<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 [ ] NO [X]
At August 13, 2000, Registrant had outstanding
13,710,017 shares of its Common Stock.
<PAGE> 2
AMERICAN ECOLOGY CORPORATION
QUARTERLY REPORT FORM 10-Q FOR THE
THREE MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Consolidated Financial Statements PAGE
Consolidated Balance Sheet
(Unaudited) 4
Consolidated Statements of Operations
(Unaudited) 5
Consolidated Statements of Cash Flows
(Unaudited) 6
Consolidated Statements of Shareholder's Equity
(Unaudited) 7
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 21
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23-25
Signatures 26
</TABLE>
2
<PAGE> 3
DIRECTORS OFFICERS
----------------------------- -----------------------------------
Jack K. Lemley Jack K. Lemley
Chairman of the Board Chairman, Chief Executive Officer
American Ecology Corporation and President
Rotchford L. Barker James R. Baumgardner
Independent Businessman Senior Vice President and Chief
Financial Officer
Paul C. Bergson
Principal L. Gary Davis
Bergson & Company Vice President and Controller
Keith D. Bronstein Zaki K. Naser
President Executive Vice President and
Tradelink, LLC Operations Manager
Patricia M. Eckert Stephen A. Romano
Principal Vice President
Patricia M. Eckert & Associates
Robert S. Thorn
Edward F. Heil Vice President and Chief Accounting
Chairman of the Board Officer
American Environmental Construction
Company Robert M. Trimble
General Counsel and Secretary
Dan Rostenkowski
President FINANCIAL REPORTS
DanRoss & Associates, Inc.
A copy of the American Ecology Corporation
Paul F. Schutt Financial Reports, filed with the Securities
Chief Executive Officer and Exchange Commission, may be
Nuclear Fuel Services, Inc. Obtained by writing to:
John J. Scoville American Ecology Corporation
President 805 W. Idaho, Suite 200
J.J. Scoville & Associates, Inc. Boise, Idaho 83702
CORPORATE OFFICE
TRANSFER AGENT
American Ecology Corporation
805 W. Idaho, Suite 200 ChaseMellon Shareholder Services, LLC
Boise, Idaho 83702 Overpeck Centre
(208) 331-8400 85 Challenger Road
(208) 331-7900 (fax) Ridgefield Park, New Jersey 07660
www.americanecology.com (201) 296-4000
www.chasemellon.com
COMMON STOCK AUDITOR
Balukoff, Lindstrom & Co., P.A.
American Ecology Corporation's common 877 West Main Street, Suite 805
stock Trades on the NASDAQ Stock Market Boise, Idaho 83702
under the Symbol ECOL. 208-344-7150
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>
June 30, December 31,
2000 1999
------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,654 $ 4,771
Receivables (trade and other), net of allowance for
Doubtful accounts of $839 and $619 respectively 7,607 7,696
Income tax receivable 740 740
Prepayments and other 1,141 1,207
------- --------
Total current assets 12,142 14,414
Cash and investment securities, pledged 231 226
Property and equipment, net 14,344 12,818
Deferred site development costs 29,173 27,430
Intangible assets relating to acquired businesses, net 378 390
Other assets 3,195 3,181
------- --------
Total assets $59,463 $ 58,459
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 237 $ 781
Accounts payable 3,540 2,706
Accrued liabilities 11,131 12,334
Deferred site maintenance, current portion 700 700
Income taxes payable 154 202
------- --------
Total current liabilities 15,762 16,723
Long term debt, excluding current portion 3,719 3,569
Deferred site maintenance, excluding current portion 16,435 16,585
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,
100,001 authorized and issued, 5,263 shares converted and retired 1 1
Series E redeemable convertible preferred stock, $10.0 par value,
300,000 authorized and issued, 300,000 shares converted and retired -- --
Common stock, $.01 par value, 50,000,000 authorized, 13,714,041
and 13,704,050 shares issued and outstanding respectively 137 137
Additional paid-in capital 54,525 54,513
Retained earnings (deficit) (31,116) (33,069)
------- --------
Total shareholders' equity 23,547 21,582
------- --------
Total Liabilities and Shareholders' Equity $59,463 $ 58,459
======= ========
</TABLE>
The accompanying notes are an integral part of these 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenue $ 10,485 $ 8,907 $ 19,804 $ 18,086
Direct operating costs 5,898 4,197 10,773 9,020
------- -------- -------- -------
Gross profit 4,587 4,710 9,031 9,066
Selling, general and administrative
expenses 4,128 4,372 7,444 8,745
Income from operations 459 338 1,587 321
