<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, 1997
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)
805 W. Idaho
Suite #200
Boise, Idaho 83702-8916
------------ ----------
(Address of principal executive offices) (Zip Code)
(208) 331-8400
--------------
(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 15, 1997 Registrant had outstanding 8,113,312 shares of its Common
Stock.
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AMERICAN ECOLOGY CORPORATION
QUARTERLY REPORT FORM 10-Q FOR THE
THREE MONTHS ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements PAGE
Consolidated Balance Sheet 3
(Unaudited)
Consolidated Statements of Operations 4
(Unaudited)
Consolidated Statements of Cash Flows 5
(Unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
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PART 1 FINANCIAL INFORMATION
ITEM 1 Financial Statements
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 454 $ 185
Investment securities -- 410
Receivables - trade and other, net of allowance for
doubtful accounts of $1,260 and $1,155 respectively 9,069 10,396
Income tax receivable 740 740
Insurance claim receivable -- --
Prepayments and other 756 949
------------ ------------
Total current assets 11,019 12,680
Cash and investment securities, pledged 14,550 16,394
Property and equipment, net 13,236 14,255
Deferred site development costs 55,647 53,030
Intangible assets relating to acquired businesses, net` 450 462
Other assets 2,134 2,206
------------ ------------
Total assets $ 97,036 $ 99,027
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ -- $ 503
Accounts payable 8,739 10,470
Accrued liabilities 16,208 16,876
Deferred site maintenance, current portion 1,524 1,524
Income taxes payable 226 --
------------ ------------
Total current liabilities 26,697 29,373
Long term debt, excluding current portion 36,660 36,202
Deferred site maintenance, excluding current portion 19,348 19,848
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, 405,264 issued and outstanding -- --
Series D cumulative convertible preferred stock, $.01 par value,
105,264 authorized, 105,264 shares issued and outstanding 1 1
Series E redeemable convertible preferred stock, $10.00 par value,
300,000 authorized, 300,000 shares issued and outstanding 3,000 3,000
Common stock, $.01 par value, 25,000,000 authorized, 8,113,312
and 8,010,017 shares issued and outstanding, respectively 81 80
Additional paid-in capital 47,184 46,971
Unrealized gain (loss) on securities available-for-sale -- (477)
Retained earnings (deficit) (35,935) (35,971)
------------ ------------
Total shareholders' equity 14,331 13,604
------------ ------------
Total Liabilities and Shareholders' Equity $ 97,036 $ 99,027
============ ============
</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,
1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenues $ 10,702 $ 14,038 $ 20,331 $ 26,188
Operating Costs 6,714 11,782 13,308 24,325
-------- -------- -------- --------
Gross profit (loss) 3,988 2,256 7,023 1,863
Selling, general and administrative expenses 3,902 3,103 7,929 6,420
Income (Loss) from operations 86 (847) (906) (4,557)
Investment Income (328) (197) (286) (377)
Gain on sale of assets (107) (63) (107) (76)
Other (Income) expense (963) 115 (1,046) (114)
-------- -------- -------- --------
Net Income (Loss) before income taxes 1,484 (702) 533 (3,990)
Income tax expense (benefit) 163 (1,016) 120 (1,345)
-------- -------- -------- --------
Net Income (Loss) 1,321 314 413 (2,645)
Preferred stock dividends 189 105 375 209
-------- -------- -------- --------
Net income (Loss) available to common
shareholders $ 1,132 $ 209 $ 38 $ (2,854)
======== ======== ======== ========
Net Earnings (Loss) per share, primary $ .14 $ .03 $ .01 $ (.36)
======== ======== ======== ========
Net Earnings (Loss) per share, fully diluted $ .08 $ -- $ .04 $ --
======== ======== ======== ========
Dividends paid per common share $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
4
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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 413 $ (2,645)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,877 2,195
Deferred income tax provision 88 --
Gain on sale of assets (107) (76)
Loss on sale of securities 59 --
Changes in assets and liabilities:
Receivables 1,327 1,201
Income tax refund -- 4,521
Proceeds from insurance claim -- 1,811
Investment securities classified as trading 267 --
Other assets 65 (593)
Accounts payable and accrued liabilities (2,497) (1,272)
Deferred site maintenance (500) (524)
---------- ----------
Total adjustments 579 7,263
---------- ----------
Net cash provided by operating activities 992 4,618
---------- ----------
Cash flows from investing activities:
Capital expenditures (646) (571)
Site development costs, including capitalized interest (1,332) (2,804)
Proceeds from sales of property and equipment -- 116
Proceeds from sales of investment securities 1,660 --
Transfers from cash and investment securities, pledged 745 324
---------- ----------
Net cash used in investing activities 427 (2,935)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of indebtedness 11,123 18,849
Repayments of indebtedness (12,273) (19,007)
---------- ----------
Net cash provided by (used in) financing activities (1,150) (158)
---------- ----------
Increase in cash and cash equivalents 269 1,525
Cash and cash equivalents at beginning of period 185 229
---------- ----------
Cash and cash equivalents at end of period $ 454 $ 1,754
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ -- $ --
Income taxes -- --
</TABLE>
See notes to consolidated financial statements.
