<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 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 [X] NO [ ]
At May 10, 1999 Registrant had outstanding 13,557,275 shares
of its Common Stock.
<PAGE> 2
AMERICAN ECOLOGY CORPORATION
QUARTERLY REPORT FORM 10-Q FOR THE
THREE MONTHS ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. 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)
Consolidated Statements of Shareholder's Equity 6
(Unaudited)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,296 $ 4,442
Receivables, net of allowance for doubtful
accounts of $1,119 and $1,047, respectively 6,154 9,506
Income taxes receivable 740 740
Prepayments and other 769
------------ ------------
1,023
Total current assets 11,959 15,711
Cash and investment securities, pledged 5,097 5,405
Property and equipment, net 10,727 11,145
Deferred site development costs 27,313 26,909
Intangible assets relating to acquired businesses, net 408 414
Other assets 2,293 2,216
------------ ------------
Total Assets $ 57,797 $ 61,800
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Current portion of long term debt $ 96 $ 119
Accounts payable 3,989 5,101
Accrued liabilities 14,382 17,267
Deferred site maintenance, current portion 700 700
Income taxes payable 73 91
------------ ------------
Total current liabilities 19,240 23,278
Long term debt, excluding current portion 2,223
2,338
Deferred site maintenance, excluding current portion 18,747 18,839
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, none issued -- --
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 converted and retired -- --
Common stock, $.01 par value, 25,000,000 authorized, 13,557,275
and 8,462,533 shares issued and outstanding, respectively 136 136
Additional paid-in capital 54,386 54,385
Retained earnings (deficit) (37,051) (37,062)
------------ ------------
Total shareholders' equity 17,472 17,460
------------ ------------
Total Liabilities and Shareholders' Equity $ 57,797 $ 61,800
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ in 000's except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------- ----------
<S> <C> <C>
Revenues $ 9,179 $ 9,644
Operating Costs 4,822 6,079
---------- ----------
Gross profit 4,357 3,565
Selling, general and administrative expenses 4,373 4,042
---------- ----------
Loss from operations (16) (477)
Investment (income) (43) (325)
Gain (loss) on sale of assets -- (35)
Other (income) (98) (184)
Net Income before income taxes 125 67
Provision for income taxes 6 145
---------- ----------
Net income (loss) 119 (78)
Preferred stock dividends 103 105
---------- ----------
Net income (loss) available to common
shareholders 16 (183)
========== ==========
Basic earnings per share $ .001 $ (.017)
========== ==========
Diluted earnings per share $ .001 $ (.017)
========== ==========
Dividends paid per common share -- --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 119 $ (78)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 783 783
Income taxes payable (18) 274
Changes in assets and liabilities:
Receivables 3,352 209
Investment securities classified as trading 308 547
Other assets 66 223
Accounts payable and accrued liabilities (3,926) (3,758)
Deferred site maintenance (97) (97)
---------- ----------
Total adjustments 468 (1,819)
---------- ----------
Net cash provided by (used in) operating activities 587 (1,897)
---------- ----------
Cash flows from investing activities:
Capital expenditures (246) (247)
Site development costs, including capitalized interest (404) (1,313)
---------- ----------
Net cash used in investing activities (650) (1,560)
---------- ----------
Cash flows from financing activities:
Proceeds from issuances of indebtedness 1,300 6,346
Repayments of indebtedness (29) (5,064)
Proceeds from rights offering -- 1,966
Payment of cash dividends (1,354) --
---------- ----------
Net cash provided by (used in) financing activities (83) 3,248
---------- ----------
Increase (decrease) in cash and cash equivalents (146) (209)
Cash and cash equivalents at beginning of period 4,442 366
---------- ----------
Cash and cash equivalents at end of period $ 4,296 $ 157
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 26 $ 21
Income taxes 6 2
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
($ in 000's)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT)
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $ 3,001 $ 85 $ 47,701 $ (37,407)
Net income -- -- -- 762
Common stock issuance -- 51 5,024 --
Dividends of preferred stock -- -- -- (417)
Preferred stock-retired -- -- --
(3,000)
Paid in capital-warrants -- -- 1,660 --
Balance, December 31, 1998 $ 1 $ 136 $ 54,385 $ (37,062)
========== ========== ========== ==========
Net Income -- -- -- 119
Common stock issuance -- -- -- --
Dividends of preferred stock -- -- -- (103)
Preferred stock-retired -- -- -- --
Paid in capital-warrants -- -- -- --
Balance, March 31, 1999 $ 1 $ 136 $ 54,385 $ (37,051)
========== ========== ========== ==========
</TABLE>
Note: Convertible Preferred Stock is not shown above because no shares
have been issued. The two classes of preferred stock that are included,
8.375% Series D Cumulative Convertible Preferred for $1,000 and 11.25%
Series E Redeemable Convertible Preferred for $3,000,000.
