<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 September 30, 1999
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 [ ] NO [X]
At November 12, 1999, Registrant had outstanding 13,648,528 shares of
its Common Stock.
<PAGE> 2
AMERICAN ECOLOGY CORPORATION
QUARTERLY REPORT FORM 10-Q FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet
(Unaudited) 4
Consolidated Statements of Operations
(Unaudited) 5
Consolidated Statements of Cash Flows
(Unaudited) 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 27
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
- ------------------------------------------- --------------------------------------------
<S> <C>
Jack K. Lemley Jack K. Lemley
Chairman of the Board Chairman and Chief Executive Officer
American Ecology Corporation
James R. Baumgardner
Rotchford L. Barker Senior Vice President and Chief Financial Officer
Independent Businessman
L. Gary Davis
Paul C. Bergson Vice President and Controller
Principal
Bergson & Company Zaki K. Naser
Executive Vice President and Operations Manager
Keith D. Bronstein
President Richard F. Paton
Tradelink, LLC Vice President
Patricia M. Eckert Stephen A. Romano
Principal Vice President
Patricia M. Eckert & Associates
Robert S. Thorn
Edward F. Heil Vice President and Chief Accounting Officer
Chairman of the Board
American Environmental Construction Company Robert M. Trimble
General Counsel and Secretary
Paul F. Schutt
Chief Executive Officer FINANCIAL REPORTS
Nuclear Fuel Services, Inc.
A copy of the American Ecology Corporation
John J. Scoville Financial Reports, filed with the
President Securities and Exchange Commission, may be
J.J. Scoville & Associates, Inc. obtained by writing to:
American Ecology Corporation
CORPORATE OFFICE 805 W. Idaho, Suite 200
Boise, Idaho 83702
American Ecology Corporation
805 W. Idaho, Suite 200 TRANSFER AGENT
Boise, Idaho 83702
(208)331-8400 ChaseMellon Shareholder Services, LLC
(208)331-7900 (fax) Overpeck Centre
www.americanecology.com 85 Challenger Road
Ridgefield Park, New Jersey 07660
COMMON STOCK (201) 296-4000
www.chasemellon.com
American Ecology Corporation's common stock
trades on the NASDAQ Stock Market under the AUDITOR
symbol ECOL.
Balukoff, Lindstrom & Co., P.A.
877 West Main Street, Suite 805
Boise, Idaho 83702
</TABLE>
3
<PAGE> 4
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,653 $ 4,442
Receivables, net of allowance for doubtful
accounts of $1,100 and $1,047, respectively 5,273 9,506
Income tax receivable 740 740
Prepayments and other 1,015 1,023
---------- ----------
Total current assets 8,681 15,711
Cash and investment securities, pledged 3,993 5,405
Property and equipment, net 8,829 11,145
Cell Development Cost 1,000 0
Deferred site development costs 27,459 26,909
Intangible assets relating to acquired businesses, net 396 414
Other assets 2,741 2,216
---------- ----------
Total assets $ 53,099 $ 61,800
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 77 $ 119
Accounts payable 3,298 5,101
Accrued liabilities 9,238 17,267
Deferred site maintenance, current portion 700 700
Income taxes payable 27 91
---------- ----------
Total current liabilities 13,340 23,278
Long term debt, excluding current portion 2,604 2,223
Deferred site maintenance, excluding current portion 18,575 18,839
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, issued and outstanding -- --
Series D cumulative convertible preferred stock, $.01 par value,
105,264 authorized, 100,001 shares issued and outstanding 1 1
Series E redeemable convertible preferred stock, $.01 par value,
300,000 authorized, 300,000 shares converted and retired -- --
Common stock, $.01 par value, 50,000,000 authorized, 13,648,528
and 13,557,275 shares issued and outstanding, respectively 137 136
Additional paid-in capital 54,401 54,385
Retained earnings (deficit) (35,959) (37,062)
---------- ----------
Total shareholders' equity 18,580 17,460
---------- ----------
Total Liabilities and Shareholders' Equity $ 53,099 $ 61,800
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 , September 30,
1999 1998 1999 1998
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Revenues $ 6,007 $ 8,855 $ 24,093 $ 28,729
Operating costs 3,664 5,703 12,684 17,570
---------- ---------- ---------- --------
Gross profit 2,343 3,152 11,409 11,159
Selling, general and administrative expenses 2,280 4,354 11,025 13,198
Income (loss) from operations 63 (1,202) 384 (2,039)
Investment income (loss) (200) (185) 113 209
Gain on sale of assets 3 -- 666 72
Other income (21) 263 274 961
---------- ---------- ---------- --------
Net income before income taxes (155) (1,124) 1,437 (797)
Income tax expense (benefit) (29) (35) 18 146
---------- ---------- ---------- --------
Net income (126) (1,089) 1,419 (943)
Preferred stock dividends 86 103 316 315
---------- ---------- ---------- --------
Net income (loss) available to common
shareholders $ (212) $ (1,192) $ 1,103 $ (1,258)
========== ========== ========== ========
Basic earnings per share $ (.02) $ (.09) $ .08 $ (.10)
========== ========== ========== ========
Diluted earnings per share $ (.02) $ (.09) $ .07 $ (.10)
========== ========== ========== ========
Dividends paid per common share $ -- $ -- $ -- $ --
========== ========== ========== ========
</TABLE>
5
<PAGE> 6
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,419 $ (943)
Adjustments to reconcile net income (loss) to net cash
Provided by operating activities:
Depreciation and amortization 1,711 2,367
Stock Compensation -- --
Deferred income tax provision (64) --
(Gain) on sale of assets (663) --
Changes in assets and liabilities:
Receivables 3,100 190
Investment securities classified as trading 1,412 (1,126)
Other assets 473 (1,172)
Accounts payable and accrued liabilities (11,184) (1,296)
Deferred site maintenance (265) (309)
---------- ----------
Total adjustments (5,480) (1,346)
---------- ----------
Net cash provided by (used in) operating activities (4,061) (2,289)
---------- ----------
Cash flows from investing activities:
Capital expenditures (1,793) (84)
Site development costs, including capitalized interest (550) (4,126)
Proceeds from sales of property and equipment 1,910 --
Proceeds from sales of investment securities -- 2,973
---------- ----------
Net cash provided by (used in) investing activities (433) (1,237)
Cash flows from financing activities:
Proceeds from common stock issued 14 --
Proceeds from issuance of indebtedness 1,733 15,131
Proceeds from rights offering -- 1,996
Repayments of indebtedness (42) (13,803)
---------- ----------
Net cash provided by (used in) financing activities 1,705 3,324
Increase (decrease) in cash and cash equivalents (2,789) (202)
Cash and cash equivalents at beginning of period 4,442 366
---------- ----------
Cash and cash equivalents at end of period $ 1,653 $ 164
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 117 $ 164
Income taxes 83 137
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(UNAUDITED)
($ IN 000'S)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED
PREFERRED COMMON PAID-IN COMPREHENSIVE EARNINGS
STOCK STOCK CAPITAL INCOME (DEFICIT)
---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 1 136 54,385 -- (37,062)
Net income -- -- -- -- 1,419
Common stock issuance -- 1 -- -- --
Dividends of preferred stock -- -- -- -- (316)
Preferred stock-retired -- -- -- -- --
Paid in capital -- -- 16 -- --
Total comprehensive income -- -- -- -- --
Balance, September 30, 1999 1 137 54,401 -- (35,959)
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
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 1998 Annual
Report on Form 10-K for the year ended December 31, 1998, as filed with the
Securities and Exchange Commission.