5
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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 1996 Annual
Report on Form 10-K for the year ended December 31, 1996, 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. TERM LOAN AND LONG-TERM DEBT
Long term debt at June 30, 1997 and March 31, 1997 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
-------- --------
<S> <C> <C>
Secured bank credit facility $ 36,390 $ 36,992
Capital lease obligations and other 270 272
-------- -------
36,660 37,264
Less: Current maturities -- (62)
-------- -------
Long-term debt $ 36,660 $ 37,202
</TABLE>
Aggregate maturities of long-term debt and the future minimum payments under
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1997 $ 0
1998 86
1999 5,000
2000 31,574
----------
Total $ 36,660
</TABLE>
On October 31, 1996 the Company renegotiated its prior bank debt under the
terms of a Third Amended and Restated Credit Agreement ("Credit Agreement"). No
amendments to this Credit Agreement have been made since that time.
At June 30, 1997 the outstanding balance of the Term Loan was $36,390,000.
Interest accrued at 7% in the amount of $2,968,750 was capitalized into the
Term Loan. Additionally, interest accrued at an incremental rate of 3% on the
entire amount of the debt outstanding since October 31, 1996 amounted to
$729,551 at June 30, 1997.
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 in
California ("Ward Valley facility") and the Central Interstate Compact in
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Nebraska ("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, 1997,
the Company had deferred $48,279,000 (50% of total assets), of pre-operational
facility development costs of which $8,365,000 was capitalized interest. These
deferred costs relating to the development of the Ward Valley facility are
expected to be recovered during the facility's first 30 years of operating 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 prudence 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 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, 1997, the Company has contributed and
deferred approximately $7,368,000 (8% of total assets) of which $1,276,000 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 Company expects
all costs which it has deferred for this facility, plus additional unrecognized
project interest costs, to be included as a component of the rate-base. The
contract allowing interest cost reimbursement as part of the rate-base may
yield an additional $15 million in revenue, however, there can be no assurance
that all of these amounts will be approved. In addition, the CIC has the option
to terminate the contract, upon ten (10) days written notice, in the event it
has expended the additional $31.1 million provided under the last contract
amendment, and the State of Nebraska's licensing decision has not been made,
and the major generators in the compact region have either ceased funding the
project or thereafter notified the CIC, pursuant to amendment No. 5 of its
contract with the CIC, that the major generators intend to cease funding of the
project. As of June 30, 1997, approximately $28.6 million had been expended
under the last contract amendment. If the CIC elects to terminate the contract,
then the Company has no further claim or right to reimbursement of its
contributions or accrued interest unless the CIC and the Company agree to go
forward with the facility, in which event the Company retains its rights to
recover its contribution together with any accrued interest.