Investment income 125 269 237 313
Gain on sale of assets -- 663 1 663
Other income 139 196 381 294
------- -------- -------- -------
Net income before income taxes 723 1,466 2,206 1,591
Income tax expense (41) 40 61 47
------- -------- -------- -------
Net income 764 1,426 2,145 1,544
Preferred stock dividends 99 107 199 210
------- -------- -------- -------
Net income (loss) available to common
Shareholders $ 665 $ 1,319 $ 1,946 $ 1,334
======= ======== ======== =======
Basic earnings per share $ .05 $ .10 $ .14 $ .10
======= ======= ======= =======
Diluted earnings per share $ .04 $ .08 $ .12 $ .08
======= ======= ======= =======
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>
Six Months Ended June 30,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,145 $ 1,544
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,195 1,181
Deferred income tax provision (47) (22)
(Gain) on sale of assets (663)
Stock compensation 12
Changes in assets and liabilities:
Receivables 89 2,525
Investment securities classified as trading (5) 269
Other assets (78) (171)
Accounts payable and accrued liabilities (151) (6,479)
Deferred site maintenance (411) 175
------- -------
Total adjustments 604 (3,185)
------- -------
Net cash provided by (used in) operating activities 2,749 (1,641)
------- -------
Cash flows from investing activities:
Capital expenditures (4,322) (384)
Site development costs, including capitalized interest -- (927)
Proceeds from sales of property and equipment -- 1,910
Transfers from cash and investment securities, pledged -- --
------- -------
Net cash used in investing activities (4,322) 599
Cash flows from financing activities:
Proceeds from issuance of indebtedness -- (1,300)
Repayments of indebtedness (544) (60)
------- -------
Net cash provided by (used in) financing activities (544) (1,360)
------- -------
Increase (decrease) in cash and cash equivalents (2,117) (2,402)
Cash and cash equivalents at beginning of period 4,771 4,442
------- -------
Cash and cash equivalents at end of period $ 2,654 $ 2,040
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 108 $ 58
Income taxes 72 53
Acquisition of Equipment with Capital Leases 1,623 --
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
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, 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)
------- ------ ------- --------
</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.
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the Company has prepared the accompanying unaudited financial statements.
Certain information and footnote disclosures have been condensed or omitted
consistent with Generally Accepted Accounting Principles ("GAAP"). In the
opinion of management, all adjustments and disclosures necessary for a fair
presentation of these financial statements have been included. These financial
statements and notes 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, filed with the Securities and Exchange
Commission.
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 June 30, 2000 and December 31, 1999 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -------
<S> <C> <C>
Note payable $ 1,977 $ 1,847
Capital lease obligations and other 1,979 2,503
------- -------
3,957 4,350
Less: Current maturities (237) (781)
------- -------
Long term debt $ 3,719 $ 3,569
======= =======
</TABLE>
Aggregate maturity of future minimum payments under capital leases is as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------ ------
<S> <C> <C>
2000 $ 237 $ 781
2001 2,181 1,631
2002 629 730
2003 590 520
2004 82 688
------ ------
TOTAL $3,719 $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 second quarter of 2000, the Company signed agreements for approximately
$1.5 million of long-term capital leases and executed $867,000 in annual lease
obligations. The Company also signed a financing agreement for insurance
premiums in the amount of $705,000 due March 1, 2001.
The Company maintains a line of credit for $500,000 with a local bank. For the
first time since the line of credit's inception, the Company borrowed under the
credit facility on July 31, 2000.
8
<PAGE> 9
NOTE 3. EARNINGS PER SHARE.
Earnings per common share are calculated in accordance with SFAS No. 128 for the
three and six months ended June 30, 2000 and 1999 on basic and fully diluted
earnings per common share, respectively. The following table shows the number of
shares used to calculate basic and fully diluted earnings per share.
