<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, 2000
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 November 12, 2000, Registrant had outstanding
13,711,517 shares of its Common Stock.
<PAGE> 2
AMERICAN ECOLOGY CORPORATION
QUARTERLY REPORT FORM 10-Q FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
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 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
--------- --------
<S> <C>
Jack K. Lemley Jack K. Lemley
Chairman of the Board Chairman, Chief Executive Officer and President
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 Stephen A. Romano
President Vice President
Tradelink, LLC
Robert S. Thorn
Patricia M. Eckert Vice President and Chief Accounting Officer
Principal
Patricia M. Eckert & Associates Robert M. Trimble
General Counsel and Secretary
Edward F. Heil
Chairman of the Board
American Environmental Construction Company FINANCIAL REPORTS
Dan Rostenkowski A copy of the American Ecology Corporation
President Financial Reports, filed with the
DanRoss & Associates, Inc. Securities and Exchange Commission, may be
Obtained by writing to:
Paul F. Schutt
Chief Executive Officer American Ecology Corporation
Nuclear Fuel Services, Inc. 805 W. Idaho, Suite 200
Boise, Idaho 83702
John J. Scoville OR:
President at www.americanecology.com
J.J. Scoville & Associates, Inc.
TRANSFER AGENT
CORPORATE OFFICE
ChaseMellon Shareholder Services, LLC
American Ecology Corporation Overpeck Centre
805 W. Idaho, Suite 200 85 Challenger Road
Boise, Idaho 83702 Ridgefield Park, New Jersey 07660
(208) 331-8400 (201) 296-4000
(208) 331-7900 (fax) www.chasemellon.com
www.americanecology.com
AUDITOR
COMMON STOCK
Balukoff, Lindstrom & Co., P.A.
American Ecology Corporation's common stock 877 West Main Street, Suite 805
Trades on the NASDAQ Stock Market under the Boise, Idaho 83702
Symbol ECOL. 208-344-7150
</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,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,225 $ 4,771
Receivables, net of allowance for doubtful
accounts of $927 and $619 respectively 10,679 7,696
Income tax receivable 740 740
Prepayments and other 1,216 1,207
-------- --------
Total current assets 14,860 14,414
Cash and investment securities, pledged 233 226
Property and equipment, net 14,464 10,432
Deferred site development costs 27,430 27,430
Cell development costs 3,984 2,386
Intangible assets relating to acquired businesses, net 372 390
Other assets 3,115 3,181
-------- --------
Total assets $ 64,459 $ 58,458
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 182 $ 781
Accounts payable 3,666 2,706
Accrued liabilities 11,050 12,334
Deferred site maintenance, current portion 700 700
Income taxes payable 161 202
-------- --------
Total current liabilities 17,745 16,723
Long term debt, excluding current portion 5,907 3,569
Deferred site maintenance, excluding current portion 16,215 16,585
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, none 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, 13,711,517
and 13,704,050 shares issued and outstanding, respectively 137 137
Additional paid-in capital 54,570 54,513
Retained earnings (deficit) (30,116) (33,069)
-------- --------
Total shareholders' equity 24,592 21,582
-------- --------
Total Liabilities and Shareholders' Equity $ 64,459 $ 58,459
======== ========
</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,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 11,796 $ 6,007 $ 31,600 $ 24,093
Operating costs 6,555 3,664 17,327 12,684
-------- -------- -------- --------
Gross profit 5,241 2,343 14,273 11,409
Selling, general and administrative expenses 4,228 2,280 11,672 11,025
-------- -------- -------- --------
Income from operations 1,013 63 2,601 384
Investment income (loss) (95) (200) 141 113
Interest income (expense) (175) (44) (249) (117)
Gain on sale of assets 45 3 44 666
Other income 320 23 821 391
-------- -------- -------- --------
Net income (loss) before income taxes 1,108 (155) 3,314 1,437
Income tax expense (benefit) 8 (29) 69 18
-------- -------- -------- --------
Net income 1,100 (126) 3,245 1,419
Preferred stock dividends 100 86 299 316
-------- -------- -------- --------
Net income (loss) available to common
Shareholders $ 1,000 $ (212) $ 2,946 $ 1,103
======== ======== ======== ========
Basic earnings per share $ .07 $ (.02) $ .22 $ .08
======== ======== ======== ========
Diluted earnings per share $ .06 $ (.02) $ .18 $ .07
======== ======== ======== ========
Dividends paid per common share $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ IN 000'S)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,245 $ 1,419
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,647 1,711
Deferred income tax provision (40) (64)
(Gain) on sale of assets (1,098) (663)
Changes in assets and liabilities:
Receivables (2,983) 3,100
Investment securities (7) 1,412
Other assets (146) 473
Accounts payable and accrued liabilities (324) (11,184)
Deferred site maintenance (371) (265)
-------- --------
Total adjustments (3,322) (5,480)
-------- --------
Net cash provided by (used in) operating activities (77) (4,061)
-------- --------
Cash flows from investing activities:
Capital expenditures (7,959) (1,793)
Site development costs, including capitalized interest (550)
Proceeds from sales of property and equipment 2,000 1,910
Proceeds from sales of investment securities -- --
-------- --------
Net cash provided by (used in) investing activities (5,959) (433)
Cash flows from financing activities:
Proceeds from common stock issued 57 14
Proceeds from issuance of indebtedness 4,032 1,733
Proceeds from rights offering -- --
Repayments of indebtedness (599) (42)
-------- --------
Net cash provided by financing activities 3,490 1,705
Increase (decrease) in cash and cash equivalents (2,546) (2,789)
Cash and cash equivalents at beginning of period 4,771 4,442
-------- --------
Cash and cash equivalents at end of period $ 2,225 $ 1,653
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 249 $ 117
Income taxes 130 83
Acquisition of Equipment with Capital Leases 3,006 --
</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>
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT)
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ 1 $ 137 $ 54,513 $(33,069)
Net Income -- -- -- 1,382
Dividends of preferred stock -- -- -- (100)
Other adjustments -- -- -- 5
-------- -------- -------- --------
Balance, March 31, 2000 $ 1 $ 137 $ 54,513 $(31,782)
-------- -------- -------- --------
Net Income -- -- -- 764
Common stock issuance -- -- -- 12
Dividends of preferred stock -- -- -- (100)
Other adjustments -- -- -- 2
-------- -------- -------- --------
Balance, June 30, 2000 $ 1 $ 137 $ 54,525 $(31,116)
-------- -------- -------- --------
Net Income -- -- -- 1,100
Common stock issuance -- -- 45 --
Dividends of preferred stock -- -- -- (100)
Other adjustments -- -- -- --
-------- -------- -------- --------
Balance, September 30, 2000 $ 1 $ 137 $ 54,570 $(30,116)
-------- -------- -------- --------
</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 1999 Annual
Report on Form 10-K for the year ended December 31, 1999, 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, 2000 and December 31, 1999 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------- -------
<S> <C> <C>
Notes payable $ 1,300 $ 1,847
Capital lease obligations 3,006 1,675
Other long-term debt 3,769 828
------- -------
8,075 4,350
Less: Current maturities (2,168) (781)
------- -------
Long-term debt $ 5,907 $ 3,569
</TABLE>
Aggregate maturity of future minimum payments under notes payable and capital
leases is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------- -------
<S> <C> <C>
2000 $ 182 $ 781
2001 3183 1,631
2002 3,337 730
2003 666 520
2004 595 688
2005 42 --
2006 70 --
------- -------
TOTAL $ 8,075 $ 4,350
======= =======
</TABLE>
The Company borrowed $1.3 million from two of its board members in March 1999
and issued unsecured notes at 9% interest that mature September 2, 2001. The
Company is prohibited from paying dividends on common or preferred shares until
these notes are retired.