The construction and operation of the Ward Valley and Butte facilities are
still being delayed by various political and environmental opposition toward
the development of the sites and by various legal proceedings. These issues
were discussed in detail in the 1996 Form 10-K under Part I, Item I, "Business
- - - Low-Level Radioactive Waste Services - Disposal Services - Proposed Ward
Valley, California Facility" and "-Proposed Butte, Nebraska Facility". 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. 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 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, 1997 and 1996 was
$1,834,000 and $1,751,000, 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, 1997 and 1996, respectively, is as follows:
<TABLE>
<CAPTION>
(000'S EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Net earnings (loss) available to common shareholders $ 1,132 $ 209 $ 38 $ (2,854)
========== ========== ========== ==========
Weighted average shares outstanding:
Common shares outstanding at end of period 8,113 7,904 8,113 7,904
Effect of using weighted average common and
common equivalent shares outstanding (33) (16) (37) (47)
---------- ---------- ---------- ----------
Shares used in computing earnings (loss) per share 8,080 7,888 8,076 7,857
========== ========== ========== ==========
Net earnings (loss) per common and common
equivalent share, primary $ .14 $ .03 $ .01 $ (.36)
========== ========== ========== ==========
FULLY DILUTED
Net earnings (loss) available to common shareholders $ 1,321 $ 314 $ 413 $ (2,645)
========== ========== ========== ==========
Weighted average shares outstanding:
Common shares outstanding at end of period 8,113 7,904 8,113 7,904
Effect of shares issuable under stock option plans
based on the treasury stock method 3,325 3,325
Shares used in computing earnings (loss) per share 11,438 7,888 11,434 7,857
========== ========== ========== ==========
Net earnings (loss) per common and common
equivalent share, fully diluted $ .08 $ -- $ .04 $ --
========== ========== ========== ==========
</TABLE>
The Financial Accounting Standards Board recently issued Standard No. 128
Earnings Per Share, effective December 15, 1997. If, FAS 128 were applied,
there would be no difference between the above calculated earnings per share
amounts or the FAS 128 calculated basic and dilutive earnings per share amounts.
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 1996
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.
The following discussion contains trend information and other forward looking
statements that involve a number of risks and uncertainties. The Company's
actual results could differ materially from the Company's historical results of
operations and those discussed in the forward looking comments. Factors that
could cause actual results to differ materially are included, but are not
limited to, those identified in the Notes to the Consolidated Financial
Statements herein, Part II, Item 1. Legal Proceedings, and the discussion
below.
CAPITAL RESOURCES AND LIQUIDITY
A $4,108,000 improvement over the $19,786,000 deficit from one year ago left
the Company with a working capital deficit of $15,678,000 as of June 30, 1997.
The Company is still experiencing difficulty paying its on-going obligations as
they become due, but has been successful in improving some of its short-term
operating results that may help relieve this situation. The Company still
cannot be certain about its ability to further improve short-term operating
results. Results for the quarter ended included a large insurance settlement
for $795,000. This amount was not previously recorded as a receivable as the
amount could not be reasonably estimated. Upon receipt the Company reported
other income for the $795,000. Management's plan to address these issues are as
follows:
CREDIT AGREEMENT
On October 31, 1996 the Company signed a letter of intent setting forth the
negotiated terms of its secured debt with its bank. The Third Amended and
Restated Credit Agreement was filed as exhibit 10.45 with the Securities
Exchange Commission on February 18, 1997.
NASDAQ STOCK MARKET, INC. ISSUE
The Company reported in its 1996 year-end Form 10-K annual report on page 25,
that it had appealed a ruling by the NASDAQ Stock Market, Inc., that the prior
approval of the Company's shareholders was required before issuing Series E
preferred stock to directors of the Company, as it had done in November 1996.
The Series E preferred stock was issued to two directors for $3.0 million in
cash as part of the debt restructuring agreement with the Company's bank. The
NASDAQ staff proposed to de-list the Company's common stock from the National
Stock Market System as a sanction for the alleged rules violation, but an
appeals panel of the NASDAQ decided to permit the Company's shareholders the
opportunity to ratify the issuance at the May 22, 1997 annual shareholders
meeting. The shareholders ratified the transaction, and the issue is fully
resolved.
MEASURES TO REDUCE COSTS
Management has continued to implement a very aggressive financial and operating
plan since 1995. The Company has evaluated its position to the surrounding
market, customer potentials have been measured, and operating results have
improved as a result. One unprofitable division was eliminated and others were
reorganized to be efficient and effective. The results are beginning to appear.
Operating costs have declined by 50% as compared to one year ago. The
reorganized divisions have been dissected and analyzed to measure break-even
points, then analyzed further to determine optimum operating levels for maximum
profitability. These variables of operation for the Company have been adjusted
and measured to fit the changing times of the environmental industry. Waste
generators are generating less waste now, due to both Federal and State
agencies constricting regulations in areas that generators were relaxed about
disposal practices. These environmental proceedings and regulations have forced
all of the environmental companies to evaluate their part in the industry. The
outcome in many areas is difficult to forecast, but management continues to
modify the strategic plans to include flexibility.