<TABLE>
<CAPTION>
(in thousands except per share)
Three Six
Months Ended Months Ended
June 30, June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic
-----
Net Income 665 1,319 1,946 1,334
Weighted average common shares 13,708 13,557 13,708 13,557
Net income per share, basic $ .05 $ .10 $ .14 $ .10
====== ====== ====== ======
Diluted
-------
Weighted average of diluted of common
shares 13,708 13,557 13,708 13,557
Dilutive effect of common stock
options and warrants 2,629 3,777 2,629 3,777
------ ------ ------ ------
Total weighted average common and
dilutive shares outstanding 16,337 17,334 16,337 17,334
Net income per share, diluted $ .04 $ .08 $ .12 $ .08
====== ====== ====== ======
</TABLE>
NOTE 4. DEFERRED SITE DEVELOPMENT COSTS.
The Company has a license to construct and operate a low-level radioactive waste
("LLRW") disposal facility to serve the Southwestern Compact in California
("Ward Valley facility") and has been selected to obtain a license to develop
and operate a LLRW disposal facility for the Central Interstate Compact ("CIC")
in Nebraska ("Butte facility").
The Company believes the State of California has abandoned its duty to obtain
the Ward Valley project property from the U.S. Department of the Interior. On
May 2, 2000, wholly-owned subsidiary US Ecology filed suit against the State of
California in Superior Court for the County of San Diego seeking to recover
monetary damages stemming from the state's failure to honor its obligations to
the Company, and seeking to compel the State to resume efforts to complete
project land acquisition. Damages sought are in excess of $162 million for costs
incurred, interest, lost profits and certain legal expenses. A preliminary
ruling from the Superior Court on the State of California's demurrer motion to
dismiss the case is expected on September 8, 2000.
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. No schedule has been set for
this appeal. 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 Court of Appeals for the District of Columbia
Circuit has scheduled oral arguments in this case for September 5, 2000.
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 (36%
of total assets) of development costs for the Ward Valley facility, of which
$895,000 represents capitalized interest, as of June 30, 2000.
9
<PAGE> 10
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 wholly-owned 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 June 30, 2000, the Company has contributed and capitalized approximately
$6,478,000 (11% 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 contested case hearing on the license denial. US Ecology
intervened as a plaintiff. As anticipated, the Company's revenue from the
project has declined sharply following the shift in project focus from licensing
to litigation and the Company expects no significant project revenue pending the
outcome of the litigation. . On April 12, 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. Additional appeals by the State are pending before the Eighth Circuit and
are expected to be heard in October, 2000. 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 the legal actions noted above. 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 cannot be predicted. Failure to recover
deferred site development costs for either facility would have a material
adverse effect on the Company's financial condition.
The following table shows the ending capitalized balances for deferred site
development costs with no change for the periods ended June 30, 2000 and
December 31, 1999 in thousands of dollars:
<TABLE>
<CAPTION>
Capitalized Capitalized
December 31, 1999 Costs Interest Total
----------------- ----------- ----------- -------
<S> <C> <C> <C>
Ward Valley, CA
Project $20,057 $ 895 $20,952
Butte, Nebraska
Project 6,092 386 6,478
------- ------ -------
Total $26,149 $1,281 $27,430
Capitalized Capitalized
June 30, 2000 Costs Interest Total
----------------- ----------- ----------- -------
Ward Valley, CA
Project $20,057 $ 895 $20,952
Butte, Nebraska
Project 6,092 386 6,478
------- ------ -------
Total $26,149 $1,281 $27,430
</TABLE>
In July 1999, the Company elected not to capitalize further contributions to
either project. These costs remain capitalized on the Company's books while it
pursues legal actions to protect its investments.
NOTE 5. INCOME TAXES.
The Company had an effective federal tax rate of 0% on June 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
10
<PAGE> 11
forwards for tax purposes. At June 30, 2000, the available net operating loss
carry forward was $31.3 million plus an estimated $3.0 of additional net
operating loss carry forward 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 2013
- $3.6 million in 2014
- $3.0 million in 2015
The limited portion subject to Internal Revenue Service ("IRS") Code Section
382, approximately $2.7 million, expires beginning 2006.
The Company has 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. In November 1999 the Company protested this denial, which is
currently pending with the IRS. The Company believes its claim was improperly
denied and intends to continue efforts to obtain the refund. The Company met
three times in 2000 with the IRS to present its position. As of June 30, 2000,
the $740,000 claimed is reflected as income taxes receivable. The matter is
still pending.