In the third quarter of 2000, the Company executed capital lease agreements
totaling approximately $1,225,000, bringing year-to-date capital leases to $2.3
million. The Company also entered into a financing agreement for insurance
premiums in the amount of $705,000 due March 1, 2001. The average annual
percentage interest rate on the aforementioned obligations is between 9% and
10.5%.
On August 17, 2000 the Company entered into a 2-year, revolving line of credit
with a local bank. The line of credit is secured by the Company's accounts
receivable and is governed by a Credit Agreement. Under the terms of the Credit
Agreement, borrowings cannot
8
<PAGE> 9
exceed 80% of eligible accounts receivable or $5.0 million, whichever is less.
Interest on borrowings under the Credit Agreement are based on a 'pricing grid,'
whereby after the first 6 months, the interest rate decreases or increases based
on the Company's ratio of funded debt to earnings before interest, taxes,
depreciation and amortization (EBITDA). The Company can elect to borrow monies
utilizing the Prime Rate or the offshore London Inter-Bank Offering Rate (LIBOR)
plus an applicable spread. During the first six months of the credit facility,
borrowings are Prime plus 0.75% or LIBOR plus 3.25%, at the election of the
Company, subject to certain conditions. The Credit Agreement contains certain
financial covenants that the Company must adhere to quarterly, including a
maximum leverage ratio, a minimum current ratio and a debt service coverage
ratio. At September 30, 2000 the Company was in compliance with all applicable
bank financial covenants.
At September 30, 2000 the outstanding balance on principal loan and revolving
line of credit was $2,500,000, with $2,500,000 available with any balance due
June 30, 2002. During the third quarter, the interest rate on borrowings ranged
from 9.875% to 10.5%. As of October 19, 2000 the Company had repaid $1,000,000
of the revolving line of credit.
NOTE 3. SALE-LEASE-BACK
On August 3, 2000 the Company entered into a $2 million equipment sale and
leaseback transaction. The Company sold various Company-owned equipment and
rolling stock to a lessor. The Company received $2,000,000 in proceeds from the
asset sale and entered into an operating lease for their use of the equipment
beginning August 8, 2000 with monthly payments through January 8, 2006, with no
security deposit. The lease allows for the early buyout of the equipment at a
fixed price at the 60th month. The lease requires the Company to pay customary
operating and repair expenses and to observe certain operating restrictions and
covenants.
<TABLE>
<CAPTION>
At December 31: Minimum Lease Payment
<S> <C>
2000 $ 173,971
2001 417,529
2002 417,530
2003 417,530
2004 417,530
2005 417,530
2006 34,794
----------
Total Minimum Payments $2,296,414
</TABLE>
The Company realized a $1,098,000 gain on the sale of the equipment that will be
amortized over the life of the lease. The gain will be recognized proportionate
to the gross rental charged over the 66-month lease life. The $16,600 monthly
recognition of gain on sale is offset against the lease expense. Proceeds from
this sale of assets were used to fund expansion of the El Centro facility and
general business obligations.
NOTE 4. DEFERRED SITE DEVELOPMENT COSTS.
On May 2, 2000, subsidiary US Ecology filed suit against the State of California
in Superior Court for the County of San Diego alleging that the State has
abandoned its duty to obtain the Ward Valley property from the U.S. Department
of the Interior. The suit seeks recovery of monetary damages stemming from the
state's failure to honor its obligations to the Company, and also seeks to
compel the State to resume efforts to complete the land acquisition process.
Damages sought are in excess of $162 million for costs incurred, interest, lost
profits and certain legal expenses. On October 24, 2000, the Superior Court
signed an order granting the State of California's demurrer, dismissing the
case. The Company believes the ruling is in error and has appealed the ruling.
The Company also continues to protect its investment in the Ward Valley project
in federal court through two lawsuits filed against the United States in 1997.
These suits are based on actions by Interior Secretary Bruce Babbitt purporting
to rescind his predecessor's decision to transfer the Ward Valley site to
California. The first case, filed in the United States Court of Federal Claims,
seeks monetary damages in excess of $73 million. On March 27, 2000, the court
dismissed this case, the Company promptly appealed. Written briefs have been
filed in the appeal, but oral argument has not been scheduled. The second case,
filed in the Federal District Court for the District of Columbia, seeks
injunctive relief and a writ of mandamus ordering delivery of the Ward Valley
site to California. The trial court rendered an adverse judgment in this action
on March 31, 1999, which the Company also appealed. The United States District
of Columbia Circuit Court of Appeals heard oral arguments in this case on
September 5, 2000 but has not yet ruled.
