments and other 1,996 1,675
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Total current assets 21,806 27,242
Cash and investment securities, pledged 13,446 13,770
Property and equipment, net 20,252 21,764
Deferred site development costs 50,168 47,364
Intangible assets relating to acquired businesses, net 474 486
Other assets 3,631 3,499
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Total assets $ 109,777 $ 114,125
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loan $ 6,140 $ 6,416
Current portion of long term debt 722 780
Accounts payable 14,147 13,376
Accrued liabilities 18,820 21,022
Deferred site maintenance, current portion 1,763 1,763
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Total current liabilities 41,592 43,357
Long term debt, excluding current portion 28,533 28,357
Deferred site maintenance, excluding current portion 19,863 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,
7,904,172 and 7,825,628 shares issued and outstanding, respectively 79 78
Additional paid-in capital 46,921 46,762
Unrealized gain (loss) on securities available-for-sale (468) (718)
Retained earnings (deficit) (26,744) (24,099)
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Total shareholders' equity 19,789 22,024
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Total Liabilities and Shareholders' Equity $ 109,777 $ 114,125
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</TABLE>
See notes to consolidated financial statements.
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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ in 000's except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues $ 14,038 $ 15,852 $ 26,188 $ 35,602
Operating costs 11,782 17,882 24,325 36,854
---------- ---------- ---------- ---------
Gross profit (loss) 2,256 (2,030) 1,863 (1,252)
Selling, general and administrative expenses 3,103 6,091 6,420 9,844
Impairment losses on long-lived assets -- 27,153 -- 27,153
---------- ---------- ---------- ---------
Loss from operations (847) (35,274) (4,557) (38,249)
Investment income (197) (198) (377) (332)
Gain on sale of assets (63) (489) (76) (530)
Other (income) expense 115 1,056 (114) 819
---------- ---------- ----------- ---------
Loss before income taxes (702) (35,643) (3,990) (38,206)
Income tax expense (benefit) (1,016) (3,155) (1,345) (3,821)
----------- ----------- ----------- ----------
Net income (loss) 314 (32,488) (2,645) (34,385)
Preferred stock dividends 105 -- 209 --
---------- ---------- ---------- ---------
Net income (loss) available to common
shareholders $ 209 $ (32,488) $ (2,854) $ (34,385)
========== =========== =========== ==========
Net earnings (loss) per share, primary $ .03 $ (4.15) $ (.36) $ (4.40)
========== =========== =========== ==========
Dividends paid per common share $ -- $ -- $ -- $ .025
========== ========== ========== =========
</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,
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,645) $ (34,385)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Impairment losses on long-lived assets -- 27,153
Depreciation and amortization 2,195 4,369
Deferred income tax provision -- 204
Gain on sale of assets (76) (530)
Changes in assets and liabilities:
Receivables 1,201 11,580
Income tax refund 4,521 --
Proceeds from insurance claim 1,811 --
Investment securities classified as trading -- (334)
Other assets (593) (383)
Accounts payable and accrued liabilities (1,272) (2,863)
Deferred site maintenance (524) (829)
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Total adjustments 7,263 38,367
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Net cash provided by operating activities 4,618 3,982
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Cash flows from investing activities:
Capital expenditures (571) (2,179)
Site development costs, including capitalized interest (2,804) (2,970)
Proceeds from sales of property and equipment 116 900
Transfers from cash and investment securities, pledged 324 372
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Net cash used in investing activities (2,935) (3,877)
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Cash flows from financing activities:
Proceeds from issuances of indebtedness 18,849 18,870
Repayments of indebtedness (19,007) (17,020)
Proceeds from common stock issuances -- 20
Payment of cash dividends -- (195)
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Net cash provided by financing activities (158) 1,675
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Increase in cash and cash equivalents 1,525 1,780
Cash and cash equivalents at beginning of period 229 231
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Cash and cash equivalents at end of period $ 1,754 $ 2,011
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ -- $ --
Income taxes -- 86
</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 1995 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
$27,000,000 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 June 30, 1996, the Company had borrowings of $34,368,000 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.
On June 26, 1996, the Company entered into an agreement with its bank whereby
the Company's borrowing privileges under the Credit Agreement were suspended.