The Company continues to evaluate the viability of certain other operations,
and their current potential to perform at an acceptable level of profitability.
In the plan, capital expenditures for 1997 are limited to the development of
the Ward Valley Project, operational repairs and certain regulatory
obligations.
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The Company believes its plan has improved both 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 continue to
resolve the Company's liquidity problem in a timely fashion. The Company
intends to raise additional capital through a Rights Offering to its
shareholders in 1997. There can be no assurance, however, that any such rights
offering will provide sufficient capital to support operations. In any event,
the Company may experience increasing cash flow problems that could cause the
Company to materially reduce the current level of its operating activities.
For the three months ended June 30, 1997, the Company raised no additional
capital, but generated cash from operations of $992,000, spent $646,000 for
capital expenditures excluding site development costs, invested $502,000 in
site development costs for the Ward Valley facility and incurred capitalized
interest of $932,000 related to the Ward Valley and Butte facilities.
FUTURE CONSIDERATIONS
The Company will make its best effort to register in the third quarter 1997, a
Rights Offering to holders of the Company's common stock. This offering will
offer each shareholder the opportunity to buy an additional share of stock for
each one owned at one dollar. This will make available, by full subscription,
the possibility to raise an additional $8,000,000 of capital.
As previously reported in the December 31, 1996 Form 10-K, the Company
continues to have discussion with the Tennessee Department of Environment and
Conservation division of Radiological Health. These ongoing discussions include
the proposal for an extension of time to complete the disposal of the legacy
waste at the Oak Ridge, Tennessee facility. The cost for this disposal is
estimated at $6.2 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
The Company reported net income of $1,321,000 for the three months ended June
30, 1997, compared to a net income of $314,000 for the three months ended June
30, 1996, a 320% increase indicating a marked improvement above the previous
year's operating results. During this period the Company received an unexpected
insurance settlement for $795,000. The insurance proceeds had not been
previously recorded and therefore, was reported in the current period as
miscellaneous income.
REVENUES
Revenues for the second quarter of 1997 decreased $3,336,000, a 24% decline,
compared to the second quarter of 1996.
Low-Level radioactive waste ("LLRW") revenues were $6,598,000 for the three
months ended June 30, 1997, a 4.4% decrease from the same period in 1996. LLRW
project revenues remain strong but the Chemical division continues to have
difficulties both in operations and administration. The Chemical waste revenues
were $4,425,000 for the three months ended June 30, 1997 compared to $8,011,000
for the same period in 1996. This is a 45% decline from last year but is
reflective of the plant closure at Winona, Texas. The Winona facility had
revenues of $2,415,000 for this period in 1996, indicating a revenue decline
for both Texas Ecologists, in Robstown, Texas and US Ecology Inc. in Beatty,
Nevada.
OPERATING COSTS
For the three months ended June 30, 1997 the Company reported total operating
costs of $6,714,000 a 43% decrease from one year ago. Total operating costs
decreased $5,068,000 for the second quarter of 1997 as compared to the second
quarter of 1996 for a variety of reasons. While most of the cost reduction has
taken place in the Chemical division, some cost reductions are not favorable.
Unfavorable cost reductions have been viewed by management as the: Winona
facility closure and not having received any waste from customers since August
1996, the Beatty facility decreased operations by about 70-75% due to high
State of Nevada fees, AET transportation division decreased by 30-35% when the
Winona facility closed, and the Oak Ridge facility has been faced with several
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problems, delays and shortage of working capital. The many efforts exercised by
both Chemical and LLRW divisions should allow for improved performance in the
future. The Company as a whole is demonstrating a positive trend in operating
results even with decreasing revenues by recapturing a portion of the market
share. In addition to regaining some market share, the Company has been making
every effort to analyze each aspect of the two operating divisions to determine
how they can best maximize operating performance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the second quarter ended June 30, 1997 selling, general and administrative
expenses ("SG&A") increased $799,000 as compared to the quarter ended June 30,
1996, with a major component being legal expenses.
During the same period, corporate overhead decreased by approximately $125,000
due to further 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 24 months as described under the caption Capital
Resources and Liquidity.