Certain reclassifications and other corrections for rounding have been made in
prior period financial statements to conform to the current period presentation.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant inter-company transactions and
balances have been eliminated in consolidation.
NOTE 2. LONG-TERM DEBT.
Long term debt at September 30, 1999 and June 30, 1999 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- ------------
<S> <C> <C>
Notes Payable $ 1,300 $ 1,300
Capital lease obligations and other 1,381 1,210
------------ ------------
2,681 2,510
Less: Current maturities (77) (72)
------------ ------------
Long-term debt $ 2,604 $ 2,438
</TABLE>
Aggregate maturities of long-term debt and the future minimum payments under
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------
<S> <C>
1999 $ $77
2000 871
2001 868
2002 865
----- ---------
TOTAL $ 2,681
</TABLE>
The Company borrowed $1.3 million from two of its board members as notes payable
in March 1999. The notes, due in November 2000, are unsecured, bear interest of
9%, and prohibit the Company from paying dividends on common or preferred shares
while they are outstanding. The Company has also signed five capital leases
totaling $1.4 million on 60-month terms. These leases provide for heavy
equipment in the landfill operations.
In June 1999, the Company signed a promissory note with First Security Bank for
a Business Loan Agreement Line of Credit to cover any short-term borrowing up to
$500,000. The initial borrowing rate is 9.5% interest and is secured by the
Company's accounts receivable if the line of credit is activated. The account is
currently in good standing and has not been activated.
8
<PAGE> 9
NOTE 3. DEFERRED SITE DEVELOPMENT COSTS.
The Company has been licensed to construct and operate the low-level radioactive
waste ("LLRW") facility for the Southwestern Compact ("Ward Valley facility"),
and has been selected to obtain a license to develop and operate the Central
Interstate Compact ("Butte facility").
The Company holds a license from the California Department of Health Services to
construct and operate the Ward Valley LLRW facility to serve the Southwestern
Compact region. However, California has been unable to fulfill its
responsibility to obtain title to the site-land from the U.S. Department of the
Interior so construction may proceed. In the first quarter of 1997, the Company
filed two lawsuits against the United States. The first was filed in the Court
of Federal Claims, seeking monetary damages of more than $73 million. The second
case was filed in the Federal District Court in Washington D.C. seeking
injunctive relief and a writ of mandamus ordering the land transferred to
California. The trial court rendered an adverse judgement in the mandamus action
March 31, 1999, which the Company has appealed to the Federal Circuit Court of
Appeals for the District of Columbia in Washington D.C.
All costs through September 30, 1999 related to the development of the Ward
Valley facility have been capitalized, and since then have been expensed as
incurred. After adjusting for the bank settlement in November 1998, and as of
September 30, 1999, the Company had deferred $20,953,000 (39% of total assets)
of pre-operational facility development costs of which $895,000 represents
capitalized interest. These deferred costs are to be recovered during the
facility's first 20 years of operation from disposal fees approved by the
Department of Health Services (DHS) in accordance with existing state
regulations. The approval process is to include a prudency review of
pre-operational costs incurred by the Company. The Company expects all costs
that it has deferred for this facility, and unrecognized project interest costs,
to be included in the rate-base. However, there can be no assurance that the
site-land will be transferred to California, all of these costs will be approved
by the DHS, or that the facility will ever be constructed.
The Company had incurred reimbursable costs for the development of the Butte,
Nebraska facility under a contract with the Central Interstate LLRW Compact
Commission ("CIC"). These revenues declined substantially since April 1999.
Major generators of waste within the CIC's five-state region have provided
substantially all funding to develop the Butte facility. As of September 30,
1999, the Company has contributed and deferred approximately $6,478,000 (12% of
total assets), $386,000 of which is capitalized interest, toward the development
of the Butte facility. The Company is no longer capitalizing costs for this
project. In December 1998, the State of Nebraska denied US Ecology's license
application to build and operate the facility. The CIC directed US Ecology to
pursue a Petition for a Contested Case challenging the State's denial. US
Ecology filed its Petition pursuant to Nebraska law on January 15, 1999.
The Major Generators filed suit in the Federal District Court for Nebraska on
December 30, 1998 seeking to recover certain costs expended on the Nebraska
licensing process and prevent the State of Nebraska from proceeding with the
contested case. US Ecology has intervened as a plaintiff to protect the
Company's interest and is seeking relief. The Contested Case is stayed by a
preliminary injunction issued by the presiding federal judge sought in this
court action.
While US Ecology has a minor equity position in the Butte, Nebraska project, it
has acted principally as a contractor to the Central Interstate Low-Level
Radioactive Waste Commission. US Ecology continues to execute the Commission's
requests and expects to be reimbursed for approved activities under the existing
contract.
The timing and outcome of the above matters are unknown. The Company continues
to pursue the conveyance of the land from the federal government to California.
The Company is also pursuing remedies in federal court to cure alleged defects
in the State of Nebraska's licensing process for the Butte, Nebraska facility.
The Company believes that the Butte facility license will be granted, 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.
9
<PAGE> 10
The following table shows the ending capitalized balances for deferred site
development costs for the periods ended September 30, 1999 and December 31, 1998
in thousands of dollars:
<TABLE>
<CAPTION>
September 30, Capitalized Capitalized
1999 Costs Interest Total
- ----------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Ward Valley, CA Project $ 20,058 $ 895 $ 20,953
Butte, Nebraska Project 6,092 386 6,478
Richland, WA Project 28 -- 28
----------
Total $ 27,459
December 31,
1998
- -----------------------
Ward Valley Project $ 19,536 $ 896 $ 20,431
Butte, Nebraska Project 6,092 386 6,478
----------
Total $ 26,909
</TABLE>
From 1994, the Company began to capitalize interest in accordance with Statement
of Financial Accounting Standards (SFAS) No. 34, Capitalization of Interest
Cost, on the site development projects while activities continue to secure the
projects. In July 1999, the Company elected not to capitalize further
contributions to either project until the projects were materially advanced.
These costs remain capitalized on the books of record for the Company while it
prosecutes ongoing legal actions to protect its investments.
NOTE 4. EARNINGS PER SHARE.
The following table reconciles the number of common shares outstanding for the
three and nine months ended September 30, 1999 and 1998 of each year to the
weighted average number of common shares outstanding and the weighted average
number of common and dilutive potential common shares outstanding for the
respective three and nine month periods for the purposes of calculating basic
and dilutive earnings per common share:
<TABLE>
<CAPTION>
(000'S EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) available to common shareholders $ (212) $ (1,192) $ 1,103 $ (1,258)
======== ======== ======== ========
Weighted average shares outstanding:
Common shares outstanding at end of period 13,564 13,498 13,564 13,498
Dilutive effect of options and warrants -- -- 1,844 444
Shares used in computing earnings (loss) per share 13,564 13,498 15,407 13,942
Basic EPS $ (.02) $ (.09) $ .08 $ (.10)
======== ======== ======== ========
Diluted EPS $ (.02) $ (.09) $ .07 $ (.10)
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
NOTE 5. COMMITMENTS AND CONTINGENCIES.
Other than the information set forth in Part II, Item 1 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 1998 Annual
Report on Form 10-K.
Environmental Compliance: The Company is subject to extensive and evolving
federal, state and local environmental laws and regulations. As a result of
changing industry practices and regulatory policy, the Company will periodically
modify or replace facilities and alter methods of operation. The majority of the
expenditures necessary to comply with the environmental laws and regulations are
made in the normal course of business. Management believes the Company is in
compliance, for all material respects, with the laws and regulations affecting
its operations. There is no assurance, however, that the Company will not have
unanticipated compliance expenditures in the future.