As a result, the Company was unable to access funds available under the
Revolver. In its place, the bank agreed to extend to the Company a line of
credit up to a maximum of $850,000, at 8.25% interest, documented by a demand
promissory note of that amount. Under the June 26, 1996 agreement, the
Company pays down the outstanding balance of the Revolver as the bank receives
the Company's trade account receivable funds, and advances to the Company the
same amount plus the $850,000 line of credit. As of June 30, 1996, the Company
had an outstanding balance of $5,515,000 under the revolver, and a balance of
$625,000 under the terms of the June 26, 1996 agreement.
Under the terms of the June 26, 1996 agreement with the bank, all principal and
interest due by the Company under the Credit Agreement is suspended
indefinitely. 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 June 30, 1996, the Company's
actual accrual interest rate was 10.00%. As of June 30, 1996, the actual
interest rate was 8.25%.
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Each month, the Company accrues interest on the Fee Capitalization Note at a
rate equal to the bank's prime rate, as it changes, which was 8.25% at June
30, 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, in the amount of $4,000,000. This note was paid in full before its
maturity, June 30, 1996.
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
obtain waivers in the event of default, there are no assurances further
forbearance will be provided by the bank.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources and Liquidity.
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 June 30, 1996, the Company had deferred
$43,476,000 of pre-operational facility development costs of which $5,400,000
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 that 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 any or all of the costs will be recovered.
Allowable costs incurred by the Company for the development of the Butte
facility are reimbursed under a
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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 June 30, 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 any or all of these
costs will be recovered.
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, 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 six month periods ended June 30, 1996 and 1995 was
$1,751,000 and $1,530,000, respectively.
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NOTE 4. EARNINGS PER SHARE
The calculation of earnings per share for the three and six months ended June
30, 1996 and 1995, respectively, is as follows:
<TABLE>
<CAPTION>
(000's except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------------
1996 1995 1996 1995
------ --------- -------- ----------
<S> <C> <C> <C> <C>
Net earnings (loss) available to common
shareholders $ 209 $ (32,488) $ (2,854) $ (34,385)
====== ========= ======== ==========
Weighted average shares outstanding:
Common shares outstanding at end of period 7,904 7,826 7,904 7,826
Effect of using weighted average common and
common equivalent shares outstanding (16) (5) (47) (6)
------ --------- -------- ----------
Shares used in computing earnings (loss)
per share 7,888 7,821 7,857 7,820
====== ========= ======== ==========
Net earnings (loss) per common and common
equivalent share, primary $ .03 $ (4.15) $ (.36) $ (4.40)
====== ========= ======== ==========
</TABLE>
There was no difference between the primary and fully diluted earnings per
share calculations in 1996 and 1995.
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.
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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 $19,786,000 as of June 30, 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. The Company cannot be certain
about its ability to further improve short-term operating results. The
Company's financial statements as of June 30, 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 amended the existing Credit
Agreement to extend the maturity of the Credit Agreement to December 31, 1998,
and to modify certain other terms, however, the Credit Agreement has been
suspended since June 26, 1996. A description of the Credit Agreement as so
amended is set forth in Note 2 of "Item 1 - Financial Statements". As of June
30, 1996, the Company had available borrowings of $225,000 under its June 26,
1996, agreement.
Strategic Plan
The Company is focusing on its low-level radioactive waste (LLRW) disposal and
processing operations as well as its chemical waste disposal and processing
operations, as separate operations. The Company's operations have been
reorganized under those respective lines 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 one new officer as Secretary and General Counsel.
Also, Mr. Jack K. Lemley, Chairman and Chief Executive Officer has assumed the
position of President.
Measures to Reduce Costs
The Company continues the effort that 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 reducing corporate overhead.
Other than the capital required for developing the Ward Valley facility and for
regulatory compliance at its Winona, Texas 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. Effective March 1, 1996, the
corporate office was relocated to smaller space in Boise, Idaho.
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.
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For the six months ended June 30, 1996, the Company had positive cash flows
from operations of $4,618,000, which includes $6,332,000 in tax refunds and
insurance claim proceeds. Net cash used in investing activities total
$2,935,000 of which $571,000 was spent for capital expenditures, $1,052,000 was
invested in site development costs for the Ward Valley facility and incurred
capitalized interest of $1,751,000 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. No assurances can be given that such improvements will occur.