INCOME TAXES
For the three months ended June 30, 1997, the Company reported an effective
income tax rate of 11%. The Company has now recorded all realized or expected
refunds for loss carrybacks, and is not recognizing any deferred tax benefits
for net operating loss carryforwards from prior years, due to the Company's full
valuation allowance provided for these deferred taxes.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The Company reported a net income of $413,000 for the six months ended June 30,
1997 compared to a net loss of $2,645,000 for the six months ended June 30,
1996. The 1996 results include higher operating costs which the Company has
managed to improve upon in 1997, however the 1997 results include non-recurring
income from an insurance claim for $795,000.
REVENUES
Revenues for the six months ended June 30, 1997 decreased $5,857,000, or 22%
compared to the six months ended June 30, 1996. The decline in revenues is a
result of the decline in operations for the Chemical Division, while revenues
of the LLRW division increased. The Chemical Division continues to have
difficulty in Texas, with a site closure at Winona, and a loss of customers at
Robstown. The Robstown facility is working hard to rebuild its customer base.
Low-level radioactive waste ("LLRW") revenues increased $422,000, or 3%.
During this period Chemical waste revenues declined $7,538,000, or 48%.
Revenues at the Beatty, Nevada facility continued to decline by $1,832,000. The
Beatty facility has had ongoing difficulties after 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. Management and the
staff at the Beatty site are currently engaged in efforts with the State of
Nevada for reducing some of the fees on different types of waste disposal.
The Winona, Texas facility closure in August 1996, resulted in additional
revenue decline by $4,902,000 for this six month period compared to the same
period in 1996. The remaining difference reported in this period decline for
the Chemical Division is the elimination of intercompany revenues of $2,031,000
in 1996 and only $773,000 in 1997.
OPERATING COSTS
Total operating costs as a percentage of revenues for the six months ended June
30, 1997 and 1996 were 63% and 84%, respectively. During this six month period
LLRW experienced a 4 % decrease in operation costs while
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revenues increased 3%. Chemical Division operating costs declined $7,626,000
but, 61% of this decrease is from the closure of Winona, Texas facility and
another 31% for the decrease in the Beatty operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the six months ended
June 30, 1997 were $7,929,000 compared to $6,420,000 and $9,844,000 for the six
months ended June 30, 1996 and 1995 respectively. Included in SG&A for the 1995
period are several non-recurring charges which increased SG&A by $2,723,000.
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 write down of deferred debt
issuance costs. In 1996, management's plan to reduce costs resulted in a 35%
decrease. In 1997, management continued to cut costs. Legal fees continue to be
very high in relation to the total of S,G&A at 13%. For the six months ended
June 30, 1997 a total of 5% of certain costs were reclassified between
increasing S,G&A and decreasing operating costs.
INVESTMENT INCOME
Investment income is comprised principally of interest income earned on various
investments in securities held-to-maturity, dividend income, and capital gains
and losses earned on the Company's stock portfolio classified as trading
securities. As of June 30, 1997, the Company reported an unrealized gain of
$286,000 on investments. The realized gains or losses on securities
available-for-sale are included as a component of investment income when
realized, and during this six month period ending June 30, 1997 the Company
sold the entire balance of its holding in Perma-Fix (PESI) common stock,
795,000 shares, for a loss of $59,000. The Company had acquired this stock on
the acquisition of the Quadrex Recycle Center in September 1994. These shares
were sold to help generate cash, after compliance with the terms of the current
banking agreement.
INCOME TAXES
For the six months ended June 30, 1997, the Company reported an effective
income tax rate of 23%, however, it is estimated that the Company will not have
a Federal tax liability for 1997. The Company has now recorded all realized or
expected refunds from loss carrybacks, and is not recognizing any deferred tax
benefits for net operating loss carryforwards of prior years, due to the
Company's full valuation allowance provided for these deferred taxes.
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. 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 to the litigation previously reported, the Company and certain of
its subsidiaries are involved in other civil litigation and administrative
matters, including permit application proceedings in connection with the
established operation, closure and post-closure activities of certain sites.
Management has not established reserves for litigation, other than for certain
anticipated legal fees, based on management's estimates of the outcome. During
the course of legal proceedings, management's estimates with respect to such
matters may change. While the outcome of any particular action or
administrative proceeding cannot be predicted with certainty, management is
unable to conclude that the ultimate outcome, if unfavorable, of the litigation
previously reported, will not have a material adverse effect on the operations
or financial condition of the Company.