Tax Issues: In 1995, the Company recorded an income tax receivable of $740,000
for a ten-year Net Operating Loss Carryback between 1994 and 1984. On September
29, 1999, the Internal Revenue Service (IRS) issued a letter of denial on part
of the claim. The Company had previously filed a protective claim for that
portion of the claim nearing the statute of limitations. The Company has until
November 28, 1999 to file a protest to the IRS. The Company intends to make a
written argument of protest for the tax refund claim in the allowed time period.
Insurance: The Company carries a broad range of insurance coverage, which
management considers prudent to protect the Company's assets and operations.
Some of this insurance coverage is subject to a varying degree of risk retention
by the Company.
Casualty coverage currently includes $1,000,000 primary commercial general
liability with a $2,000,000 aggregate and $5,000,000 primary automobile
liability. The Company maintains workers' compensation insurance in accordance
with laws of the various states in which it is an employer. This coverage is
supported by $25,000,000 in umbrella insurance protection. A property policy
provides insurance coverage for real and personal property.
The Company also maintains an environmental impairment liability ("EIL")
insurance policy for certain of its non-radioactive landfills, transfer
stations, and recycling facilities. This provides coverage for property damage
and/or bodily injury to third parties caused by potential off-site pollution
emanating from such landfills, transfer stations, or recycling facilities. This
policy provides $10,000,000 of coverage per loss with a $10,000,000 aggregate
limit.
Professional Environmental Consultants Liability Insurance is carried to cover
damages the Company is legally obligated to pay because of an act, error or
omission in professional services, or a loss resulting in environmental
impairment away from an owned site. This policy is subject to a $5,000,000 per
occurrence limit with a $5,000,000 aggregate.
Nuclear Liability Insurance is carried to cover bodily injury and property
damage claims to third parties caused by the nuclear energy related hazards for
which the Company is legally obligated.
Certain of the Company's landfills and recycling facilities are covered for
Closure/Post Closure costs through a direct risk transfer insurance policy.
Other sites are covered through funds required by various states.
11
<PAGE> 12
NOTE 6. PREFERRED STOCK.
In November 1996, the Company issued 300,000 shares of Series E Redeemable
Convertible 11.25% Preferred stock for $3,000,000 in cash. All of the Series E
preferred stock was either converted or redeemed in the Rights Offering which
concluded February 10, 1998. The partial redemption and mandatory conversion of
the remaining Series E at the conclusion of the rights offering was a term of
the Series E Designation Certificate. The Series E stock is now retired but
carries 3,000,000 warrants with no assigned value, at $1.50 per share exercise
price. The warrants expire June 2008.
In September 1995, the Board of Directors authorized 105,264 shares of preferred
stock designated as 8 3/8% Series D Cumulative Convertible Preferred Stock
("8 3/8% Preferred Stock") and authorized the issuance of 105,264 of such shares
and warrants to purchase 1,052,640 shares of the Company's common stock. During
September through December 1995, the Company sold 105,264 shares of 8 3/8%
Preferred Stock with warrants in a private offering to a group comprised
principally of members of the Company's directors ("the Investing Group") and
received cash proceeds of $4,759,000 which is net of offering expenses of
$101,000 and $140,000 in settlement of liabilities to two members of the
Investing Group. Each 8 3/8% Preferred Stock share is convertible at any time at
the option of the holder into 15.88 shares of the Company's common stock,
equivalent to a conversion price of $5.50 on the $47.50 total per share offering
price. All dividends on the 8 3/8% Preferred Stock was paid in full in March
1999. Accrued unpaid dividends totaled $296,000 and $1,354,000 at September 30,
1999 and December 31, 1998, respectively.
The 8 3/8% Preferred Stock shares are not redeemable and the liquidation
preference is $47.50 per share plus unpaid dividends. Each share of the 8 3/8%
Preferred Stock issued included ten warrants to purchase shares of the Company's
common stock. All of the attached warrants were originally to expire September
13, 1999. In July 1999, the Board of Directors resolved that any Series D
Preferred Stock holder could convert their shares to common stock and extend
their attached warrants three years to September 13, 2002. One Series D holder
participated in this option and converted 5,263 Series D shares into 83,580
common shares and an additional 7,073 common shares for the accrued dividends
through September 13, 1999. All other warrants attached to the Series D
preferred stock have now expired. The remaining warrants from the conversion
have no assigned value in the accompanying consolidated financial statements.
NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS.
The International Accounting Standards Committee, IASC, revised IAS No. 1,
Presentation of Financial Statements, and No. 14, Segment Reporting, effective
for accounting periods beginning on or after July 1, 1998. Statement No. 14
applies only to publicly traded companies and requires that information be
reported for segments of a business along product and service lines and
geographically in addition to consolidated enterprise-wide information in the
basic financial statements. The Company has reported in accordance with these
standards, financial information as disclosed in Item 2., Management's
Discussion and analysis of Financial Condition and Results of Operations.
NOTE 8. ENVIRONMENTAL LIABILITIES.
The Company has certain material financial commitments for the costs associated
with closure, post closure, perpetual care and maintenance, final closure and
the regulatory costs associated with existing operations at a hazardous waste
treatment and storage facility. These facilities are subject to Toxic Substance
Central Act ("TSCA") and the Resource Conservation and Recovery Act ("RCRA").
These costs for closure are accrued and charged to expense, and credited to
Deferred Site Maintenance based on third party independent engineering studies.
12
<PAGE> 13
The following site locations have recorded Deferred Site Maintenance:
<TABLE>
<S> <C>
Texas Ecologists at Robstown, Texas $ 8,229,000
US Ecology at Beatty, Nevada 1,533,000
US Ecology at Richland, Washington 113,000
US Ecology at Sheffield, Illinois 7,902,000
American Ecology Environmental Services at Winona,
Texas 797,000
Total Deferred Site Maintenance $ 18,575,000
</TABLE>
The Company maintains an insurance policy for the protection of all site
locations. The financial assurance that the Company maintains is different and
exceeds the Deferred Site Maintenance liability. The Sheffield, Illinois and
Winona, Texas facilities require additional collateral for the insurance
policies.
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.
"Forward-looking statements" described herein are intended to qualify for the
safe harbor from liability. Such statements address future plans, objectives,
expectations, and events or conditions concerning various matters such as
capital expenditures, earnings, litigation, rate and other regulatory matters,
liquidity and capital resources, and accounting matters. Actual results in each
case could differ materially from those currently anticipated for reasons
including, without limitations, ongoing state or federal actions; future
economic conditions; ongoing litigation; legislation; regulation; competition;
and other circumstances affecting anticipated rates, revenues and costs. Any
forward-looking statement speaks only as of the date on which such statement is
made. No obligation to update such statements apply.
Introduction
American Ecology Corporation is the oldest radioactive and hazardous chemical
waste company in the United States. Incorporated in 1952 as Nuclear Engineering
Company, is has operated commercial radioactive and chemical waste disposal and
treatment facilities nationwide longer than any other company.
The Company is organized into two market-focused divisions: the Chemical
Division and the Nuclear Division. In 1998 and the first nine months of 1999,
approximately 40% of revenues were derived from the Chemical Division. The
Nuclear Division generated approximately 60% of revenues.