The accompanying notes are an integral part of these financial statements
6
<PAGE> 7
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 GAAP (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 for 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 have been made in prior period financial
statements to conform to the current period presentation.
NOTE 2. LONG-TERM DEBT.
Long term debt at March 31, 1999 and December 31, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Note payable $ 1,300 $ 1,300
Capital lease obligations and other 1,038 1,042
---------- ----------
2,338 2,342
(96) (119)
Less: Current maturities ---------- ----------
Long term debt $ 2,242 $ 2,223
========== ==========
</TABLE>
Aggregate maturity of future minimum payments under capital leases is as
follows (in thousands):
<TABLE>
<CAPTION>
March 31,
- ---------
<S> <C>
1999 $ 96
2000 1,531
2001 441
2002 270
--------
Total $ 2,338
========
</TABLE>
The Company has notes payable, issued March 1999 with two of its board
members, as an eighteen-month term at 9% interest, and $1.3 million principal,
prohibiting the Company from paying dividends on common or preferred shares.
7
<PAGE> 8
NOTE 3. EARNINGS PER SHARE.
The calculation of net earnings or loss per common share is in accordance
with SFAS No. 128 for the three months ended March 31, 1999 and 1998 on basic
and dilutive earnings per common share, respectively (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 30,
1999 1998
-------- --------
<S> <C> <C>
Number of common shares outstanding 13,557 13,498
Effect of using weighted average common shares
outstanding 0 (2,902)
Weighted average number of common shares
outstanding 13,557 10,596
Dilutive effect of common stock options and warrants 1,005 444
Weighted average number of common and
dilutive potential common shares outstanding 14,562 11,040
</TABLE>
At March 31, 1999, there were approximately 2.9 million shares potentially
issuable with respect to stock options and warrants and convertible debt, which
could dilute basic earnings per share in the future.
NOTE 4. 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 currently holds a license from the California Department of
Health Services to operate the Ward Valley LLRW facility to serve the
Southwestern Compact region. However, the State of California has been unable to
carry out its obligation to the Company to obtain the project property from the
U.S. Department of the Interior. For the Company to realize its investment, the
federal government must transfer the site-land to California, or the Company
must recover monetary damages in its lawsuit against the government. 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 in
excess of $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 transfer to California. The trial court rendered an adverse judgement March
31, 1999. The Company is evaluating the basis for an appeal.
All costs related to the development of the Ward Valley facility have been
capitalized. After adjusting for the bank settlement in November 1998, and as of
March 31, 1999, the Company had deferred $20,835,000 (36% of total assets) of
pre-operational facility development costs of which $895,000 was capitalized
interest. These deferred costs relating to the development of the Ward Valley
facility are to be recovered during the facility's first 30 years of operating
from future waste disposal revenues based upon disposal fees approved by the
Department of Health Services (DHS), in accordance with existing state rate-base
regulations. The disposal fee approval process is to include an independent
prudency review of pre-operational costs incurred by the Company prior to their
inclusion in the rate-base. The Company expects all of the costs which it has
deferred for this facility, plus additional unrecognized project interest costs
to be included as a component of the rate-base; however, there can be no
assurance that all of the costs will be approved by the DHS.
Allowable costs incurred by the Company for the development of the Butte
facility are reimbursed under a contract with the Central Interstate LLRW
Compact Commission ("CIC") and are recognized as revenues. Such revenues are
expected to decline substantially after April 1999. Substantially all funding to
develop the Butte facility has been provided by major generators of waste that
are part of the CIC. As of March 31, 1999, the Company has contributed and
deferred approximately $6,478,000 (11% of total assets), $386,000 of which is
8
<PAGE> 9
capitalized interest, toward the development of the Butte facility. In December
1998, the State of Nebraska denied US Ecology's license application to build and
operate the facility. The Central Interstate Commission directed US Ecology to
submit and vigorously prosecute a Petition for a Contested Case challenging the
State's denial. Accordingly, US Ecology filed its Petition pursuant to the
Nebraska Administrative Procedure Act on January 15, 1999. Both the Company and
the Commission had anticipated the need to file an administrative appeal in
Nebraska. The contested case has been stayed by a federal judge's preliminary
injunction.