9
<PAGE> 10
All costs incurred through July 31, 1999 to develop the Ward Valley facility
were capitalized. Since then, all costs have been expensed as incurred. After
adjusting for a 1998 bank settlement, the Company had deferred $20,952,000 (33%
of total assets) of development costs for the Ward Valley facility, of which
$895,000 represents capitalized interest, as of September 30, 2000.
The Company has incurred reimbursable costs and received revenue for development
of the Butte, Nebraska disposal facility under a contract with the CIC
Commission. While the Company (through subsidiary US Ecology) has an equity
position in the project, it has acted principally as a contractor to the CIC.
Major generators of waste within the five-state CIC region have provided
approximately 89% of funds expended to develop the Butte facility. As of
September 30, 2000, the Company has contributed and capitalized approximately
$6,478,000 (10% of total assets) for the Butte facility, $386,000 of which is
capitalized interest.
In 1998, the State of Nebraska denied US Ecology's license application to build
and operate the Butte facility. At the CIC's direction, US Ecology challenged
this denial. The major waste generators funding the project filed suit in the
Federal District Court for Nebraska in December 1998 seeking to recover certain
costs expended on the licensing process and to prevent the State of Nebraska
from proceeding with a hearing on the license denial. US Ecology intervened as a
plaintiff. The Company expects no significant project revenue pending the
outcome of the litigation. In April 2000, the United States Court of Appeals for
the Eighth Circuit upheld a preliminary injunction issued in United States
District Court enjoining the State of Nebraska hearing process. The Eighth
Circuit also affirmed a District Court ruling that Nebraska waived certain
sovereign immunity protections when it willingly became a CIC member state. The
Company believes the case will go to trial in 2001. US Ecology continues to
maintain the Butte facility under contract to the CIC.
Management believes the Company's legal position in each of the above legal
matters is strong and intends to continue devoting resources necessary to pursue
each of these actions. The Company believes that deferred site development costs
for the Butte facility will be realized and that its investment in Ward Valley
will be recouped through either monetary damages recovery or facility
construction and operation. There can be no assurance that the Company will
recover its investment or earn a return on either project, however, since the
outcome of litigation is unknown. Failure to recover deferred site development
costs for either facility would have a material adverse effect on the Company's
financial condition.
NOTE 5. EARNINGS PER SHARE.
The following table shows the weighted average number of common shares
outstanding and dilutive potential effect of options, warrants, and convertible
preferred shares outstanding for the respective three and nine month periods
used to calculate basic and diluted earnings per common share:
<TABLE>
<CAPTION>
(000'S EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) available to common shareholders $ 1,000 $ (212) $ 2,946 $ 1,103
======== ======== ======== ========
Weighted average shares outstanding at end of period
used to calculate basic earnings per share 13,709 13,564 13,709 13,564
Dilutive effect of options and warrants 2,653 1,844 2,653 1,844
Shares used to compute diluted earnings (loss) per share 16,362 15,407 16,362 15,407
Basic earnings per share $ .07 $ (.02) $ .22 $ .08
======== ======== ======== ========
Diluted earnings per share $ .06 $ (.02) $ .18 $ .07
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
NOTE 6. INCOME TAXES.
The Company had an effective federal tax rate of 0% on September 2000 and
December 31, 1999 respectively. The statutory rate of 34% is offset by a
valuation allowance for deferred tax assets of approximately 35%. This valuation
allowance was established for certain deferred tax assets due to uncertainties
inherent in long-term deferred site maintenance costs, uncertainties affecting
future operating results, and limitations on utilization of acquired net
operating loss carry forwards for tax purposes. At September 30, 2000, the
available net operating loss carry forward was $30.9 million plus an estimated
$3.0 of additional net operating loss carry forward for 2000 based on 1999
results. This unrestricted net operating loss carry forward expires as follows:
- $4.3 million in 2010
- $8.7 million in 2011
- $7.8 million in 2012
- $6.9 million in 2018
- $3.2 million in 2019
- $3.0 million in 2020
In addition to the above unrestricted net operating loss carry forward, the
Company has net operating loss carryforwards subject to Internal Revenue Code
Section 382 restrictions, of approximately $2.7 million, which begin to expire
in 2006 through 2008. These amounts assume that the position of the Internal
Revenue Service ("IRS") is incorrect in the matter discussed below.
The Company filed a federal income tax refund claim for 1995 and prior years
seeking a refund of approximately $740,000. In September 1999, the IRS proposed
to deny this claim. The Company protested this denial and proposed a reduction
in November 1999 and intends to continue efforts to obtain the refund. The
Company and the IRS have met three times in 2000 on this matter. As of September
30, 2000, the $740,000 claimed is reflected as income taxes receivable. The
matter is still pending.
The Company sold this $740,000 refund claim to its former bank with recourse in
November 1998 and agreed in a subsequent repurchase agreement and the bank
settlement agreement to buy back 25% of the tax refund claim for $184,000. The
Company has been making monthly payments to satisfy this obligation and
completed the repurchase in October 2000. If the Company's protest to the IRS is
unsuccessful, it may have an obligation to pay 75% of the claim (or $555,000) to
its prior bank.
NOTE 7. ENVIRONMENTAL LIABILITIES.
The Company has financial commitments for future closure and/or post-closure
maintenance obligations at facilities it operates and is otherwise responsible
for. Closure and post-closure liabilities are covered by insurance policies
should the Company fail to comply with its obligations. The total estimated
final closure and post-closure cost must be fully accrued for each landfill at
the time the site stops accepting waste.
Environmental Matters
The Company maintains reserves and insurance polices for future closure and
post-closure cost obligations at both current and formerly operated disposal
facilities. These reserves and insurance policies are based on professional
engineering studies and interpretations of current and foreseeable regulatory
requirements performed at least annually. Costs accounted for include final
disposal unit capping, gas emission control, subsurface soil and groundwater
monitoring, and other monitoring and routine maintenance costs required after a
disposal site stops accepting waste. The Company believes it has made adequate
provision through reserves and the insurance policy for closure and post-closure
obligations. The Company estimates that the aggregate final closure and
post-closure costs for all insured facilities owned or operated was
approximately $16,914,000 as of September 30, 2000. The Company has a three-year
prepaid insurance policy for its facilities, and has set aside investment
securities to pay certain deductible limits.