Several under-performing acquisitions completed in 1994 interrupted the
Company's strong financial growth in the early 1990's. This situation was
intensified by a severe unforeseen downturn in the chemical waste disposal
industry. Revenues and earnings peaked in 1994, while write-down of acquired
assets resulted in large losses in 1995 and 1996. Since 1995, both gross profit
and net income have been steadily improving.
Senior Management
On November 1, 1999 the Company appointed Jim Baumgardner as Senior Vice
President and Chief Financial Officer. Mr. Baumgardner brings significant
financial strengths to the Company where there had not been a Chief Financial
Officer officially since 1995. In the third quarter of 1999 the Company promoted
from within its staff Zaki Nazer to be Executive Vice-President and Manager of
Operations and Robert M. Trimble to be Secretary and General Counsel. Mr. Nazer
had been with the Company in operations since 1996, and has 23 years of
13
<PAGE> 14
environmental experience with a strong background in technical and regulatory
compliance. Mr. Trimble also joined the Company in 1996 and had served as
Assistant General Council. Mr Trimble has a strong background in environmental
and business law. Also, during the third quarter of 1999, the President and
Chief Operating Officer resigned to pursue other opportunities.
CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 1999, The Company had a working capital
deficit of $4,659,000 compared to $14,822,000 for the nine months ending
September 30, 1998. Management continues to improve the Company's financial
performance and reduce the working capital deficit. The Company intends to
finance the remainder of its 1999 capital expenditures through cash from
operations.
As of September 30, 1999, the current ratio, a measure of current assets to
current liabilities, has improved to .65:1 from .41:1 for the same period one
year ago. Cash and cash equivalents on hand have substantially improved with
balances of $1,653,000 at September 30, 1999 compared to $164,000 one year
earlier. The Company has been meeting almost all obligations as they become due,
which has helped to reduce the working capital deficit. All cash and cash
equivalents on hand are committed to obligations to pay. While the Company's
cash and liquidity situation has improved, the Company remains challenged by
reduced revenues from each of the site locations except for Richland,
Washington. These reduced revenues make it difficult for the Company to forecast
its ability to meet short-term operating demands for cash. There remains an
unused balance on the business loan agreement line of credit with the bank for
the Company's future need of short-term borrowing. The Company has not activated
this line of credit since the date it was opened in June 1999. The Company
intends to improve revenues and continue to reduce the working capital deficit
but the Company is not certain about its ability to increase revenues through
improved operating results. The newly appointed Chief Financial Officer will
focus efforts on this high priority objective.
The financial statements as of September 30, 1999 contain no adjustments to the
asset carrying amounts and certain reserves have been made for known and
reasonably estimated obligations, and ongoing litigation issues.
CREDIT ARRANGEMENTS
The Company currently has $1.3 million of notes payable with two of its
directors, due November 2000. The Company also has several long-term capital
leases totaling $1.4 million. Please see Note 2. to the financial statements for
aggregate maturities. The Company has a $500,000 line of credit, all of which is
currently available.
MEASURES TO REDUCE COSTS
Management has continued to implement an aggressive financial and operating plan
since 1995. The Company has evaluated its position in its respective markets,
measured customer potentials, and restructured its marketing efforts to respond
effectively. Operating results have improved as a result. The Company continues
to evaluate the viability of its operations and their current potential to
perform at desired profitability levels. The Company will no longer capitalize
costs for deferred site development of the California or Nebraska projects. For
the most part, all excess costs have been eliminated and the Company is in a
position to concentrate on new or expanded revenue opportunities.
CASH FLOW
As of September 30, 1999, the Company had net cash used in operating activities
of $4,061,000. The Company has continued to pay down accrued accounts payable
and other accrued liabilities. These efforts have improved the working capital
deficit to $4,659,000 but there has been a decrease in the cash position from
year-end December 31, 1998 with a deficit of $2,289,000. There was an overall
improvement in 1999 partially as a result of the sales of assets from the
transportation division for $1.9 million and the reduction of accrued
liabilities when the Company paid its obligation to rebate waste generator fees
in the Northwest Compact. Cash and cash equivalents at September 30, 1999 were
$1,653,000 compared to $164,000 at December 31, 1998. Capital expenditures
totaled $1,793,000 at September 30, 1999 compared to
14
<PAGE> 15
$84,000 at the prior year-end. Almost all of 1999 capital expenditures have
been for construction in progress and equipment purchases.
As the Company continues to improve operations and expand revenues, there will
probably be a need to incur future indebtedness or issue equity securities to
cover business initiatives not met by current operations. There can be no
assurance that the Company will be successful in obtaining additional capital on
acceptable terms through such debt incurrence or issuance of additional equity
securities. Any delays or difficulties in obtaining the required financing for
revenue expansion projects may have an adverse effect on the Company's ability
to accomplish these new goals.
YEAR 2000 COSTS
The Year 2000 (Y2K) issue involves potential problems with computer systems or
any equipment with computer chips using dates where the year is stored as two
characters (e.g. 98 for 1998). These systems may incorrectly evaluate dates
beyond the year 1999, potentially causing system failures, which could affect
business. The Company has implemented a Y2K Plan that addresses traditional
hardware and software systems, embedded systems, and service providers. The plan
includes identification and coordination with external interfacing systems. The
Company believes that its computer systems comply with the Y2K requirement for
date changes, but retains some concern that certain companies we do business
with may not comply. The Company does not expect the expenses associated with
compliance to have a material affect on its financial position, operations or
cash flows.
State of Readiness
The Company is organized with the two operating divisions, Chemical and Nuclear.
Each division has prepared a plan for Y2K compliance, as described below:
Chemical Division:
The Chemical Division has operating facilities in Texas and Nevada. Each
facility reviewed and analyzed its obligations as well as those of its vendors
and customers to meet Y2K compliance requirements. All locations contacted local
power companies to arrange contingency plans for power interruptions. Each
location has diesel generators capable of supplying adequate power in case of an
outage. Compliance and regulatory calendars will be reviewed and any reports
that can be completed in December 1999 for January 2000 will be prepared early.
The Company has received compliance certification for critical groundwater and
certain other compliance reports. Personnel will review all safety equipment to
ensure it is in good working order and stock extra supplies. All laboratory
equipment used for stabilization and fingerprint analysis has been reviewed and
is Y2K compliant. The Company will maintain substantial excess inventories of
solidification and stabilization reagents.
Nuclear Division:
The Nuclear Division has limited vulnerability to Y2K problems. All critical
services have been evaluated and contingencies developed where needed. The
Company has reviewed each critical service and has a contingency plan where
applicable. A review has been made of radiation detection equipment, security
systems, fire alarms, and power and heating supplies.
The Company has requested written assurance from its principal suppliers and
service providers that they will be Year 2000 compliant. The majority of these
suppliers have responded favorably and no significant supplier problems have
been discovered. There can be no assurances, however, that the systems or
products of third parties that the Company relies upon will be properly
converted. The Company does not expect any material disruption in operation or
losses in revenue due to Y2K problems.