In addition to the Contested Case filed by US Ecology, the central states'
Major Generators filed suit in Federal District Court for the District of
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 license review process. US Ecology has intervened as a plaintiff in the
case to protect the company's interest and is seeking similar relief.
While US Ecology has a minor equity position in the Butte, Nebraska
project, it has acted principally as a contractor pursuant to its contract with
Central Interstate Low-Level Radioactive Waste Commission. As such, it will
continue to carry out the Commission's instructions and expects to be reimbursed
for all activities undertaken pursuant to the contract.
Various political and environmental opposition toward the development of
the sites is delaying the construction and operation of the Ward Valley and
Butte facilities along with various legal proceedings as further discussed under
"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, 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 pursue the conveyance of the land from the federal
government to the State of California so that construction may begin, and to
continue pursuing 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.
The following table shows the ending capitalized balances for the periods
ended March 31, 1999 and December 31, 1998 in thousands of dollars.
<TABLE>
<CAPTION>
March 31, Capitalized Capitalized
1999 Costs Interest Total
- ---- ----- -------- -----
<S> <C> <C> <C>
Ward Valley Project $ 19,940 $ 895 $ 20,835
Butte, Nebraska Project 6,092 386 6,478
December 31,
1998
Ward Valley Project $ 19,536 $ 896 $ 20,431
Butte, Nebraska Project 6,092 386 6,478
</TABLE>
In 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 facilities being developed
are undergoing activities to ready them for their intended use. As a result of
the bank settlement in November 1998, the Company eliminated $12,461,000 of
capitalized interest leaving only $1,282,000 of capitalized interest at March
31, 1999.
9
<PAGE> 10
NOTE 5. INCOME TAXES.
The Company has an effective federal tax rate of 0% at March 31, 1999 and
December 31, 1998 respectively. The statutory rate of 34% is offset by a
valuation allowance for deferred tax assets of about 41%. This valuation
allowance was established for certain deferred tax assets due to realization of
uncertainties inherent with long-term deferred site maintenance costs,
uncertainties regarding future operating results and for limitations on
utilization of acquired net operating loss carry forwards for tax purposes. The
remaining unrestricted net operating loss carry forward expires $4.8 million in
2011, $12.5 million in 2012, and $9.7 million in 2018. The limited portion
subject to IRS Code Section 382 is $2.7 million.
As of March 31, 1999, certain refund claims have not been received and
$740,000 is reflected as income taxes receivable.
NOTE 6. ENVIRONMENTAL LIABILITIES.
The Company has financial commitments for costs associated with future
obligations for final closure, the closure of the final cell of a landfill, and
post-closure of landfills it operates and is otherwise responsible. The final
closure and post-closure liabilities are covered by insurance policies, in the
event the Company fails to comply with its obligations, or are accrued and
charged to expense as airspace is consumed so that the total estimated final
closure and post-closure cost will be fully accrued for each landfill at the
time the site discontinues accepting waste and is closed.
NOTE 7. OPERATING SEGMENTS
Summarized financial information concerning the Company's reportable
segments are shown in the following table. The "Corporate & Other" column
includes corporate-related items not allocated to the reportable segments.