Operation of disposal facilities creates operational, monitoring, site
maintenance, closure and post-closure obligations that could result in
unforeseen costs for monitoring and corrective action. The Company cannot
predict the likelihood or effect of such costs, regulation or statute changes,
or other future events affecting its facilities. Management believes, however,
that disposition of such matters would not have a material adverse effect on the
financial condition of the Company.
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<PAGE> 12
Financial Assurance and Site Maintenance
When disposal facilities reach capacity or upon lease or license termination
dates, they must be closed and then maintained for a prescribed period. In the
case of hazardous waste facilities, federal regulations require that operators
demonstrate financial capability to close on an immediate, unscheduled
(worst-case) basis. The estimated costs of such a closure are set forth in the
operator's required RCRA closure/post-closure plan.
The Company has provided letters of credit, trust funds, closure bonds, and
certificates of insurance as financial assurance to meet closure and post
closure obligations at its hazardous waste facilities. Cash and investment
securities totaling $233,000 on September 30, 2000 and $226,000 on December 31,
1999 are pledged as collateral for these obligations. Management believes that
$233,000 is an adequate reserve in combination with the above sureties.
NOTE 8. OPERATING SEGMENTS.
Summarized financial information concerning the Company's reportable segments
are shown below. The Company has adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company operates two
business segments, Chemical Services and Low-Level Radioactive Waste ("LLRW")
Services. The Chemical Services division processes and disposes of hazardous,
PCB and non-hazardous waste. The LLRW Services division removes, processes,
packages, and disposes of material contaminated with low-level and naturally
occurring radioactive material. Segment data includes inter-Company transactions
at cost, as well as allocation for certain corporate costs. The "Corporate &
Other" column includes corporate-related items not allocated to the reportable
segments.
<TABLE>
<CAPTION>
Reported in ($000)
-----------------
3 Months Ending, September 30, 2000 Chemical Services LLRW Services Corporate & Other Total
----------------------------------- ----------------- ------------- ----------------- -----
<S> <C> <C> <C> <C>
Revenue $ 4,244 $ 7,552 $ -- $ 11,796
Direct Operating Costs 2,385 4,366 (196) 6,555
-------- -------- -------- --------
Gross Profit $ 1,859 $ 3,186 $ (196) $ 5,241
SG&A Expense 1,146 1,513 1,569 4,228
Interest Expense/(Income) (35) (83) (58) (178)
Corporate Allocation 708 1,019 (1,646) 81
Income Taxes -- -- 8 8
-------- -------- -------- --------
Net Income $ 40 $ 737 $ (69) $ 1,100
9 Months Ending September 30, 2000
----------------------------------
Gross Profit 5,482 8,449 $ 14,273
SG&A Expense 2,769 5,314 3,589 11,672
Interest Expense/(Income) (195) (84) (177) (456)
Corporate Allocation 1,445 2,242 (3,944) (257)
Income Taxes -- -- 69 69
-------- -------- -------- --------
Net Income $ 1,463 977 805 $ 3,245
Total Assets $ 24,414 $ 39,674 $ 371 $ 64,459
</TABLE>
<TABLE>
<CAPTION>
Reported in ($000)
-----------------
3 Months Ending September 30, 1999 Chemical Services LLRW Services Corporate & Other Total
---------------------------------- ----------------- ------------- ----------------- -----
<S> <C> <C> <C> <C>
Revenue $ 2,363 $ 3,690 $ (46) $ 6,007
Direct Operating Costs 1,708 1,966 (10) 3,664
-------- -------- -------- --------
Gross Profit $ 655 $ 1,724 $ (36) $ 2,343
SG&A Expense 891 1,389 -- 2,280
Interest Expense/(Income) (30) 53 (7) 16
Corporate Allocation 247 466 (511) 202
Income Taxes -- -- (29) (29)
-------- -------- -------- --------
Net Income $ (453) $ (184) $ 511 $ 126
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
9 Months Ending September 30, 1999
----------------------------------
<S> <C> <C> <C> <C>
Revenue $ 9,015 $ 15,078 $ -- $ 24,093
Direct Operating Costs 5,966 7,289 (571) 12,684
-------- -------- -------- --------
Gross Profit $ 3,049 $ 7,789 $ 571 $ 11,409
SG&A Expense 4,432 3,478 3,115 11,025
Interest Expense/(Income) (163) (739) (38) (940)
Corporate Allocation 957 1,783 (2,853) (113)
Income Taxes -- -- 18 18
-------- -------- -------- --------
Net Income $ (647) $ 1,737 $ 329 $ 1,419
Total Assets $ 13,670 $ 35,757 $ 3,672 $ 53,099
</TABLE>
NOTE 9. CASH AND INVESTMENT SECURITIES.
The Company and wholly owned subsidiary American Liability and Excess Insurance
Company ("ALEX"), a captive insurance company, maintains a securities portfolio
with a national brokerage firm. At September 30, 2000, ALEX held $257,000 in
cash and money market accounts. This account decreased $1,130,000 from August
31, 2000 to September 30, 2000 to pay for major capital expansion at the El
Centro facility, and general corporate purposes. The Company has pledged
$250,000 of the remaining monies as security for various insurance policies. On
July 13, 2000 the Company's Board of Directors approved management's
recommendation to close ALEX to reduce the costs associated with maintaining an
inactive, captive insurance company. No financial or other impacts are
anticipated as a result of the scheduled 2000 closing.
NOTE 10. COMMITMENTS AND CONTINGENCIES.
The Company becomes involved in judicial and administrative proceedings
involving federal, state and local governmental authorities in the ordinary
course of conducting business. Actions may also be brought by individuals or
groups of individuals in connection with facility permitting, alleged violations
of permits or licenses, or alleged 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.
Insurance: While the Company believes it operates safely, professionally and
prudently, the environmental business exposes the Company to risks, including
potential releases of harmful substances that may cause damage or injury.