While this $740,000 refund claim was outstanding, the Company sold this claim to
its former bank with recourse in November 1998. The Company 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 will complete 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, which
purchased the claim with recourse.
NOTE 6. 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 discontinues accepting waste and is closed.
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 $17,135,000 as of
June 30, 2000. The Company has a three-year prepaid insurance policy for these
facilities, and has also 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, regulations, statutes, or
other future events affecting its facilities, however, management believes that
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
11
<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 $231,000 at June 30, 2000 and $226,000 at December 31, 1999
have been pledged as collateral for these obligations. Management believes that
$231,000 is an adequate reserve combined with the letters of credit, closure
bonds, certificates of insurance, and corporate guarantees maintained as
financial assurance.
NOTE 7. 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 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 June 30, 2000 Chemical Services LLRW Services Corporate & Other Total
----------------------------- ----------------- ------------- ----------------- --------
<S> <C> <C> <C> <C>
Revenue $ 5,481 $ 5,137 $ (133) $ 10,485
Direct Operating Costs 3,211 2,711 (24) 5,898
-------- -------- ------- --------
Gross Profit $ 2,270 $ 2,426 $ (109) $ 4,587
SG&A Expense 889 1,686 1,553 4,128
Interest Expense/(Income) (135) -- (3) (138)
Corporate Allocation 204 585 (915) (126)
Income Taxes -- -- (41) (41)
-------- -------- ------- --------
Net Income $ 1,312 $ 155 $ (703) $ 764
6 Months Ending June 30, 2000
-----------------------------
Revenue $ 9,205 $ 10,905 $ (306) $ 19,804
Direct Operating Costs 5,431 5,488 (146) 10,773
-------- -------- ------- --------
Gross Profit $ 3,774 $ 5,417 $ (160) $ 9,031
SG&A Expense 1,623 3,801 2,020 7,444
Interest Expense/(Income) (160) -- (119) (279)
Corporate Allocation 737 1,162 (2,239) (340)
Income Taxes -- -- 61 61
-------- -------- ------- --------
Net Income $ 1,574 $ 454 $ (117) $ 2,145
Total Assets $ 21,332 $ 37,454 $ 678 $ 59,464
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Reported in ($000)
------------------
3 Months Ending June 30, 1999 Chemical Services LLRW Services Corporate & Other Total
----------------------------- ----------------- ------------- ----------------- --------
<S> <C> <C> <C> <C>
Revenue $ 3,054 $ 6,010 $ (157) $ 8,907
Direct Operating Costs 1,993 2,398 (194) 4,197
-------- -------- ------- --------
Gross Profit $ 1,061 $ 3,612 $ 37 $ 4,710
SG&A Expense 1,127 1,484 1,761 4,372
Interest Expense/(Income) (612) (215) (32) (859)
Corporate Allocation 308 729 (1,266) (229)
Income Taxes -- -- -- --
-------- -------- ------- --------
Net Income $ 238 $ 1,614 $ (426) $ 1,426
6 Months Ending June 30, 1999
-----------------------------
Revenue $ 6,929 $ 11,625 $ (468) $ 18,086
Direct Operating Costs 4,258 5,323 (561) 9,020
-------- -------- ------- --------
Gross Profit $ 2,671 $ 6,302 $ 93 $ 9,066
SG&A Expense 2,587 3,043 3,115 8,745
Interest Expense/(Income) (709) (216) (31) (956)
Corporate Allocation 710 1,317 (2,294) (267)
Income Taxes -- -- -- --
-------- -------- ------- --------
Net Income $ 83 $ 2,158 $ (697) $ 1,544
Total Assets $ 13,559 $ 36,713 $ 5,276 $ 55,548
</TABLE>
NOTE 8. 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 June 30, 2000, ALEX held $1,371,000 in cash
and securities classified as trading. This amount decreased $808,000 from March
31, 2000 to pay scheduled customer rebates under the state-approved rate
agreement for the Richland, Washington LLRW disposal facility. The Company has
pledged $479,000 of the remaining monies as security for various insurance
policies. ALEX is currently inactive but maintains an investment portfolio that
is used for insurance deductibles. 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 9. 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
environmental claims, the Company has obtained environmental impairment
liability insurance and professional environmental consultants liability
insurance for non-nuclear occurrences. The Company has also purchased nuclear
liability insurance covering the operations of its facilities, suppliers and
transporters. The Company has also purchased primary property, casualty and
excess liability policies through traditional third party insurance.