<TABLE>
<CAPTION>
Reported in ($000) Chemical Services LLRW Services Corporate & Other Total
- ------------------ -------------------- -------------------- -------------------- --------------------
March 31, 1999
- --------------
<S> <C> <C> <C> <C>
Sales $ 3,876 $ 5,615 $ (312) $ 9,179
Operating Costs 2,265 2,925 (368) 4,822
-------------------- -------------------- -------------------- --------------------
Gross Profit $ 1,611 $ 2,690 $ 56 $ 4,357
S, G&A Expense 1,460 1,559 1,354 4,373
Interest Expense/Income (102) 12 (51) (98)
Corporate Allocation 407 555 (962) (43)
Federal Taxes -- 20 (14) 6
-------------------- -------------------- -------------------- --------------------
Net Income $ (154) $ 544 $ (271) $ 119
Total Assets $ 14,263 $ 36,066 $ 7,468 $ 57,797
March 31, 1998
Sales $ 4,126 $ 5,937 $ (419) $ 9,644
Operating Costs 2,854 3,643 (419) 6,078
-------------------- -------------------- -------------------- --------------------
Gross Profit $ 1,272 $ 2,294 $ -- $ 3,566
S, G&A Expense 1,446 1,403 1,194 4,043
Interest Expense/Income (141) (48) (354) (543)
Corporate Allocation 418 605 (1,022) 1
Federal Taxes -- -- 145 145
-------------------- -------------------- -------------------- --------------------
Net Income $ (451) $ 334 $ 37 $ (80)
Total Assets $ 16,122 $ 57,592 $ 24,288 $ 98,002
</TABLE>
10
<PAGE> 11
NOTE 8. CASH AND INVESTMENT SECURITIES.
Merrill Lynch Company now holds the securities and investment cash of the
Company and its wholly owned subsidiary American Liability and Excess Insurance
Company (ALEX). ALEX serves as a captive insurance company, underwriting the
Company's performance bond in conjunction with investing some collateral for
certain site closure obligations, performance of remedial investigations and
feasibility studies (RI/FS), and performance of corrective action at the closed
Sheffield, Illinois facility, compliance with Texas Natural Resource
Conservation Commission (TNRCC) requirements related to the Winona, Texas
facility.
NOTE 9. COMMITMENTS AND CONTINGENCIES.
In the ordinary course of conducting business, the Company becomes
involved in judicial and administrative proceedings involving federal, state
and local governmental authorities. There may also be actions brought by
individuals or groups of citizens in connection with permitting of planned
facilities, alleging violations of existing permits, or alleging damages
suffered from exposure to hazardous substances purportedly released from
Company operated sites, and other litigation. The Company maintains insurance
intended to cover property and damage claims asserted as a result of its
operations.
Periodically management reviews and may establish reserves for legal and
administrative matters, or fees expected to be incurred in connection
therewith. At this time, management believes that resolution of these matters
will not have a material adverse effect on the Company's financial position,
results of operations or cash flows.
There have been no significant changes in commitments and contingencies
other than what may be included in Part II, Item 1. Legal Proceedings herein
reported.
NOTE 10. PREFERRED STOCK.
In November 1996, the Company issued 300,000 shares of Series E Redeemable
Convertible Preferred Stock ("Series E") in a private offering to four of its
directors for $3,000,000 in cash. Tied to the issuance was a shareholder rights
offering which concluded on February 10, 1998. The Company sold 3,912,936 shares
of its common stock in the rights offering; 2,912,936 for cash at $1.00 each and
1,000,000 by tender of 100,000 shares of Series E in lieu of cash payment in
accordance with the terms of the Series E. Of the remaining 200,000 shares of
Series E, 91,294 were redeemed at $10.00 each and 108,706 were converted into
1,087,060 shares of common stock of the Company, as required. As a result of the
rights offering and Series E conversion, the Company now has approximately
13,557,275 shares of common stock outstanding at April 20, 1999. Also issued in
the transaction were warrants permitting the holders to purchase 3,000,000
shares of the Company common stock at $1.50 per share. The warrants have no
assigned value and expire unless exercised in June, 2003.
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.
The Company sold 105,264 of 8 3/8% Preferred Stock with warrants in a private
offering to a group of members or past members of the Board of Directors for
$4,759,000. Offering expenses of $101,000 and $140,000 in settlement of
liabilities is deducted from the proceeds. 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.
Dividends on the 8 3/8% Preferred Stock are cumulative from the date of
issuance and payable quarterly commencing on October 15, 1995. Previous bank
covenants prohibited the payment of dividends. Accrued dividends at December 31,
1998 totaled $1,354,000 and were paid March 9, 1999, by borrowed funds from two
of its directors. 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 includes ten warrants to purchase shares of
the Company's common stock. Each warrant entitles the holder to purchase 1.22
shares of common stock for an exercise price of $4.75. The $4.75 warrants are
exercisable at any time and expire September 12, 1999. No value was assigned to
the warrants in the accompanying consolidated financial statements as the value
at issuance was deemed to be de minimus.