Primary casualty insurance programs do not generally cover accidental
environmental contamination losses. To provide insurance protection for such
claims, the Company maintains environmental impairment liability insurance and
professional environmental consultants liability insurance for non-nuclear
occurrences. The Company also maintains nuclear liability insurance covering the
operations of its facilities, suppliers and transporters; as well as primary
property, casualty and excess liability policies through traditional third party
insurance.
In 1998, the Company elected to discontinue providing financial assurance for
its closure and post-closure responsibilities through its ALEX insurance
subsidiary. The Company will close the captive insurance company during 2000, as
discussed in Note 9 to the financial statements.
In July 2000, the Company initiated cancellation of its Reliance Insurance
Company policies and obtained substantially identical coverage through XL
Capital Insurance Company. Transferring these policies to XL Capital enables the
Company to maintain coverage with an insurance provider with a higher credit
rating and greater financial wherewithal.
Periodically management reviews and may establish reserves for legal and
administrative matters, or fees expected to be incurred in connection with such
matters. Management believes that its reserves and insurance are adequate. There
have been no significant changes in commitments and contingencies other than
that included in Part II, Item 1 of this report, Legal Proceedings.
NOTE 11. 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. The Series E bore an 11.25% annual dividend,
paid quarterly in shares of the Company's common stock, and was issued to
fulfill a prior banking requirement. No voting rights or powers apply.
13
<PAGE> 14
In February 1998, the Company concluded its rights offering and carried out a
partial redemption of the Series E for common stock and a mandatory conversion
to cash for the remaining Series E holders. This preferred stock was then
considered converted and retired, but carries 3,000,000 warrants with no
assigned value, and a $1.50 per share exercise price, which expire in June 2008.
In September 1995, the Board of Directors authorized issuance of preferred stock
designated as 8 3/8% Series D Cumulative Convertible Preferred Stock ("Series
D"). The Company issued 105,264 shares of Series D and warrants allowing Series
D holders to purchase 1,052,640 shares of the Company's common stock. The Series
D with warrants were sold in a private offering to 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 were deducted from the proceeds. Each
Series D share is convertible at any time, at the option of the holder, at the
current conversion rate into common shares of the Company as specified in the
designation certificate.
In 2000, one Series D holder converted 5,263.2 preferred shares into common
shares and extended 64,211 warrants. The balance of the Series D warrants has
expired. Each warrant has an exercise price of $4.75. Since their value is
deemed de minimus, no value is assigned to these warrants in the accompanying
consolidated financial statements. 100,001 shares of Series D preferred stock
are outstanding. The dividends on Series D Stock are cumulative from the date of
issuance and payable quarterly commencing October 15, 1995. Covenants in current
notes payable prohibit the payment of dividends. At September 30, 2000, accrued
dividends totaled $695,000. Accrued but unpaid dividends are convertible into
common stock on the same basis as the preferred.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis contains trend information and other
forward-looking statements that involve a number of risks and uncertainties.
Actual results could differ materially from the Company's historical results of
operations and those discussed in these forward-looking comments. Factors that
could cause actual results to differ materially include, but are not limited to,
those identified in Notes 2, 4, 5, 6, and 7 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, 1999 in Part I, Item
1. Business.
Introduction
Incorporated in 1952 as Nuclear Engineering Company, American Ecology
Corporation and its predecessors have operated commercial radioactive and
chemical waste disposal and treatment facilities nationwide longer than any
other U.S. Company. The Company mainly derives its revenues from fees charged
for processing and disposal of hazardous, non-hazardous, and low-level
radioactive waste. Revenues are also derived from rebuilding electric motors
from nuclear power plants, brokering wastes to other service providers, and
environmental remediation work.
Disposal fees assessed to customers of the Company's operating facilities may
include state and local fees, and are generally based on the volume or weight of
waste deposited. The Company may assess fees and incur costs to process waste
(e.g. compaction or decontamination), stabilize waste (e.g. mixing with
concrete), or transporting waste. Some of these costs create inter-company
charges and revenue, all of which have been eliminated in these consolidated
financial statements.
Operating expenses include direct and indirect costs for labor, maintenance and
repairs, subcontracted costs and equipment, insurance, taxes and 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.
Selling, general & administrative costs include management salaries, sales and
marketing efforts, clerical and administrative costs, legal fees, office
rentals, corporate insurance, and other administrative costs for the general
corporate overhead.
Revenue for the nine months ended September 30, 2000 reached $31,600,000 or 31%
higher than during the same period in 1999. Growth in revenue was primarily the
result of strong operations at the Company's Beatty, Nevada and Richland,
Washington facilities.