15
<PAGE> 16
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
The following table presents, for the periods indicated, the percentage of
operating line items in the consolidated income statement to operating revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999 September 30, 1998 September 30, 1998
------------------------ ----------------------- ----------------------- -----------------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 6,007 24,093 8,855 28,729
Operating Costs 3,664 61.0 12,684 52.6 5,703 64.4 17,570 61.2
--------- --------- --------- --------- --------- --------- --------- ---------
Gross Profit 2,343 39.0 11,409 47.4 3,152 35.6 11,159 38.8
Selling, G and A
Costs 2,280 38.0 11,025 45.8 4,354 49.2 13,198 45.9
--------- --------- --------- --------- --------- --------- --------- ---------
(Loss) from
Operations 63 1.0 384 1.6 (1,202) (13.6) (2,039) (7.1)
Investment Income (200) (3.3) 113 .05 (185) 2.1 209 (.07)
Gain on sale of
assets 3 0.0 666 2.8 -- 0.0 (72) (.03)
Other (income)
expense (21) (.03) 274 1.1 (263) (3.0) (961) (3.3)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (loss)
Before income
taxes (155) (2.6) 1,437 6.0 (1,124) (12.7) (797) (2.8)
Income tax expense
(benefit) (29) (.05) 18 .01 (35) (0.4) 146 0.5
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (loss) (126) (2.1) 1,419 5.9 (1,089) (12.3) (943) (3.3)
Preferred stock
Dividends 86 1.4 316 1.2 103 1.2 315 1.1
Net Income (loss)
Available to
Common
shareholders (212) (3.5) 1,103 4.7 (1,192) (13.5) (1,258) (4.4)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Period to Period Change For Period to Period Change For
The Three Months Ended The Nine Months Ended
September 30, 1999 and 1998 September 30, 1999 and 1998
--------------------------- ---------------------------
$ % $ %
<S> <C> <C> <C> <C>
Statement of Operations Revenues
Chemical Division (2,234) (48.6) (2,991) (24.9)
LLRW Division (614) (14.4) (1,645) (9.8)
EBINT (1)
Chemical Division (224) (8.5) 174 42.0
LLRW Division 869 1.6 1,911 103.9
Consolidated Net Income 963 88.4 2,362 250.4
EBITDA (2)
Consolidated 710 211.9 1,560 99.4
</TABLE>
1) EBINT represents income from operations before deducting interest and taxes.
2) EBITDA represents income from operations plus depreciation and amortization
expense.
REVENUES
For the three and nine months ended September 30, 1999, the Company reported
revenue of $6,007,000 or a 32.2% decrease, and $24,093,000, or a 16.1% decrease
to the corresponding prior year period. The Company is reviewing and exploring
new prospects for increased sales from all of the operating facilities. While
the industry has yielded declines to the disposition of chemical and LLRW waste,
the Company has maintained its market share. The decline in revenue is partly
attributed to a loss of revenue at the Oak Ridge, Tennessee facility, as a
result of complications with employees, federal and state investigations, and
attempts to continue in the process and disposal of aged waste on site. It is
believed that most of these issues are now under control and the federal and
state investigations are being handled accordingly. There has also been a
reduction in revenue from some of the Chemical division's operations. Texas
Ecologists landfill has suffered declining revenues along with the
transportation and Surecycle(R) operations, which were both sold in May 1999. At
Richland, Washington, the Company operates a LLRW site, charging rates for
disposal set by the Washington Utility and Transportation Commission (WUTC).
Generally by the third quarter, the annual fees have been collected and then
there is a prorated decline in recorded revenues for the balance of the year, so
as not to exceed the annual allotment provided for by the WUTC.
The Chemical Division, for the three and nine months ended September 30, 1999,
reported revenues of $2,359,000, a 48.6% decrease, and $9,015,000, a 24.7%
decrease to the corresponding prior year period. The LLRW division for the three
and nine months ended September 30, 1999, reported revenues of $3,648,000, a
14.4% decrease, and $15,078,000, a 9.8% decrease, to the corresponding prior
year period. As explained in the preceding paragraph, the Oak Ridge, Tennessee
facility has undergone a series of events that have had a cumulative negative
impact on operating performance. Federal investigators recently visited the Oak
Ridge site to obtain samples of drummed materials and various company records.
These samples were taken as part of an examination of the Oak Ridge facility's
compliance with RCRA laws. The Chemical division sold assets consisting of the
transportation division and a small brokerage service. This sale of these assets
comprised approximately 13% and 22% of the Chemical division revenues for the
periods ending September 30, 1999 and 1998 respectively. The sale resulted in a
reduction of revenue during 1999 but a relief from the losses of $525,000
associated with these assets one year ago.
17
<PAGE> 18
OPERATING COSTS
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Nine Months Ended
September 30, 1999 and 1998 September 30, 1999 and 1998
--------------------------- ---------------------------
$ % $ %
<S> <C> <C> <C> <C>
Statement of Operations-Direct Operating Costs
Chemical Division (4,001) (70.0) (2,330) (28.1)
LLRW Division (4,921) (71.4) (3,239) (30.7)
Selling, General and Administrative Costs
Chemical Division (2,080) (70.0) (1,270) (26.7)
LLRW Division (1,503) (51.9) (183) (3.9)
Other Costs
Chemical Division 581 9.5 (345) (8.7)
LLRW Division 110 19.6 (110) (20.8)
</TABLE>
Operating costs and expenses have declined overall during 1999. The Company
reported a decrease of $2,039,000 or a 36.4%, and a decrease of $4,886,000 or
27.8%, for the three and nine months ended September 30, 1999 and 1998
respectively. As a percentage of operating revenues, operating costs and
expenses decreased from 64% to 61% for the three months ended September 30, 1999
and 1998, respectively, and 9% from the nine months ended September 30, 1998.
Overall operating costs in both the Chemical and LLRW divisions have decreased
from the same periods one-year ago. The Chemical Division sold the
transportation division in May of 1999. Operating costs decreased $2,080,000 or
70% for the three months ended September 30, 1999 compared to 1998, and
decreased $1,270,000 for the nine months ended September 30, 1999 compared to
the same period of 1998. The LLRW division ceased operations of maintaining the
land for the Butte, Nebraska LLRW landfill site location that has yet to be
granted a license from the State of Nebraska. The Central Interstate Compact
reimbursed the Company for operating costs that included monitoring, surveying,
and other state required expenses in preparation for licensing. The loss of
these revenues and expenses totaled the decrease of $4,921,000 or 71% and
$3,239,000 or 31% for the three and nine months ended September 30, 1999
compared to the same periods in 1998. In addition, the Oak Ridge facility had a
down turn in business as discussed earlier and this resulted in a decrease of
approximately $410,000 for the nine months ended September 30, 1999.
The Company has made many efforts since 1995, to reduce non-performing assets,
and trim unnecessary operating costs. These efforts have contributed to the
increased operating performance through the third quarter of 1999, however
future results can not be accurately forecasted and certain events could
increase operating costs having an adverse effect on these operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $2,074,000 or 47.6%, and
$2,173,000 or 16.4%, for the three and nine months ended September 30, 1999,
respectively, as compared to the prior year periods. As a percentage of
operating revenues selling, general and administrative expenses decreased to 38%
from 49% for the three months ended September 30, 1999 and 1998, respectively,
and remained constant at 4.6% for the nine months ended September 30, 1999 and
1998. For the nine months ended September 30, 1999 compared to September 30,
1998, legal expenses at the corporate level decreased from $3,677,000 to
$2,773,000. The remainder of the reduced costs in this category are made up from
lower spending at each of the area locations in both Chemical and LLRW
divisions, including the reduction of spending at the closed Winona, Texas
facility.
18
<PAGE> 19
The Company has attempted to be very conservative in cost saving measures like
travel expense, entertainment, seminars, other employee benefits, and related
activities. Management believes that it has applied, and will continue to apply,
the aggressive cost saving measures and implementation of the recovery plan it
began in 1995.