11
<PAGE> 12
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 Notes 2, 3, 4 and 5 to the Consolidated
Financial Statements herein, Part II, Item 1. Legal Proceedings, and the
discussion below. Certain factors that may influence actual operations in the
future are discussed in the Company's Form 10-K for the year ended December 31,
1998 in Part I, Item 1. Business.
The Company's revenues are mainly derived from fees charged for disposal of
chemical, hazardous and low-level radioactive waste. The Company also processes
these same types of waste for disposal. Other revenues are derived from
rebuilding and decontaminating large electric motors from nuclear power plants
and from transportation operations. The transportation operations have not
proved to be profitable and were recently relocated to Robstown, Texas where it
will likely be sold or merged with another business.
Operating revenues from disposal fees, known as tipping fees, are charged
to the customers or generators who had the waste. These fees are often state
regulated and are generally based on the volume or weight of the waste
deposited. The Company has costs of processing, stabilizing the waste (generally
mixing the waste with concrete), and transporting the waste. Some of these costs
create inter-company charges and revenues, all of which have been eliminated in
the consolidated financial statements presented herein.
Operating expenses include direct and indirect costs for labor, maintenance
and repairs, subcontracted costs and equipment, insurance, and related taxes and
appropriate accruals for burial fees and other costs. The Company has properly
accounted for fees assessed by regulatory authorities for the issuance of
permits and licenses. The Company is in the process of permitting a new
municipal solid waste landfill in southern Texas and has accounted for those
costs through the proper accruals and capitalization methods allowed under
generally accepted accounting principles.
Selling, general & administrative costs include management salaries, sales
and marketing efforts, clerical and administrative costs, legal fees, office
rentals, corporate package policy insurance, general liability insurance, and
other administrative costs for the general corporate overhead.
CAPITAL RESOURCES AND LIQUIDITY
For the quarter ending March 31, 1999 the Company was profitable with net
income available to common shareholders of $16,000. The Company completed 1998
with a profitable year as well, and management believes that its strategic
positioning and business planning are having positive results. Management
continues to strategically align itself in the market place, expand its
operations and sell the non-performing assets. These efforts have reduced the
working capital deficit to $7,281,000 at March 31, 1999 from $16,807,000 and
$16,930,000 for the two preceding years ending March 31, 1998 and 1997.
Management can not be certain about the future prosperity of the Company, and
different factors could cause actual results to differ materially from planned
efforts.
NOTES PAYABLE
In March 1999, the Company signed notes payable for $1,300,000 with two of
its directors in order to pay the Series D preferred stock dividends that had
accrued. In March 1999, those accrued Series D dividends were paid. These notes
payable are long-term eighteen month notes with 9% interest and prohibiting the
Company from paying any future dividends on any class of stock until the notes
are paid in full.
12
<PAGE> 13
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 AND 1998
The Company reported net income of $119,000 for the three months ended
March 31, 1999 compared to a net loss of $78,000 for the three months ended
March 31, 1998. Revenues for the first quarter declined $465,000 or 5%, compared
to the first quarter of 1998 to the same period of 1999.
REVENUES
Low-level radioactive waste ("LLRW") revenues declined $360,000, about 6%
in the first quarter of 1999 compared to the same quarter of 1998. LLRW
remediation project revenues decreased at Richland by $484,000, but increased
$1,299,000 at the Oak Ridge Recycle Center. Revenues for the Richland,
Washington, facility were $1,768,000 compared to $2,252,000 for the first
quarter a year ago. This decrease in first quarter revenues was due to not
invoicing for site availability, that had not been calculated by the close of
the first quarter. This shortfall will be invoiced in the second quarter 1999.
Chemical Division waste revenues decreased $106,000 for the three months
ended March 31, 1999, compared to the same three months ended in 1998. Disposal
revenues generated by the Company's chemical waste landfill operation in Beatty,
Nevada, increased by approximately $347,000 due principally to new customer
contracts and the rate reduction on fees by the State of Nevada. The costs
incurred for closing the Winona, Texas facility without any revenue remain a
burden. The Company is in the process of disposing of non-performing assets in
the chemical division, mainly from transportation at Robstown, Texas. These
transactions will be completed in the second quarter of 1999 and will reduce
revenues but save on costs. Past performance of transportation was not
profitable.