14
<PAGE> 15
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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, 2000 September 30,2000 September 30, 1999 September 30, 1999
------------------ ----------------- --------------------- ------------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 11,796 31,600 6,007 24,093
Direct Operating Costs 6,555 55.6 17,327 54.8 3,664 61.0 12,684 52.6
------ ------ ------ ------
Gross Profits 5,241 44.4 14,273 45.2 2,343 39.0 11,409 47.4
SG & A 4,228 35.8 11,672 36.9 2,280 38.0 11,025 45.8
------ ------ ------ ------
Income from Operations 459 8.6 2,601 8.2 63 1.0 384 1.6
Investment Income (95) -0.8 141 0.4 (200) -3.3 113 0.5
Gain on sale of assets 45 0.4 44 0.1 3 0.0 666 2.8
Other (income) expense 145 1.2 528 1.7 (21) -0.3 274 1.1
Net Income
Before income taxes 1,108 9.4 3,314 10.5 (155) -2.6 1,437 6.0
Income tax expense
(benefit) 8 0.1 69 0.2 (29) -0.5 18 0.1
Net Income 1,100 9.3 3,245 10.3 (126) -2.1 1,419 5.9
Preferred stock
Dividends 100 0.8 299 0.9 86 1.4 296 1.2
Net Income (loss)
Available to common 1,000 8.5 2,946 9.3 (212) -3.5 1,123 4.7
Shareholders
</TABLE>
CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDING
<TABLE>
<CAPTION>
Reported in $000 September 30, 2000 September 30, 1999
Chemical LLRW Chemical LLRW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 13,298 $ 18,302 $ 9,015 $ 15,078
Direct Operating costs 7,816 9,853 5,966 7,289
-------- -------- -------- --------
Gross Profit 5,482 8,449 3,049 7,789
SG & A 2,769 5,314 3,478 4,432
-------- -------- -------- --------
Income (loss) from
operations 2,713 3,135 (429) 3,357
Other income (expense) (1,250) (2,158) (218) (1,620)
-------- -------- -------- --------
Net Income (loss) $ 1,463 $ 977 $ (647) $ 1,737
======== ======== ======== ========
</TABLE>
15
<PAGE> 16
REVENUE
<TABLE>
<CAPTION>
Period to Period Change For Period to Period Change For
The Three Months Ended The Nine Months Ended
September 30, 2000 and 1999 September 30, 2000 and 1999
--------------------------- ----------------------------
$ % $ %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Statement of Operations Revenue
Chemical Division 1,881 79.6 4,283 47.5
LLRW Division 3,862 10.5 3,224 21.4
</TABLE>
For the three and nine months ended September 30, 2000, the Company reported
revenue of $11,796,000 and $31,600,000, respectively, or a 96.4% and 31.2%
increase compared to corresponding prior year periods. For the three months
ended September 30, 2000, Chemical Division revenue increased $1,881,000 over
the same period last year. For the nine months ended September 30, 2000,
Chemical Division revenue increased $4,283,000 or 47.5% compared to the same
period last year. This was primarily due to continuing work on two major
contracts at the Beatty, Nevada facility. The Beatty facility began commercial
operation of a new treatment technology known as "thermal desorption" to serve
both new and existing customers during the quarter. The Company also opened a
new municipal solid waste landfill in Robstown, Texas during the quarter ended
September 30, although it had little impact on revenue.
LLRW division revenue increased by $3,862,000 in the quarter, principally due to
a large international contract for waste disposal at the Richland, Washington
facility and the improved performance at the Oak Ridge, Tennessee facility. For
the nine months ended September 30, 2000, revenue for the LLRW Division
increased $3,224,000 or 21.4% compared to the same period last year.
DIRECT OPERATING COSTS
The following table indicates the period-to-period change in direct operating
costs:
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Nine Months Ended
September 30, 2000 and 1999 September 30, 2000 and 1999
--------------------------- ---------------------------
$ % $ %
<S> <C> <C> <C> <C>
Statement of Operations-Direct Operating Costs
Chemical Division 677 39.6 1,850 31.0
LLRW Division 2,400 122.0 2,564 35.2
</TABLE>
For the three and nine months ending September 30, 2000 direct operating costs
increased for both the Chemical and LLRW Divisions. Total direct operating costs
for the third quarter were $6,555,000 or 55.6% of revenue compared to $3,664,000
or 61.0% of revenue during the same quarter last year. For the nine months,
direct operating costs increased to $17,327,000 or 54.8% of revenue compared to
$12,684,000 or 52.7% of revenue for the same period in 1999. The increase in
direct operating costs in the Chemical Division were less than additional
revenue generated by such division, although the higher revenue levels
necessitated higher spending on labor, cell costs, transportation, and
materials. Revenue in the Chemical Division increased by 79.6% and 47.5% for the
three and nine months ending September 30, 2000, respectively, while the direct
operating costs during these periods increased 39% and 31% for the same periods
in 1999.
The LLRW Division's direct operating costs increased 122% and 35.2% over the
same periods of three and nine months ended September 30, 1999. The higher
direct costs were the result of LLRW processing operations at the Oak Ridge
facility and a large remediation services contract in New York for both the
three and nine months ended September 30, 2000. Higher production costs at Oak
Ridge have been experienced throughout the year and management continues to take
action to improve productivity and efficiency. On going efforts to process and
remove aged (non-revenue) waste from the Oak Ridge facility are a significant
factor. It is expected that the majority, if not all, of the aged waste will be
removed from the facility by the end of the first quarter of 2001. The Company
released 5 Oak Ridge employees in October in its continuing effort to control
costs. Additional cost and expense reductions are currently being evaluated. The
Richland facility also incurred higher direct costs for the three and nine
months reported, however, these were proportional to the increased sales
activities.
16
<PAGE> 17
SELLING, GENERAL AND ADMINISTRATIVE COSTS (SG&A)
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Nine Months Ended
September 30, 2000 and 1999 September 30, 2000 and 1999
--------------------------- ---------------------------
$ % $ %
<S> <C> <C> <C> <C>
Selling, General and Administrative Costs
Chemical Division 255 28.6 (709) (20.4)
LLRW Division 124 8.9 882 19.9
</TABLE>
SG&A costs increased to $4,228,000 for the three months ending September 30,
2000 compared to $2,280,000 for the same quarter in 1999. However, SG&A for the
three months ending September 30, 1999 was reduced due to approximately $920,000
of nonrecurring reductions in corporate legal expense, and an adjustment of an
accrual for outside accounting fees.
For the nine months ended September 30, 2000, SG&A increased to $11,672,000
compared to $11,025,000 for the same period in 1999. Increases in SG&A resulted
from higher selling costs, as the Company continued its program to expand its
sales force and coverage, and higher consulting, insurance, bonding, and travel
expenses. Relative to sales, SG&A has decreased substantially, from 45.8% of
revenue in 1999 to 36.9% in 2000. During the first nine months of 2000, the
Company utilized a $950,000 legal reserve that was established to offset costs
associated with ongoing litigation. The Company expects that SG&A will be higher
in the coming quarters than reported year to date during 2000 due to continued
investments in sales, marketing, training, and information systems.
The Chemical Division SG&A for the nine months ended September 30, 2000 was
$709,000 or 20.4% less than the same period last year partly due to the
capitalization of SG&A costs at the Robstown, Texas and Beatty, Nevada hazardous
waste facilities. Capitalization of construction and associated SG&A costs for
the new El Centro municipal waste landfill ceased when the facility opened in
the July 2000. As a percentage of revenue, SG&A for the Chemical Division has
decreased to 35.8% and 36.9% of revenue for the three and nine months ending
September 30, 2000, respectively, compared to 38.0% and 45.8% of revenue for the
same periods in 1999. The Company anticipates that SG&A for the Chemical
division will increase in the coming quarters as the Company continues to invest
in sales and marketing efforts and the administrative costs of operating El
Centro are reflected in the income statement.