OTHER COSTS, INCOME AND INVESTMENT INCOME
Other income includes income on the sale of investments, income from the sale of
certain resources from land, timber, or gravel from property in Texas, and other
accounting adjustments for prior period reserves. For the three months ended
September 30, 1999, and 1998, other costs and income declined from $263,000 to
$21,000, and for the nine months declined from $961,000 to $274,000.
Investment income is comprised principally of interest income earned on various
investments: money market investments, commercial paper, sweep accounts,
certificates of deposit, and capital gains and losses earned on the Company's
stock portfolio classified as trading securities. For the nine months ended
September 30, 1999, the Company reported investment income of $113,000 compared
to $209,000 for the same period of 1998.
The decrease in income producing investments declined by approximately
$1,000,000 for the nine months period ending September 30, 1999 from 1998,
mainly due to a withdrawal taken from the Company's investment account. For the
three months ended September 30, 1999 compared to the same period of 1998, the
gain on sale of assets increased $3,000 but for the nine months ended of the
same years the gain on sale of assets increased to $666,000 from $72,000. This
change is related to the sale of the transportation and brokerage service sale
that was completed in May 1999.
INCOME TAXES
For the three months ended September 30, 1999, the Company reported an effective
income tax benefit rate of 18.7%, and a tax expense of 1.2% for the nine months.
The Company is not recognizing any deferred tax benefits for net operating loss
carry forwards from prior years due to the Company's full valuation allowance
provided for these deferred taxes.
NEW ACCOUNTING PRONOUNCEMENTS
The International Accounting Standards Committee, IASC, revised IAS No. 1,
Presentation of Financial Statements, and No. 14, Segment Reporting, effective
for accounting periods beginning on or after July 1, 1998. Statement No. 14
applies only to publicly traded companies and requires that information be
reported for segments of a business along product and service lines and
geographically in addition to consolidated enterprise-wide information in the
basic financial statements. The Company has reported in accordance with these
standards, financial information as disclosed in Item 2., Management's
Discussion and analysis of Financial Condition and Results of Operations.
19
<PAGE> 20
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 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
those 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.
MANCHAK V. OHM REMEDIATION SERVICES CORP., ET AL, U.S. DISTRICT COURT FOR THE
DISTRICT OF NEVADA, CIVIL ACTION NO. 96-494. QUIRK & TRATOS (P. ANDERSON) LAS
VEGAS, NEVADA
On September 24, 1999, Plaintiffs filed a Motion with the court requesting leave
to file an amended complaint adding American Ecology Corporation as a defendant
in the case, alleging direct infringement by American Ecology, and as the alter
ego of US Ecology, Inc. The court has not heard that motion. The company will
vigorously contest such an amendment.
20
<PAGE> 21
MICHAEL WILLIAMS, ET AL V. GIBRALTAR CHEMICAL RESOURCES, INC., ET AL, DISTRICT
COURT OF SMITH COUNTY, TEXAS, CIVIL ACTION NO. 93-2304-C. RAMEY & FLOCK
(R. MOORE) TYLER, TEXAS
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. Plaintiffs filed a
motion requesting an appeal before the Texas Court of Appeals, which motion was
granted. Subsequently, on June 30, 1999, the Twelfth Court of Appeals District,
Tyler, Texas, reversed the trial courts ruling, reinstated the case, and
remanded the case to the trial court for further proceedings. Discovery in the
matter has not yet recommenced. Some settlement discussions of the matter
have been pursued with Plaintiffs' attorneys in conjunction with settlement
discussions in the Adams matter. No meaningful discussions, however, have taken
place in connection therewith.
21
<PAGE> 22
IN THE MATTER OF AMERICAN ECOLOGY RECYCLE CENTER, INC., RCRA DOCKET NO.:
RCRA-4-99-0020 BAKER, DONELSON, BEARMAN & CALDWELL (G. SHOCKLEY) NASHVILLE,
TENNESSEE
On September 30, 1999, USEPA Region 4 issued an Administrative Complaint to
AERC, which alleges violations of RCRA requirements, including (1) storage over
one year of hazardous waste subject to land disposal restrictions, (2) failure
to make hazardous waste determinations, and (3) storage of hazardous wastes
without a permit. This civil administrative enforcement action seeks a civil
penalty for $533,759.00. An answer to the complaint, which was received by the
Company on October 4, 1999, was filed on November 2, 1999. The Company believes
it has conducted its operations in compliance with the applicable regulations
and intends to vigorously contest this action.
FEDERAL RCRA INVESTIGATION AT THE OAK RIDGE, TENNESSEE FACILITY
RITCHIE, FELS & DILLARD, P.C. (C. FELS) KNOXVILLE, TENNESSEE
On September 29, 1999, investigators associated with the FBI, EPA, and TVA,
arrived at the Oak Ridge Facility to commence an investigation at the site in
connection with a search warrant issued by the U.S. District Court, Eastern
District of Tennessee (Knoxville). The Company is cooperating with the inquiry
and providing requested information, and has no further information at this
time.
ZURICH AMERICAN INSURANCE COMPANY V. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, ET AL INCL. AEC, AEESC, AEMC AND AESC; SUPREME COURT OF STATE OF NEW
YORK, COUNTY OF NEW YORK; CASE NO. 604662/99 LATHAM & WATKINS (L. Levine)
Chicago, Illinois
In this action filed October 12, 1999, Plaintiff Zurich American Insurance Co.
("Zurich") seeks declaratory and other relief against National Union Fire
Insurance Company of Pittsburgh ("National Union"), AEC and subsidiaries AEESC,
AESC and AEMC ("AEC Defendants") and Doe Insurers 1-50 ("Doe Defendants") with
respect to Zurich's defense coverage in the Virgie Adams action under its claims
made policy PLC 6820850. National Union is named as a defendant in this action
because it allegedly provided insurance coverage to Gibraltar Chemical Resources
(predecessor to AEESC) during the coverage period in question. Doe Insurers 1-50
are included in the action to preserve any claims Zurich may have against other
insurers, yet unknown, who may have provided coverage during the same time.
Among other relief, Zurich seeks a declaratory ruling from the court that
National Union and the Doe Defendants have a duty to participate in the
Company's defense in the Adams suit. In addition, Zurich seeks reimbursement,
contribution and/or allocation of litigation fees and costs from the AEC
Defendants, National Union and the Doe Defendants for alleged defense costs more
than $300,000 as of the date of the Complaint. Zurich also seeks a declaratory
ruling from the court stating that prospectively, Zurich has no duty to defend
or indemnify the AEC Defendants in the Adams suit. Finally, Zurich asserts a
claim for indemnity against all defendants as to costs, and includes a claim for
unspecified damages as well as costs of suit. The Company intends to vigorously
defend this action.
22
<PAGE> 23
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference from
No. Description Registrant's
------- ----------- ------------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended 1989 Form 10-K
3.2 Certificate of Amendment to Restated Certificate of Incorporation Form S-4 dated 12-24-92
dated June 4, 1992
3.3 Amended and Restated Bylaws dated February 28, 1995 1994 Form 10-K
10.1 Sublease dated February 26, 1976, between the State of Washington, Form 10 filed 3-8-84
the United States Dept. of Commerce and Economic Development, and
Nuclear Engineering Company with Amendments dated January 11, 1980,
and January 14, 1982.