13
<PAGE> 14
In 1998, the Company elected to discontinue providing financial assurance for
its closure and post-closure responsibilities through its wholly-owned insurance
subsidiary, ALEX. The Company was able to secure more economical and otherwise
favorable terms from traditional insurance sources for its facilities and
operations, subject to site-specific deductibles for which the Company maintains
a cash reserve. The Company will close the captive insurance company during
2000, as discussed in Note 8 to the financial statements.
In July 2000, the Company initiated cancellation of its Reliance Insurance
Company policies and obtained identical coverage through XL Capital Insurance
Company. Transferring certain insurance policies to XL Capital enables the
Company to maintain coverage with a provider that meets recommended financial
standards. Coverage terms, conditions and expiration dates are essentially
unchanged.
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 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. 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.
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 shares and warrants allowing
Series D holders to purchase 1,052,640 shares of the Company's common stock. The
Company 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 available conversion rate 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. There are 100,001 shares of Series D
preferred stock outstanding. The dividends on Series D Stock are cumulative from
the date of issuance and payable quarterly commencing on October 15, 1995.
Covenants in current notes payable prohibit the payment of dividends. At June
30, 2000, accrued dividends totaled $595,000.
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, 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, 1999 in Part I, Item 1.
Business.
14
<PAGE> 15
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 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 field service
operations.
In the first six months of 2000, Chemical Division revenue increased 38% over
the same period in 1999 to $9,205,000. Chemical Division revenue for the first
half of 2000 was 45% of total revenues compared to 36% a year ago. The increase
in Chemical Division revenue is the result of strong operations and two large
contracts at the Company's Beatty, Nevada treatment and disposal facility.
During the first six months of 2000, LLRW Division revenue dropped 6% to
$10,905,000 and was 55% of total revenue. This compared to $11,625,000 or 64% of
revenue during the same period in 1999. The primary reason for this decline is
the lower waste volumes at the Company's Richland, Washington facility and
discontinuation of revenue from the Central Interstate Compact ("CIC") for the
six months ended June 30, 2000. It is expected that Richland volume will
increase in the second half of 2000. This is discussed in further detail in Note
4 to the financial statements.
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.
15
<PAGE> 16
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 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 Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 2000 June 30, 1999 June 30, 1999
------------------ ----------------- ----------------- ------------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 10,485 100.0 19,804 100.0 8,907 100.0 18,086 100.0
Direct Operating Costs 5,898 56.3 10,773 54.4 4,197 47.1 9,020 49.9
Gross Profits 4,587 43.7 9,031 45.6 4,710 52.9 9,006 50.1
SG & A 4,128 39.4 7,444 37.6 4,372 49.1 8,745 48.4
------ ------ ------ ------
Income from Operations 459 4.4 1,587 8 338 3.8 321 1.8
Investment Income 125 1.2 237 1.2 269 3 313 1.7
Gain on sale of assets -- -- 1 -- 663 7.4 663 3.7
Other (income) expense 139 1.3 381 1.9 196 2.2 294 1.6
Net Income Before
income taxes 723 6.9 2,206 11.1 1,466 16.5 1,591 8.8
Income tax expense
(benefit) (41) (.4) 61 .3 (40) (.4) (47) (.3)
Net Income 764 7.3 2,145 10.8 1,426 16 1,544 8.5
Preferred stock
Dividends 99 .9 199 1 107 1.2 210 1.2
Net Income (loss)
Available to common
Shareholders 665 6.3 1,946 9.8 1,319 14.8 1,334 7.4
</TABLE>
CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDING
<TABLE>
<CAPTION>
Reported in $000
June 30, 2000 June 30, 1999
Chemical LLRW Chemical LLRW
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue $9,205 $10,905 $6,929 $11,625
Direct Operating costs 5,431 5,488 4,258 5,323
Gross Profit 3,774 5,417 2,671 6,302
SG & A 1,623 3,801 2,587 3,044
------ ------- ------ -------
Income (loss) from
operations 2,151 1,616 -189 3,063
Other income (expense) 576 1,162 104 906
------ ------- ------ -------
Net Income (loss) $1,575 $ 454 $ 85 $ 2,157
====== ======= ====== =======
</TABLE>
16
<PAGE> 17
REVENUE
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Six Months Ended
June 30, 2000 and 1999 June 30, 2000 and 1999
$ % $ %
------ ------ ------ ------
<S> <C> <C> <C> <C>
Statement of Operations Revenue
-------------------------------
Chemical Division 2,427 79 2,276 33
LLRW Division (873) (15) (720) (6)
</TABLE>
For the three and six months ended June 30, 2000, the Company reported revenue
of $10,485,000 and $19,804,000, respectively, or a 17.7% and 9.5% increase
compared to corresponding prior year periods. For the three months ended June
30, 2000, Chemical Division revenue increased $2,427,000 over the same period
one year ago. This was primarily due to work on two major contracts and the
return of previous customers at the Beatty, Nevada facility. LLRW division
revenue declined by $843,000 in the quarter, principally due to rescheduling of
planned customer shipments to the Richland, Washington facility until the second
half of the year and reduced revenue from the CIC. For the six months ended June
30, 2000 revenues for the Chemical Division increased $2,276,000 or 36% and the
LLRW Division decreased $720,000 or 6% compared to the same period one year ago.