The LLRW division experienced 8.9% and 19.9% increases in SG&A costs for the
three and nine months ending September 30, 2000 respectively. SG&A costs
increased for the three months ended September 30, 2000 due to additional
contracts that were proportional to revenue. The nine months ending September
30, 2000 were higher than usual primarily due to a second quarter reserve of
$546,000 established in response to an adverse ruling by the National Labor
Relations Board ("NLRB") arising from a claim by the Company's Oak Ridge,
Tennessee union that the Company engaged in unfair labor practices. The Company
has appealed the ruling, but established a reserve that will be evaluated
quarterly for adequacy to provide for potential payment of these back wages.
Without the NLRB reserve, SG&A would have decreased 13% for the nine months of
2000 and there would have been no change in the three months ending September
2000.
OTHER COSTS, INCOME AND INVESTMENT INCOME
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Nine Months Ended
September 30, 2000 and 1999 September 30, 2000 and 1999
--------------------------- ---------------------------
$ % $ %
<S> <C> <C> <C> <C>
Other Costs
Chemical Division (5) 16.7 544 73.6
LLRW Division (136) (256.6) 79 48.4
</TABLE>
Other costs or income and investment income is comprised principally of costs or
income that the Company may incur outside the normal course of business. Income
or interest income earned is for various investments in securities
held-to-maturity, dividend income, and realized and unrealized gains and losses
earned on the Company's investment portfolio classified as trading securities.
In the last three years the Company has successfully coordinated new insurance
policies that do not demand collateral backed investments for the deductibles.
The Company has used these investments to fund ongoing expansion and operations
as an alternative to long-term borrowing. As a result of third quarter 2000
withdrawals totaling about $1,100,000, only $233,000 remains as pledged
investment securities.
17
<PAGE> 18
For the nine months ended September 30, 2000 the Company reported investment
income of $141,000 compared to $113,000 for the same nine months ending 1999.
Included in this section is the gain on the sale of fixed assets and rolling
stock equipment for $2,000,000 in a sale-leaseback transaction. This leaseback
is an operating lease and the gain on the sale will be deferred and amortized in
proportion to the gross rental charged to expense over the lease term of
sixty-six months. The gain on the sale of fixed assets for the three and nine
months ended September 30, 2000 was $45,000 and $44,000, compared to $3,000 and
$666,000 for the periods of 1999. The nine months of 1999 results included the
sale of the transportation division.
The Company incurred interest expense of $249,000 and $117,000 for the nine
months ended September 30, 2000 and 1999 respectively. The increase is
attributed to additional heavy equipment capital leases, and a bank line of
credit. The Company has notes payable with two directors for $1.3 million, for
which interest accrues monthly.
Other income for the three and nine months ended 2000 was $145,000 and $528,000
compared to a loss of $21,000 and income of $274,000 for same periods in 1999.
The largest increase in the nine months ending September 30, 2000 reflected an
adjustment for banking fees allowed as a reduction to future obligations with a
predecessor bank. The Company also collected about $131,000 of debts previously
written off in prior years and accounted for as other income.
INCOME TAXES
The Company had an effective federal tax rate of 0% at September 30, 2000 and at
December 31, 1999. See Note 6 to the financial statements for detailed
discussion. The Company has tax obligations to state and local taxing
authorities for both the parent company and its operating subsidiaries.
OPERATING EARNINGS AND NET INCOME
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Nine Months Ended
September 30, 2000 and 1999 September 30, 2000 and 1999
--------------------------- ---------------------------
$ % $ %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Income from Operations
Chemical Division 953 397.0 3,142 733.87
LLRW Division 1,380 470.9 (222) (6.5)
EBINT (1)
Chemical Division 1,032 500.9 2,549 433.5
LLRW Division 1,592 576.8 (265) (7.0)
Consolidated Net Income 1,226 973.0 1,826 128.6
EBITDA (2) 1,267 337.8 1,573 50.3
</TABLE>
(1) EBINT represents earnings from operations before deducting interest and
taxes.
(2) EBITDA represents earnings from operations before deducting interest and
tax plus depreciation and amortization expense.
Other costs or income and investment income is comprised principally of costs or
income that the Company may incur outside the normal course of business. Income
or interest income earned is for various investments in securities
held-to-maturity, dividend income, and realized and unrealized gains and losses
earned on the Company's investment portfolio classified as trading securities.
The Company had maintained an investment portfolio for several years to
supplement the deductibles for insurance on various policies for closure and
post closure of Company-owned facilities. In the last three years the Company
has successfully coordinated new insurance policies that do not require
collateral for the deductibles. The Company has used these investments to fund
ongoing expansion and operations as an alternative to long-term borrowing. Third
quarter 2000 withdrawals totaled about $1,100,000, and only $233,000 remains as
pledged investment securities.
18
<PAGE> 19
SEASONAL EFFECTS
Operating revenues are generally lower in the winter months than the warmer
summer months. However, both Chemical and LLRW Services revenues are more
affected by market conditions than seasonality.
CAPITAL RESOURCES AND LIQUIDITY:
On September 30, 2000, cash, cash equivalents and short-term investments totaled
$2,225,000, a decrease of $2,546,000 from December 31, 1999. The decrease in
cash was the result of paying down large accounts payable. Accounts receivable
totaled $10,679,000 at September 30, 2000 compared to $7,696,000 at year-end
December 31, 1999 a $2,983,000 increase from the same period in 1999. The
increase in accounts receivable directly correspond to the increase in revenue
experienced during the third quarter, in particular, September revenue.
As of September 30, 2000 the Company's liquidity, as measured by the current
ratio, declined slightly to 0.83:1.0 from 0.86:1.0 at December 31, 1999. The
Company's working capital deficit declined as the Company applied available cash
to accounts payable. At September 30 the working capital deficit increased to
$2,885,000 compared to $2,309,000 at December 31, 1999. Stronger third quarter
sales and the corresponding internally generated cash flow allowed the Company
to reduce current liabilities. Total current liabilities increased with the
additional lease payments that are now less than twelve months. In August 2000,
the Company secured a long-term line of credit and closed on a sale/leaseback
thereby improving its capital structure and enhancing its liquidity.