The Company expects to receive additional federal income tax refunds of
approximately $740,000 during the third quarter of 1996.
The Company is also currently negotiating business interruption insurance
claims relating to the July 1994 fire at its Oak Ridge, Tennessee facility and
expects to settle such claims in the near future. In May 1996, the Company
received fire insurance proceeds of $1,811,000, which will be used to replace
property and equipment damaged in the fire. The Company has a $727,000
receivable recorded for these claims at June 30, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
The Company reported net income of $314,000 for the three months ended June 30,
1996, compared to a net loss of $32,488,000 for the three months ended June 30,
1995. The 1995 results included pretax charges totaling $31,611,000 for
unusual and non-recurring adjustments of which $27,153,000 related to
impairment losses on long lived assets. In 1996 the Company has not incurred
any such charges.
REVENUES
Revenues for the second quarter of 1996 decreased $1,814,000, a 11% decline,
compared to the second quarter of 1995.
Low-level radioactive waste ("LLRW") revenues increased $1,703,000. Quarterly
revenues for the Recycle Center were $2,697,000, an increase of $1,586,000 over
the prior year period. The 1995 period revenues were lower after the change of
ownership in September, 1994 due to a fire, processing a backlog of non-revenue
producing waste, and working to bring the facility up to industry standards for
better customer acceptance. Revenues for the Richland, Washington disposal
facility were $1,328,000 for the quarter, an increase of $459,000 from the
prior year period due to favorable weather conditions in the Northwest in 1996.
Chemical waste revenues declined $3,769,000. Revenues generated by the
Company's landfill operation in Beatty, Nevada, fell by $2,361,000 due
principally to diminished activity in the off-site remediation market,
elimination of transportation services, and customers lost to a
noncompetitive State of Nevada disposal fee structure created when California
decreased their fees in January 1996.
OPERATING COSTS
Operating costs as a percentage of revenues for the three months ended June 30,
1996 and 1995 were 84% and 113% respectively. Total operating costs decreased
$6,100,000 for the second quarter of 1996 as compared to the second quarter of
1995 for a variety of reasons. The 1995 costs include $1,112,000 in
non-recurring charges. Management evaluated how operations had been managed,
and determined what improvements could be made to enhance operating efficiency
and effectiveness at each site location. General
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improvements have been made in the second quarter by timing of waste
turnaround, reduction of excess spending, employee awareness, reductions of
excess overtime, and reductions in both staff and labor force.
In order to maintain the proper mix of operating costs to future revenues,
management will continue to monitor operations closely. Continuing this
analytical process is important for the future success of each site location.
All site locations have participated in the reductions of capital spending.
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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the second quarter ended June 30, 1996 selling, general and administrative
expenses ("SG&A") decreased $2,988,000 as compared to the second quarter ended
June 30, 1995, a 49% decrease. Included in SG&A for 1995 are several
non-recurring expenses which increased SG&A by $2,346,000.
During 1996, corporate overhead decreased by approximately $644,000 due to
reductions in corporate personnel, corporate travel, 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.
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 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.
INCOME TAXES
For the three months ended June 30, 1996, the Company reported an effective
income tax benefit rate of 145% reflecting the receipt during the quarter of a
larger income tax refund than had been estimated and recorded at December 31,
1995. The Company has now recorded all realized or expected refunds for loss
carrybacks, and is unable to recognize deferred tax benefits for net operating
loss carryforwards.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The Company reported a net loss of $2,645,000 for the six months ended June 30,
1996 compared to a net loss of $34,385,000 for the six months ended June 30,
1995. 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.
REVENUES
Revenues for the six months ended June 30, 1996 decreased $9,414,000, or 26%
compared to the six months ended June 30, 1995.
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Low-level radioactive waste ("LLRW") revenues decreased $978,000, or 7%.
Chemical waste revenues declined $8,436,000, or 37%. Revenues at the Beatty
facility accounted for $5,526,000 of the decline due to the elimination of the
former practice of providing transportation services at cost, and reduced
disposal receipts as a result of customers lost to competing landfills which do
not have the high cost burden of the State of Nevada's fees.