The Company as a whole has shown improvement in operations since 1994. In
1998, the first year since 1994, the Company reported a profit of $762,000 and
again in the first quarter of 1999 with $119,000 of net income and $16,000
available to shareholders. The following table allows for a comparison of the
two service groups without inter-company or consolidated corporation costs or
the captive insurance company ALEX.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Reported in $000 March 31, 1999 March 31, 1998
Chemical LLRW Chemical LLRW
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $ 3,696 $ 5,482 $ 3,802 $ 5,842
Operating costs
2,086 2,792 2,530 3,548
---------- ---------- ---------- ----------
Gross Profit $ 1,610 $ 2,690 $ 1,272 $ 2,294
Selling, G & A 1,460 1,559 1,446 1,403
---------- ---------- ---------- ----------
Income (loss) from
operations $ 150 $ 1,331 $ (174) $ 891
Other income (expense)
$ 304 $ 587 $ 277 $ 557
---------- ---------- ---------- ----------
Net Income (loss) $ (154) $ 544 $ (451) $ 334
========== ========== ========== ==========
</TABLE>
14
<PAGE> 14
The following table sets forth items in the Statements of Operations for
the periods ended March 31, 1999 and March 31, 1998, as a percentage of
revenue:
<TABLE>
<CAPTION>
Percentage of Revenues for
March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues 100.0% 100.0%
Operating costs 52.5 63.0
-------- --------
Gross profit 47.5 37.0
Selling, general and administrative expenses 47.6 41.9
Income (loss) from operations (.2) (4.9)
Other (income) expense, net (1.5) (3.4)
-------- --------
Income (loss) before income taxes 1.4 .7
Income tax expense (benefit) .1 1.5
Preferred stock dividends 1.1 1.1
-------- --------
Net income (loss) to common shareholders .2% (1.9)%
======== ========
</TABLE>
OPERATING COSTS
Total operating costs decreased $1,257,000 or 21% for the first quarter of
1999 as compared to the first quarter of 1998, while revenues declined 5%
respectively. Operating costs as a percentage of revenue were 52.5% for the
three months ended March 31, 1999 compared to 63.0% for the same quarter of
1998. These decreases are mainly attributable to the Winona facility incurring
less clean-up and other RCRA closure costs in 1999 compared to 1998 and the
reduction in transportation costs from the Robstown, Texas facility. This
reduction in operating costs are producing a positive trend and gross margin has
increased to 47.5% at March 31, 1999 up from 37% compared to the corresponding
period one year ago. The Butte, Nebraska project also experienced a reduction in
operating expenses due to the ramp down and both revenue and operating costs
declined by nearly 50% compared to one year ago. As discussed in Note 4., to the
financial statements, these political decisions are affecting the Butte,
Nebraska project and management believes there will be a substantial reduction
in both revenues and costs in the future for this project.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the quarter ending March 31, 1999 selling, general and administrative
expenses increased from $4,042,000 one year ago to $4,373,000. This is an 8%
increase and is attributable to the LLRW disposal activities at the Oak Ridge,
Tennessee facility. Corporate overhead remained constant with $1,289,000 and
$1,282,000 for the periods ending March 31, 1999 and 1998 respectively.
INVESTMENT INCOME
Investment income is comprised principally of interest income earned on
various investments in securities held-to-maturity, dividend income, and
realized and unrealized gains and losses earned on the Company's stock portfolio
classified as trading securities. As of March 31, 1999 the Company reported
investment income of $43,000 compared to $325,000 for 1998. The main reason for
this decrease is the withdrawal of approximately $6,000,000 from ALEX stock
portfolio classified as trading securities. These monies withdrawn were used to
close the long-term bank debt and pay down aged payables in the last quarter of
1998 and first quarter of 1999.
14
<PAGE> 15
INTEREST EXPENSE
Interest expense is the total interest expense incurred by the Company on
outstanding indebtedness less capitalized amounts. Interest costs is the total
interest expense incurred by the Company before capitalization. At March 31,
1999, the Company incurred $26,000 in interest cost, compared to $896,000 to the
corresponding quarter end one year ago. The majority of this interest expense in
1998 and prior, was capitalized for the development of the Company's LLRW
facilities in California and Nebraska in accordance with Statement of Financial
Accounting Standards No. 34, Capitalization of Interest Cost. Substantially all
of the interest cost incurred for 1998, 1997, and 1996 related to borrowings
under the Company's Credit Agreement with its bank lender, which was finalized
and settled in November 1998. The only interest cost now accruing is on the
notes payable and lease agreements discussed in Note 2., to the financial
statements.