The Chemical Division's El Centro municipal waste landfill began operations in
July 2000, concluding a successful two-year permitting process. The Company
continues to grow operations in both the Chemical and LLRW Divisions.
Historically, the second half of the year is stronger for the LLRW division.
This factor, combined with continued strong performance by the Chemical division
may result in a strong second half 2000 revenue performance.
DIRECT OPERATING COSTS
The following table indicates the period-to-period change in direct and indirect
costs:
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Six Months Ended
June 30, 2000 and 1999 June 30, 2000 and 1999
-------------------------- ------------------------
$ % $ %
<S> <C> <C> <C> <C>
Statement of Operations-Direct Operating Costs
----------------------------------------------
Chemical Division 1,218 61.1 1,173 27.5
LLRW Division 313 13.0 165 3.1
</TABLE>
For the three and six months ending June 30, 2000 direct operating costs
increased for both the Chemical and LLRW Divisions. Total direct operating costs
for the second quarter were $5,898,000 or 56.3% of revenue compared to
$4,197,000 or 47.1% of revenue during the same quarter last year. For the six
months, direct operating costs increased to $10,773,000 compared to $9,020,000
for the same period in 1999. The increase in direct operating costs in the
Chemical Division were proportional to the additional revenue generated by the
division and reflects spending increases in labor, cell costs, and materials.
Revenue in the Chemical division increased by 79% and 33% for the three and six
months ending June 30, 2000, respectively, while the direct operating costs
during these periods only increased 61% and 27.5% for the same periods in 1999.
Unlike the Chemical Division, the LLRW Division's increased direct operating
costs were not the result of increased revenue. As previously discussed, revenue
for LLRW decreased 15% and 6% for the three and six months ending June 30, 2000,
respectively. However, direct costs increased 13% and 3% for these periods
compared to one year ago. These slightly higher direct costs were the result of
LLRW processing operations at the Oak Ridge facility. For the first half of
2000, direct costs including labor, overtime pay, materials and disposal costs
were higher than expected at Oak Ridge. This is partially attributable to labor
efforts required to process both current customer wastes and prior, aged waste
at the Oak Ridge facility which the company is obligated to process in
accordance with regulatory agency agreements. Management expects the aged waste
to be processed and removed by year end and is aggressively pursuing measures to
decrease costs and improve direct labor efficiency in handling all wastes.