OPERATING COSTS
Total operating costs as a percentage of revenues for the six months ended June
30, 1996 and 1995 were 93% and 104%, respectively. The 1995 operating costs
included $1,112,000 in non-recurring charges.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the six months ended
June 30, 1996 were $6,420,000 compared to $9,844,000 for the six months ended
June 30, 1995. Included in SG&A for the 1995 period are several non-recurring
charges 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, and a writedown of deferred debt issuance costs related to the bank
credit facility which was amended effective June 30, 1995.
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.
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, 1996, the Company reported an unrealized
loss of $468,000, 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 six months ended June 30, 1996, the Company reported an effective
income tax benefit rate of 34% compared to an effective income tax benefit rate
of 10% for 1995. The 1996 tax benefit rate reflects the receipt
during the second quarter of a larger income tax refund than had been estimated
and recorded at December 31, 1995. The Company has now recorded all realized
or expected refunds from loss carrybacks, and is unable to recognize deferred
tax benefits for net operating loss carryforwards.
- 12 -
<PAGE> 13
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 result from different interpretations of applicable regulations.
The Company and its subsidiaries are also parties to various other matters or
proceedings, including permit application and renewal proceedings in connection
with the Company's established operations, closure and post-closure activities
at certain of its sites, and other matters that could result in further
proceedings or litigation.
Management has established reserves as deemed necessary for legal proceedings
based on management's estimates of the outcome. It is reasonably possible that
the Company's estimates for such matters will change or may prove inadequate.
Due to the Company's financial condition, management is unable to conclude that
an unfavorable outcome with respect to previously reported legal proceedings or
the case described below, will not have a material adverse effect on the
operations or financial condition of the Company.
Except as described below, there were no material developments with respect to
previously reported legal proceedings.
US ECOLOGY, INC. V BARBARA WAGNER, BENTON COUNTY ASSESSOR, BOARD OF TAX
APPEALS, STATE OF WASHINGTON, DOCKET NOS. 92-63--92-65 AND 95-43--95-45.
In 1992, the Benton County (Washington) assessor issued property tax
assessments on improvements owned by the Company and located on the Company's
leasehold at the US Department of Energy's Hanford Reservation. The property
tax increases totaled $1.7 million for the years 1989, 1990, and 1991. Prior
to 1989, annual taxes had been about $5,400. The Company sued Benton County,
the Assessor and Treasurer to enjoin them from collecting the increased taxes.
An injunction was granted by the Benton County Superior Court but was reversed
by the Washington Court of Appeals which ruled that the Company should first
pursue all of its administrative remedies. Accordingly, the Company prosecuted
its appeal to the Washington Board of Tax Appeals and a hearing was held in
November 1995. The Company has recently been assessed an additional $1.9
million in taxes for 1992, 1993, and 1994. On July 1, 1996, the Board of Tax
Appeals issued an Interim Decision that the Company's concession right to
operate a low-level radioactive waste disposal site at the Hanford Reservation
is subject to property tax but that the hearing will be reopened to allow the
parties to submit additional evidence regarding the fair market value of the
concession right. The Company believes that Washington law does not provide
for taxation of "concession rights" and that in any event, since its permits
and licenses may not be transferred, the market value thereof is minimal. The
Company intends to continue to contest this matter.
- 13 -
<PAGE> 14
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
- 14 -
<PAGE> 15
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 13, 1996 By: /s/ Jack K. Lemley
----------------------------
Jack K. Lemley
Chief Executive Officer
Date: August 13, 1996 By: /s/ R. S. Thorn
----------------------------
R. S. Thorn
Vice President of Administration
Chief Accounting Officer
<PAGE> 16
INDEX TO EXHIBITS
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,754
<SECURITIES> 0
<RECEIVABLES> 17,030
<ALLOWANCES> 1,293
<INVENTORY> 0
<CURRENT-ASSETS> 21,806
<PP&E> 44,391
<DEPRECIATION> 24,139
<TOTAL-ASSETS> 109,777
<CURRENT-LIABILITIES> 41,592
<BONDS> 28,533
<COMMON> 79
0
1
<OTHER-SE> 19,709
<TOTAL-LIABILITY-AND-EQUITY> 109,777
<SALES> 14,038
<TOTAL-REVENUES> 14,038
<CGS> 11,782
<TOTAL-COSTS> 11,782
<OTHER-EXPENSES> 3,103
<LOSS-PROVISION> 319
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (702)
<INCOME-TAX> (1,016)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 314
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