12
<PAGE> 13
For the period reported herein, there were no material developments with
respect to previously reported legal proceedings, except as described below:
Ally Capital Corporation v. American Ecology Recycle Center, Inc., et
al, U.S. District Court, Southern District of Texas, Houston Division, Civil
Action No. H-96-3117. This action was for breach of an equipment lease
resulting from AERC's failure to make monthly lease payments. AERC is a
subsidiary of American Ecology and operates the Oak Ridge facility. This matter
was settled May 8, 1997 on terms reducing and extending the monthly payments
through May 2001.
In the Matter of the Applications of American Ecology Environmental
Services Corp., Permit Nos. AQ-9429, HW-50368, WDW-186, and WDW-229 (SOAH
Docket ###-##-####). This matter is a contested proceeding before the Texas
State Office of Administrative Hearings wherein AEESC, a wholly owned
subsidiary of American Ecology, was seeking to renew operation permits for its
hazardous waste treatment, storage, and disposal facility in Winona, Texas. A
locally (Winona, Texas) based organization known as "Mothers Organized to Stop
Environmental Sins" ("MOSES") appeared in the matter seeking to have the
permits revoked. As a result of the activities of MOSES and certain
individuals, AEESC determined it could not continue economic operation of the
facility. Accordingly, permit application nos. AQ-9429 and HW-50368 were
withdrawn with prejudice. The two water disposal permits and closure plan
permit applications are pending withdrawal, depending on the need for
groundwater remediation and the final closure plan. All other proceedings are
stayed.
James D. Moncrief, et al v. Gibraltar Chemical Resources, Inc., et al,
District Court of Smith County, Texas, Civil Action No. 92-1942-C. Marian
Steich, et al v. Gibraltar Chemical Resources, Inc., et al, District Court of
Smith County, Texas, Civil Action No. 93-054309. Michael Williams, et al v.
Gibraltar Chemical Resources, Inc., et al, District Court of Smith County,
Texas, Civil Action No. 93-2304-C. Tangee E. Daniels, et al v. Atrium Doors and
Windows, Inc., et al, District Court of Dallas County, Texas, Civil Action No.
95-091459-L. The above-identified cases, together with the Glazier and Adams
cases have been previously reported in American Ecology's annual report on SEC
Form 10-k. Each case involves American Ecology Environmental Services Company's
(AEESC), Winona, Texas facility. AEESC is a subsidiary of American Ecology. The
plaintiffs in the cases seek unspecified damages for various causes of action,
including trespass, nuisance, negligence, gross negligence, and in some cases,
fraudulent concealment and fraud. They claim they suffered personal injuries
and property devaluation as a result of alleged releases of toxic or harmful
chemical substances into the environment from the facility. The Moncrief case
was tried to a jury in October 1996. The jury awarded damages in the amount of
$18,000 on the Plaintiff's nuisance claim only. Plaintiffs have stated they
intend to appeal the verdict and have requested a new trial. The Williams case
was dismissed with prejudice by the trial court May 12, 1997 because Plaintiffs
failed to file affidavits identifying injuries and causes suffered as required
by the Court's Case Management Order. Defendants are similarly seeking
dismissal of the Daniels case based on the inadequacy of the affidavits filed
in that case under a similar Case Management Order. Plaintiff's have filed a
Motion for New Trial in the Williams case, and the Court has not yet ruled on
Defendants' Motion to Dismiss the Daniels case. The trial court has ordered the
parties in the Steich case to mediation, which has been scheduled for August
30, 1997. The other cases are in various stages of pre-trial discovery. In the
Moncrief, Steich, Williams and Daniels cases, AEESC is relying upon its
predecessor parent corporation's insurance coverage for defense and indemnity
purposes. With respect to each of the cases, the Company believes it has
conducted its operations in accordance with applicable laws and regulations,
that each of the lawsuits is without merit and intends to vigorously defend
each.
13
<PAGE> 14
ITEM 2 CHANGES IN SECURITIES
The Third Amended and Restated Credit Agreement Section 8.06 Restricted
Payments provides that the Company shall not make or declare any restricted
payments including dividends or other distribution on any class stock, except a
dividend payable solely in shares of stocks, warrants, rights, or options to
acquire shares.