17
<PAGE> 18
SELLING, GENERAL AND ADMINISTRATIVE COSTS (SG&A)
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Six Months Ended
June 30, 2000 and 1999 June 30, 2000 and 1999
--------------------------- ------------------------
$ % $ %
<S> <C> <C> <C> <C>
Selling, General and Administrative Costs
-----------------------------------------
Chemical Division (238) (21.1) (964) (37.3)
LLRW Division 202 13.6 758 24.9
</TABLE>
SG&A costs declined to $4,128,000 for the three months ending June 30, 2000
compared to $4,372,000 for the same quarter in 1999. A larger decrease occurred
for the six months ending June 30, 2000 as SG&A decreased to $7,444,000 or a
$1,301,000 reduction compared to the same period in 1999. This decrease in SG&A
continues to reflect management's focus on cost control. Also contributing to
the lower reported SG&A was the capitalization of site and corporate SG&A for
construction of the new El Centro municipal waste landfill and lower legal
expenses associated with ongoing litigation. Expressed as a percentage of
revenue, SG&A has decreased substantially to 39.4 and 37.6 percent of revenue
for the three and six months ending June 30, 2000, respectively, compared to
49.1 and 48.4 percent for the same periods of 1999. For the first three and six
months of 2000, the Chemical division experienced a 21.1 and 37.3 percent
decrease in SG&A costs, or $238,000 and $964,000 compared to the same periods
last year. Part of this decrease is attributable to the capitalization of SG&A
into El Centro development costs. When El Centro began operations in July of
2000, capitalization of certain SG&A costs ceased. The Company anticipates that
SG&A for the Chemical division will increase in the coming quarters as the
Company continues to invest in sales & marketing efforts and the costs of
operating El Centro are reflected in the income statement.
The LLRW division experienced 14 and 25 percent increases in SG&A costs for the
three and six months ending June 30, 2000 respectively. The primary cause for
the higher SG&A result from a $546,000 reserve taken in response to an adverse
ruling by the National Labor Relations Board ("NLRB"). The ruling arises from a
claim by the Company's Oak Ridge, Tennessee union that the Company engaged in
unfair labor practices during contract negotiations in 1998. In a split
decision, the NLRB ruled in favor of the union and ordered the Company to pay
back wages consistent with the union's previous contract. The Company appealed
the ruling, but took 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 23% and 6% for the three and six months of 2000
respectively.
For the three and six months ending June 30, 2000, gross margin dropped to 43.7%
and 45.6%, respectively, from 52.9% and 50.1% last year, as a result of the
previously discussed higher direct costs. Despite this decrease, gross profit
dollars for the six months ending June 30, 2000 increased slightly to $9,031,000
from $9,066,000 for the same period last year.
OTHER COSTS, INCOME AND INVESTMENT INCOME
<TABLE>
<CAPTION>
Period to Period Change Period to Period Change
For the Three Months Ended For the Six Months Ended
June 30, 2000 and 1999 June 30, 2000 and 1999
-------------------------- ------------------------
$ % $ %
<S> <C> <C> <C> <C>
Other Costs
-----------
Chemical Division 373 (122.7) 576 576.0
LLRW Division 71 13.8 61 5.5
</TABLE>
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 investment portfolio
classified as trading securities. For the six-months ended June 30, 2000 the
Company reported investment
18
<PAGE> 19
income of $237,000 compared to $313,000 for the same six months ending 1999. The
Company has reduced the principal in this investment portfolio over the last
twelve months and intends to continue drawing from this portfolio as an
alternative to long-term borrowing. Included in this section for 1999, is the
gain on the sale of fixed assets for $843,000 for the sale of the transportation
division in May 1999. In 2000, there is only $1,000 gain on sale of minor
assets.
The Company incurred interest expense of $108,000 and $73,000 for the six months
ended June 30, 2000 and 1999 respectively. The Company has notes payable with
two directors for $1.3 million and several capital leases for heavy equipment.
These leases bear varying interest rates and have varying payment terms.
INCOME TAXES
The Company had an effective federal tax rate of 0% at June 30, 2000 and at
December 31, 1999. See Note 5 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 For Period to Period Change For
The Three Months Ended The Six Months Ended
June 30, 2000 and 1999 June 30, 2000 and 1999
$ % $ %
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income from Operations
----------------------
Chemical Division 1,203 144 1,224 51
LLRW Division (156) (4) (844) (14)
EBINT (1)
---------
Chemical Division 969 177 1,518 191
LLRW Division (2,148) (92) (1,856) (53)
Consolidated Net Income (662) (46) 601 39
EBITDA (2) (655) (32) 615 23
</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.
For the three months ending June 30, 2000, the Company posted income from
operations of $459,000 or 4.4% of revenue. This compares favorably to the
$338,000 or 3.8% of revenue for the same quarter last year. For the six months
year to date, income from operations increased to $1,587,000 or 8.0% of revenue,
compared to $321,000 or 1.8% of revenue for the same period last year. The
higher year 2000 operating profit is the direct result of lower SG&A expense on
the same amount of gross profit. The Company posted net income of $764,000 for
the quarter and $2,145,000 for the six months ending June 30, 2000. The 2000
year to date net income was a substantial improvement over the results posted
for the first six months of 1999. During the first six months of 1999 the
Company posted a net income of $1,544,000. However, $843,000 or 55% of reported
net income in 1999 was the result of a non-recurring gain on the sale of the
Company's trucking operation.