INCOME TAXES
The Company's federal effective income tax rates were 0% and 0%, for the
periods ending March 31, 1999 and 1998 respectively. The effective rate of 0% in
1999 does not reflect any recognition of future tax benefits on timing
differences or net operating loss carry forwards. The income tax expense in the
first quarter 1999 for $6,000 is for payments on different state and local taxes
including franchise taxes.
SEASONAL EFFECTS
The Company's operating revenues are generally lower in the winter months,
and increase in the warmer summer months. The volume of both Chemical and LLRW
tends to decrease during winter months.
YEAR 2000 COSTS
The Year 2000 issue is the result of potential problems with computer
systems or other equipment with computer chips that use dates where the year has
been stored as two characters (e.g. 98 for 1998). These systems may incorrectly
evaluate dates beyond the year 1999; potentially causing system failure and
disruption of operations that could affect our business. The Company believes
that its computer systems are currently in compliance with Year 2000
requirements for date changes. Some of the companies we do business with may not
be compliant. Consequently, the Company has implemented a Year 2000 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 expects to be compliant with these
issues by mid-year 1999, and does not expect expenses associated with compliance
to have a material affect on its financial position or cash flows.
The Company believes that its most significant Year 2000 exposure is the
potential business disruptions caused by failure of public utility systems, in
power or telecommunications industries. Contingency plans are currently being
developed for each of the operating divisions and the corporate office. These
contingency plans should be completed by Mid-1999. Any prolonged power or
telecommunications failure could affect the company's infrastructure and could
have a material adverse affect on operations, financial position, and cash
flows.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of conducting business, the Company becomes involved
in judicial and administrative proceedings involving federal, state and local
governmental authorities, citizen groups or individuals in connection with
permitting or repermitting facilities, alleging violations of existing permits,
or claiming damages suffered from alleged exposure to hazardous substances
purportedly released from Company operated sites, and other litigation. The
Company maintains insurance intended to cover property, environmental and
personal injury claims asserted as a result of its operations. Periodically
management reviews and may establish reserves for legal and administrative
matters, or fees expected to be incurred in connection therewith. At this time,
management believes that resolution of pending matters will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
OTHER MATERIAL LITIGATION
One of the Company's principal subsidiaries is a plaintiff in two related
cases against the United States in which one or more favorable outcomes may have
a potentially significant favorable future impact on the Company. In the first
case, US Ecology is suing to recover approximately $73.1 million of Ward Valley
site development costs as
15
<PAGE> 16
well as lost profits and lost opportunity costs. In the second case, US Ecology
sought an order (writ of mandamus) from a federal court requiring the federal
government to sell a tract of land to California so the long-delayed Ward Valley
LLRW site could be constructed. On March 31, 1999, the court ruled against US
Ecology reasoning that the US Secretary of Interior did not abuse his discretion
in rescinding his predecessor's decision to sell the land to California. The
Company has decided to appeal the decision.
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.
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
None
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN ECOLOGY CORPORATION
(REGISTRANT)
Date: May 10, 1999 By: /s/ Jack K. Lemley
-----------------------------------
Jack K. Lemley
Chief Executive Officer
Date: May 10, 1999 By: /s/ R. S. Thorn
-----------------------------------
R. S. Thorn
Vice President of Administration
Chief Accounting Officer
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,296
<SECURITIES> 0
<RECEIVABLES> 6,154
<ALLOWANCES> 1,119
<INVENTORY> 0
<CURRENT-ASSETS> 11,959
<PP&E> 10,727
<DEPRECIATION> 783
<TOTAL-ASSETS> 57,797
<CURRENT-LIABILITIES> 19,240
<BONDS> 0
0
1
<COMMON> 136
<OTHER-SE> 17,472
<TOTAL-LIABILITY-AND-EQUITY> 57,797
<SALES> 9,179
<TOTAL-REVENUES> 9,179
<CGS> 4,822
<TOTAL-COSTS> 4,373
<OTHER-EXPENSES> (141)
<LOSS-PROVISION> 119
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 125
<INCOME-TAX> 6
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16
<EPS-PRIMARY> .001
<EPS-DILUTED> .001
</TABLE>