10.2 Lease dated May 1, 1977 ("Nevada Lease"), between the state of Form 10 filed 3-8-84
Nevada, Dept. of Human Resources and Nuclear Engineering Company,
with Addendum thereto, dated December 7, 1982
10.3 Addendum to Nevada Lease dated March 28, 1988 1989 Form 10-K
10.4 Nevada State Health Division, Radioactive Material License issued to 1989 Form 10-K
US Ecology, Inc. dated December 29, 1989
10.5 Administrative Order by Consent between the United States 1985 Form 10-K
Environmental Protection Agency and US Ecology, Inc. ("USE") dated
September 30, 1985
10.6 State of Washington Radioactive Materials License issued to US 1986 Form 10-K
Ecology, Inc. dated January 21, 1987
10.11 Agreement between the Central Interstate Low-Level Radioactive Waste 2nd Quarter 1988 10-Q
Compact Commission and US Ecology, Inc. for the development of a
facility for the disposal of low-level radioactive waste dated
January 28, 1988 ("Central Interstate Compact Agreement")
10.12 Amendment to Central Interstate Compact Agreement dated May 1, 1990 1994 Form 10-K
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C>
10.13 Second Amendment to Central Interstate Compact Agreement dated June 1994 Form 10-K
24, 1991
10.14 Third Amendment to Central Interstate Compact Agreement dated July 1994 Form 10-K
1, 1994
10.15 Settlement agreement dated May 25, 1988 among the Illinois Form 8-K dated 6-7-88
Department of Nuclear Safety, US Ecology, Inc. and American Ecology
Corporation of a December 1978 action related to the closure, care
and maintenance of the Sheffield, Illinois LLRW disposal site
10.16 Nevada Division of Environmental Protection Permit for Hazardous 1988 Form 10-K
Waste Treatment, Storage and Disposal (Part B) issued to US Ecology,
Inc. dated June 24, 1988
10.17 Texas Water Commission Permit for Industrial Solid Waste Management 1988 Form 10-K
Site (Part B) issued to Texas Ecologists, Inc. dated December 5,
1988
10.18 Memorandum of Understanding between American Ecology Corporation and 1989 Form 10-K
the State of California dated August 15, 1988
10.19 United States Environmental Protection Agency approval to dispose of 1989 Form 10-K
non-liquid polychlorinated biphenyl (PCB) wastes at the Beatty,
Nevada chemical waste disposal facility
10.20 Employment Agreement between American Ecology Corporation and C. 1993 Form 10-K
Clifford Wright, Jr. dated April 1, 1994 * (terminated in 1995)
10.21 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
William P. McCaughey dated April 1, 1994 * (terminated in 1995)
10.22 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Stephen W. Travers dated April 1, 1994 * (terminated in 1995)
10.23 Employment Agreement between American Ecology Corporation and Harry 1993 Form 10-K
O. Nicodemus, IV dated April 1, 1994 * (terminated in 1995)
10.24 Employment Agreement between American Ecology Corporation and Ronald 1993 Form 10-K
K. Gaynor dated April 1, 1994 * (terminated in 1995)
10.26 Amended and Restated American Ecology Corporation 1992 Stock Option Proxy Statement dated 4-26-94
Plan *
10.27 Amended and Restated American Ecology Corporation 1992 Outside Proxy Statement dated 4-26-94
Director Stock Option Plan *
10.28 American Ecology Corporation 401 (k) Savings Plan * 1994 Form 10-K
10.29 American Ecology Corporation Retirement Plan * 1994 Form 10-K
10.30 Credit Agreement between American Ecology Corporation, its 1994 Form 10-K
subsidiaries and Texas Commerce Bank National Association dated
December 1, 1994 (terminated by 10.41 below)
10.31 Security Agreement dated as of December 1, 1994 by American Ecology 1994 Form 10-K
Corporation in favor of Texas Commerce Bank, National Association
(terminated by 10.43 below)
10.32 Security Agreement by subsidiaries of American Ecology Corporation 1994 Form 10-K
dated as of December 1, 1994 in favor of Texas Commerce Bank,
National Association (terminated by 10.43 below)
10.33 Lease Agreement between American Ecology Corporation and VPM 1988-1, Form S-4 filed 12-24-92
Ltd. Dated October 14, 1992
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
10.34 Rights Agreement dated as of December 7, 1993 between American Form 8-K dated 12-7-93
Ecology Corporation and Chemical Shareholders Services Group, Inc.
as Rights Agent
10.35 Agreement and Plan of Merger by and between American Ecology Form S-4 dated 12-24-92
Corporation and Waste Processor Industries, Inc.
10.36 Settlement Agreement dated September 24, 1993 by US Ecology, Inc., 1993 Form 10-K
the State of Nevada, the Nevada State Environmental Commission, and
the Nevada Dept. of Human Resources
10.37 Settlement Agreement dated as of January 19, 1994 by and among US 1993 Form 10-K
Ecology, Inc., Staff of the Washington Utilities and Transportation
Commission, Precision Castparts Corp., Teledyne Wah Chang, Portland
General Electric Company, the Washington Public Power Supply System
and Public Service Company of Colorado.
10.38 Agreement dated January 28, 1994 between American Ecology Form 8-K dated 2-3-94
Corporation, Edward F. Heil, Edward F. Heil as trustee
for Edward F. Heil, Jr., Sandra Heil, and Karen Heil Irrevocable
Trust Agreement #2, Thomas W. McNamara and Thomas W. McNamara as a
trustee of the Jenner & Block Profit Sharing Trust No. 082.
10.39 Agreement of Purchase and Sale dated as of April 7, 1994 by and 1st Quarter 1994 Form 10-Q, 3rd
among American Ecology Corp., American Ecology Recycle Center, Inc., Quarter 1994 Form 10-Q
Quadrex Environmental Company and Quadrex Corporation, as amended by
Amendments dated June 14, 1994 and August 22, 1994.
10.40 Stock Purchase Agreement dated as of May 10, 1994 by and between 1st Quarter 1994 Form 10-Q, 3rd
American Ecology Corporation and Mobley Environmental Services, Quarter 1994 Form 10-Q
Inc., as amended by Amendment dated September 21, 1994.
10.41 Second Amended Restated Credit Agreement between American Ecology 1995 Form 10-K
Corporation , its subsidiaries and Texas Commerce Bank National
Association dated June 30, 1995
10.42 Security Agreement dated June 30, 1995 by American Ecology 1995 Form 10-K
Corporation in favor of Texas Commerce Bank National Association.
10.43 Security Agreement dated June 30, 1995 by subsidiaries of American 1995 Form 10-K
Ecology Corporation in favor of Texas Commerce Bank National
Association.
10.46 Rights Offering and Prospectus with American Ecology Corporation and Form S-3 dated 9-9-97
ChaseMellon Shareholder Services as Rights Agent.
10.48 Amended and Restated 1992 outside Directors Stock Option Plan Form S-8 dated 12-30-98
21 List of Subsidiaries 1994 Form 10-K
27 Financial Data Schedule
</TABLE>
Management contract or compensatory plan.
(B) REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
16.1 Change of Auditors Letter - November 25, 1996 Form 8-K
10.44 Series E Redeemable Convertible Preferred Stock - November 27, 1996 Form 8-K
10.45 Third Amended & Restated Credit Agreement - February 18, 1997 Form 8-K
</TABLE>
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN ECOLOGY CORPORATION
(REGISTRANT)
Date: November 12, 1999 By: /s/ Jack K. Lemley
--------------------------------
Jack K. Lemley
Chief Executive Officer
Date: November 12, 1999
By: /s/ R. S. Thorn
--------------------------------
R. S. Thorn
Vice President of Administration
Chief Accounting Officer
26
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference from
No. Description Registrant's
------- ----------- ------------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended 1989 Form 10-K
3.2 Certificate of Amendment to Restated Certificate of Incorporation Form S-4 dated 12-24-92
dated June 4, 1992
3.3 Amended and Restated Bylaws dated February 28, 1995 1994 Form 10-K
10.1 Sublease dated February 26, 1976, between the State of Washington, Form 10 filed 3-8-84
the United States Dept. of Commerce and Economic Development, and
Nuclear Engineering Company with Amendments dated January 11, 1980,
and January 14, 1982.