Part II - ITEM 2
As previously reported on Form 8-K November 26, 1996, the Company issued
300,000 shares of Series "E" Redeemable Convertible Preferred Stock ("Series E)
to two of its directors in exchange for $3,000,000.00 in cash. Subsequently,
one director sold a total of 26,000 Series E shares to two other directors at
the original stated value of $10.00 per share (the "Investing Directors"). The
Series E provides for a mandatory dividend of 11.25% annually, payable
quarterly in common stock of the Company. Below is a listing of dividends paid
to the Investing Directors with respect to the Series E for the 4th quarter of
1996 and the 1st and 2nd quarters of 1997:
(1996-Q4) (1997-Q1) (1997-Q2) Total
-----------------------------------------------------
Total Shares Issued
to Investing Directors 42,153 48,243 49,761 140,157
Calculated Price/Share $1.03 $1.725 $1,691 --
As previously reported in the Company's proxy statement, outside directors are
paid an annual fee of $16,000, quarterly. As of 1996, each director is allowed
to accept the fee in cash or common stock of the Company. No common stock had
been issued to the electing directors for 1996 or the first two quarters of
1997. Accordingly, on July 28, 1997 the Company instructed its transfer agent
to issue a total of 87,269 common shares to the electing directors. The number
of shares is based on the closing market price of the Company's common stock on
the last trading day of the relevant calendar quarter divided into $4,000.00.
In each instance, the Company is relying on Section 4(2) of the Securities Act
and Rule 506 thereunder to qualify for exemption from registration of the
common stock issued.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 22, 1997. At this
meeting, Rotchford D. Barker, Paul C. Bergson, Keith D. Bronstein, Patricia M.
Eckert, Edward F. Heil, Jack K. Lemley, Paul F. Schutt, and John J. Scoville
were elected to serve as directors of the Company for the next year. In
addition, an amendment to the Company's Restated Certificate of Incorporation
was adopted to increase the authorized common stock from 20,000,000 to
25,000,000. The appointment of Balukoff, Lindstrom & Co., P.A. as independent
public accountants for the year ending December 31, 1997, and the issuance of
convertible redeemable Series E preferred stock and associated warrants were
both ratified.
The voting on such items were as follows:
(1) Election of Directors
<TABLE>
<CAPTION>
Voted Against or
For Withheld Authority
--- ------------------
<S> <C> <C>
Rotchford D. Barker 5,664,190 408,359
Paul C. Bergson 5,664,190 408,359
Keith D. Bronstein 5,666,861 408,359
Patricia M. Eckert 5,665,683 408,359
Edward F. Heil 5,667,161 408,359
Jack K. Lemley 5,661,203 408,359
Paul F. Schutt 5,666,612 408,359
John J. Scoville 5,668,176 408,359
</TABLE>
(2) Amend the Company's Restated Certificate of Incorporation to Increase
Authorized Common Stock
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
5,997,238 78,969 17,700
</TABLE>
(3) Ratify Appointment of Independent Auditors of Balukoff, Lindstrom & Co.,
P.A.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
6,044,714 23,792 5,401
</TABLE>
(4) Ratify the Issuance of Convertible Redeemable Series E Preferred Stock and
Associated Warrants
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
4,073,911 448,767 19,352
</TABLE>
14
<PAGE> 15
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
February 18, 1997 Form 8-K filed relating to the Third Amended &
Restated Credit Agreement
15
<PAGE> 16
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 4, 1997 By: /s/ Jack K. Lemley
-----------------------------------
Jack K. Lemley
Chief Executive Officer
Date: August 4, 1997 By: /s/ R. S. Thorn
-----------------------------------
R. S. Thorn
Vice President of Administration
Chief Accounting Officer
16
<PAGE> 17
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 454
<SECURITIES> 0
<RECEIVABLES> 9,069
<ALLOWANCES> 1,260
<INVENTORY> 0
<CURRENT-ASSETS> 11,019
<PP&E> 74,464
<DEPRECIATION> 11,553
<TOTAL-ASSETS> 97,036
<CURRENT-LIABILITIES> 26,697
<BONDS> 1,500
0
3,001
<COMMON> 81
<OTHER-SE> 14,331
<TOTAL-LIABILITY-AND-EQUITY> 97,036
<SALES> 20,331
<TOTAL-REVENUES> 20,331
<CGS> 13,308
<TOTAL-COSTS> 7,929
<OTHER-EXPENSES> (2,345)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 533
<INCOME-TAX> 120
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.08
</TABLE>