For nine months ended September 30, the Company used $77,000 more in cash from
its operations than the operations generated, compared to $4,061,000 of cash
used than generated during the same period last year. The change in the decrease
in cash used in operations was principally the result of increased profitability
and improved collections on accounts receivable. Cash was used to fund capital
projects, principally the El Centro landfill.
Capital spending in the first nine months of 2000 increased significantly over
1999. Through September 30, 2000, capital expenditures totaled $7,959,000
compared to $1,793,000 for the first nine months of 1999. Capital spending was
largely devoted to the El Centro landfill, where approximately $4,500,000 was
directed to construction and other development costs in 2000. The Company is
also constructing vertical expansion disposal cells at the Beatty, Nevada
facility and has capitalized almost $1,515,000 of costs. The Company signed
capital leases for large heavy earthmoving equipment for all of the site
locations.
In the remaining three months of 2000, the Company will continue capital
spending on expansion of operations. The majority of these expenditures will be
for construction of approved disposal area expansions at Robstown, Texas and
Beatty, Nevada. Management expects that total capital expenditures for 2000 will
approach $9 million.
19
<PAGE> 20
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, individuals or groups of individuals in connection
with permitting or repermitting facilities, alleged violations of existing
permits, or damages claimed as a result of alleged exposure to hazardous
substances purportedly released from Company operated sites, and related
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.
Except as described below, there were no material developments with regard to
previously reported legal proceedings:
On October, 26 2000, a previously reported legal proceeding, Erin L. Dalton v.
Brown Distributing Co. et al., Defendants/Third-Party Plaintiffs v Sam Tarlton,
Jr. and American Ecology Services Corporation d/b/a American Ecology Trans.,
Inc. Third Party Defendants, Cause No. 99-06725 (250th Judicial District Court,
Travis County, Texas) was settled with the plaintiffs. The settlement did not
have a material adverse impact on the Company's financial position, results of
operations, or cash flows.
One of the Company's principal subsidiaries is a plaintiff in two related cases
against the United States, and in a case against the State of California, in
which one or more outcomes may have a significant favorable future impact on the
Company. In the first federal case, US Ecology is suing to recover development
costs, as well as lost profits and lost opportunity costs related to development
of the Southwestern LLRW Compact disposal facility in Ward Valley, California.
The trial court dismissed this case on March 27, 2000, and the Company has
appealed the decision. In the second federal case, US Ecology is seeking an
order (writ of mandamus) to compel completion of the federal land transfer
required for construction of the state-licensed facility to proceed. The trial
court rendered an adverse judgment in this case on March 31, 1999, which the
Company has also appealed. Oral argument before the D.C. Circuit Court of
Appeals was made on September 5, 2000, but the court has not yet issued a
ruling. In a further effort to protect its investment in the Ward Valley
project, the Company filed a lawsuit against the State of California on May 2,
2000, seeking (1) a writ of mandate to compel California to acquire the property
to build the Ward Valley project, (2) a court declaration of the state's duties
to the Company, and (3) damages in excess of $162 million, primarily for costs
incurred in developing the project, interest, and future lost profits. On July
6, 2000, the state of California filed a motion to dismiss the case. On October
24, 2000, the California court signed an order granting the state's motion to
dismiss the case on demurrer. The Company has appealed the trial court's
decision.
The Company has intervened in a lawsuit against the State of Nebraska seeking
recovery of approximately $6.5 million investment and future lost profits
related to development of the proposed Central Interstate Compact LLRW disposal
facility near Butte, Nebraska. The trial court has ruled on several preliminary
matters that are now under appeal by the State of Nebraska. The trial court has
not yet ruled on whether the Company may be awarded money damages. On April 12,
2000, the appeals court upheld the trial court's ruling that Nebraska is not
immune to suit in this case and also upheld the trial court's preliminary
injunction prohibiting Nebraska from taking any further steps in the state
license hearing process until the matter is decided. The case is expected to go
to trial in 2001.
See Note 4 Deferred Site Development Cost for additional discussion.
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
20
<PAGE> 21
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
Incorporated by Reference
Exhibit No. Description from 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
10.13 Second Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K
June 24, 1991
10.14 Third Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K
July 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
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
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
10.26 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
10.34 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,
among American Ecology Corp., American Ecology Recycle Center, 3rd Quarter 1994 Form 10-Q
Inc., 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,
American Ecology Corporation and Mobley Environmental Services, 3rd Quarter 1994 Form 10-Q
Inc., as amended by Amendment dated September 21, 1994.
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
10.49 Master Equipment Lease Agreement between First Security Bank and
American Ecology Corporation dated August 3, 2000
10.50 Credit Agreement between First Security Bank and American Ecology
Corporation dated August 17, 2000
21 List of Subsidiaries 1994 Form 10-K
27 Financial Data Schedule
</TABLE>
Management contract or compensatory plan.
(b) REPORTS ON FORM 8-K
22
<PAGE> 23
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 13, 2000 By: /s/ Jack K. Lemley
------------------
Jack K. Lemley
Chairman and Chief Executive Officer
Date: November 13, 2000 By: /s/ James R. Baumgardner
------------------------
James R. Baumgardner
Senior Vice President and
Chief Financial Officer
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Incorporated by Reference
Exhibit No. Description from 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
10.13 Second Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K
June 24, 1991
10.14 Third Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K
July 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
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C>
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
10.26 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
10.34 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,
among American Ecology Corp., American Ecology Recycle Center, Inc., 3rd 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,
American Ecology Corporation and Mobley Environmental Services, 3rd Quarter 1994 Form 10-Q
Inc., as amended by Amendment dated September 21, 1994.
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
10.49 Master Equipment Lease Agreement between First Security Bank and
American Ecology Corporation dated August 3, 2000
10.50 Credit Agreement between First Security Bank and American Ecology
Corporation dated August 17, 2000
21 List of Subsidiaries 1994 Form 10-K
27 Financial Data Schedule
</TABLE>