10.2 Lease dated May 1, 1977 ("Nevada Lease"), between the state of Form 10 filed 3-8-84
Nevada, Dept. of Human Resources and Nuclear Engineering Company,
with Addendum thereto, dated December 7, 1982
10.3 Addendum to Nevada Lease dated March 28, 1988 1989 Form 10-K
10.4 Nevada State Health Division, Radioactive Material License issued to 1989 Form 10-K
US Ecology, Inc. dated December 29, 1989
10.5 Administrative Order by Consent between the United States 1985 Form 10-K
Environmental Protection Agency and US Ecology, Inc. ("USE") dated
September 30, 1985
10.6 State of Washington Radioactive Materials License issued to US 1986 Form 10-K
Ecology, Inc. dated January 21, 1987
10.11 Agreement between the Central Interstate Low-Level Radioactive Waste 2nd Quarter 1988 10-Q
Compact Commission and US Ecology, Inc. for the development of a
facility for the disposal of low-level radioactive waste dated
January 28, 1988 ("Central Interstate Compact Agreement")
10.12 Amendment to Central Interstate Compact Agreement dated May 1, 1990 1994 Form 10-K
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C>
10.13 Second Amendment to Central Interstate Compact Agreement dated June 1994 Form 10-K
24, 1991
10.14 Third Amendment to Central Interstate Compact Agreement dated July 1994 Form 10-K
1, 1994
10.15 Settlement agreement dated May 25, 1988 among the Illinois Form 8-K dated 6-7-88
Department of Nuclear Safety, US Ecology, Inc. and American Ecology
Corporation of a December 1978 action related to the closure, care
and maintenance of the Sheffield, Illinois LLRW disposal site
10.16 Nevada Division of Environmental Protection Permit for Hazardous 1988 Form 10-K
Waste Treatment, Storage and Disposal (Part B) issued to US Ecology,
Inc. dated June 24, 1988
10.17 Texas Water Commission Permit for Industrial Solid Waste Management 1988 Form 10-K
Site (Part B) issued to Texas Ecologists, Inc. dated December 5,
1988
10.18 Memorandum of Understanding between American Ecology Corporation and 1989 Form 10-K
the State of California dated August 15, 1988
10.19 United States Environmental Protection Agency approval to dispose of 1989 Form 10-K
non-liquid polychlorinated biphenyl (PCB) wastes at the Beatty,
Nevada chemical waste disposal facility
10.20 Employment Agreement between American Ecology Corporation and C. 1993 Form 10-K
Clifford Wright, Jr. dated April 1, 1994 * (terminated in 1995)
10.21 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
William P. McCaughey dated April 1, 1994 * (terminated in 1995)
10.22 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Stephen W. Travers dated April 1, 1994 * (terminated in 1995)
10.23 Employment Agreement between American Ecology Corporation and Harry 1993 Form 10-K
O. Nicodemus, IV dated April 1, 1994 * (terminated in 1995)
10.24 Employment Agreement between American Ecology Corporation and Ronald 1993 Form 10-K
K. Gaynor dated April 1, 1994 * (terminated in 1995)
10.26 Amended and Restated American Ecology Corporation 1992 Stock Option Proxy Statement dated 4-26-94
Plan *
10.27 Amended and Restated American Ecology Corporation 1992 Outside Proxy Statement dated 4-26-94
Director Stock Option Plan *
10.28 American Ecology Corporation 401 (k) Savings Plan * 1994 Form 10-K
10.29 American Ecology Corporation Retirement Plan * 1994 Form 10-K
10.30 Credit Agreement between American Ecology Corporation, its 1994 Form 10-K
subsidiaries and Texas Commerce Bank National Association dated
December 1, 1994 (terminated by 10.41 below)
10.31 Security Agreement dated as of December 1, 1994 by American Ecology 1994 Form 10-K
Corporation in favor of Texas Commerce Bank, National Association
(terminated by 10.43 below)
10.32 Security Agreement by subsidiaries of American Ecology Corporation 1994 Form 10-K
dated as of December 1, 1994 in favor of Texas Commerce Bank,
National Association (terminated by 10.43 below)
10.33 Lease Agreement between American Ecology Corporation and VPM 1988-1, Form S-4 filed 12-24-92
Ltd. Dated October 14, 1992
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C>
10.34 Rights Agreement dated as of December 7, 1993 between American Form 8-K dated 12-7-93
Ecology Corporation and Chemical Shareholders Services Group, Inc.
as Rights Agent
10.35 Agreement and Plan of Merger by and between American Ecology Form S-4 dated 12-24-92
Corporation and Waste Processor Industries, Inc.
10.36 Settlement Agreement dated September 24, 1993 by US Ecology, Inc., 1993 Form 10-K
the State of Nevada, the Nevada State Environmental Commission, and
the Nevada Dept. of Human Resources
10.37 Settlement Agreement dated as of January 19, 1994 by and among US 1993 Form 10-K
Ecology, Inc., Staff of the Washington Utilities and Transportation
Commission, Precision Castparts Corp., Teledyne Wah Chang, Portland
General Electric Company, the Washington Public Power Supply System
and Public Service Company of Colorado.
10.38 Agreement dated January 28, 1994 between American Ecology Form 8-K dated 2-3-94
Corporation, Edward F. Heil, Edward F. Heil as trustee
for Edward F. Heil, Jr., Sandra Heil, and Karen Heil Irrevocable
Trust Agreement #2, Thomas W. McNamara and Thomas W. McNamara as a
trustee of the Jenner & Block Profit Sharing Trust No. 082.
10.39 Agreement of Purchase and Sale dated as of April 7, 1994 by and 1st Quarter 1994 Form 10-Q, 3rd
among American Ecology Corp., American Ecology Recycle Center, Inc., Quarter 1994 Form 10-Q
Quadrex Environmental Company and Quadrex Corporation, as amended by
Amendments dated June 14, 1994 and August 22, 1994.
10.40 Stock Purchase Agreement dated as of May 10, 1994 by and between 1st Quarter 1994 Form 10-Q, 3rd
American Ecology Corporation and Mobley Environmental Services, Quarter 1994 Form 10-Q
Inc., as amended by Amendment dated September 21, 1994.
10.41 Second Amended Restated Credit Agreement between American Ecology 1995 Form 10-K
Corporation , its subsidiaries and Texas Commerce Bank National
Association dated June 30, 1995
10.42 Security Agreement dated June 30, 1995 by American Ecology 1995 Form 10-K
Corporation in favor of Texas Commerce Bank National Association.
10.43 Security Agreement dated June 30, 1995 by subsidiaries of American 1995 Form 10-K
Ecology Corporation in favor of Texas Commerce Bank National
Association.
10.46 Rights Offering and Prospectus with American Ecology Corporation and Form S-3 dated 9-9-97
ChaseMellon Shareholder Services as Rights Agent.
10.48 Amended and Restated 1992 outside Directors Stock Option Plan Form S-8 dated 12-30-98
21 List of Subsidiaries 1994 Form 10-K
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
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