Revenue growth continued for the second quarter and the first half of 2000. This
revenue increase was offset by higher direct operating costs resulting in a
lower gross margin (relative to sales) but flat gross profit (absolute dollars).
Also impacting the first half of 2000 was the previously discussed NLRB ruling
reserve. Despite the higher direct costs and the NLRB reserve, the Company still
generated operating and net income above 1999 levels, which were increased by
the one-time sale of the Company's trucking operation. The improved year 2000
performance reflects continued implementation of the Company's growth strategy
focused on expanding its core business.
19
<PAGE> 20
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 June 30, 2000, cash, cash equivalents and short-term investments totaled
$2,885,000, a decrease of $2,112,000 from December 31, 1999. The decrease was
due to increased capital expenditures and the refund of customer rebates from
the rate-regulated facility in Richland, Washington. Accounts receivable totaled
$7,607,000 at June 30, 2000 only $89,000 below the $7,696,000 at year-end
December 31, 1999. The Company's "days sales outstanding" improved to 42 days
during the quarter from the 49 days at March 31, 2000 and 67 days for the same
period in 1999. The Company continues to focus on improving internally generated
cashflow through improved collection efforts.
As of June 30, 2000 the Company's liquidity, as measured by the current ratio,
decreased slightly to 0.77:1.0 from 0.82:1.0 at December 31, 1999. The Company's
working capital deficit rose as the Company devoted available cash to completion
of the El Centro landfill project. By utilizing internally generated cash flow
to fund long-term capital projects, current liabilities have increased and
current assets have remained relatively steady. This increased the working
capital deficit. At June 30, 2000 the working capital deficit rose to $3,620,000
compared to $2,309,000 at December 31, 1999. Despite this increase, the Company
has shown significant progress in reducing its working capital deficit over the
past several years. The working capital deficit at June 30 and March 31, 1999,
respectively, were $5,186,000 and $7,281,000. The Company intends to secure
long-term financing for capital expansion. This would allow resumed reduction of
the working capital deficit in future quarters.
For six months ended June 30, the Company generated $2,749,000 in cash from
operations, which was a $4,390,000 improvement from the same period last year.
This increased cash from operations was principally the result of increased
profitability and improved collections on accounts receivable. The cash was used
to fund long-term projects, principally El Centro.
Capital spending in the first six months of 2000 increased significantly over
1999. By June 30, 2000, capital expenditures totaled $4,322,000 compared to
$384,000 for the first six months of 1999. Capital spending was devoted to the
El Centro landfill, where approximately $4,100,000 in construction and other
development costs were incurred. The remaining $222,000 in capital spending was
distributed among the other facilities. Management expects that total capital
expenditures for 2000 will be between $7 million and $9 million.
In the remaining six months of 2000, the Company expects to continue capital
spending on equipment and expansion of operations. The majority of these
expenditures will be for additional equipment and the construction of approved
disposal area expansions at Texas Ecologists.
At June 30, 2000, the Company continued to maintain a $500,000 line of credit
with a local bank. This credit facility was not utilized during the quarter, but
was accessed on July 31, 2000. On June 27, 2000 a commitment letter was received
from the same bank to increase the Company's line of credit to $5,000,000. The
Company is currently negotiating legal documents for this larger credit line. If
this increased new credit facility is closed, the Company expects to utilize the
facility to pay accounts payable, meet extended payment terms, and support
increased working capital needs associated with increased operations in the
Chemical Division, primarily Beatty and El Centro. In addition, the Company
received a commitment letter from a bank leasing Company on June 28, 2000 for a
$2,000,000 sale/leaseback on certain Company equipment. On August 4, 2000, lease
documentation was signed and the Company received proceeds from the $2,000,000
sale/leaseback credit facility on August 8, 2000. Proceeds from the
sale/leaseback will be used to pay vendors for capital equipment and
construction costs incurred during the second quarter. Management believes that
the proposed line of credit, sale/leaseback, and existing operations will
generate cash flow sufficient to meet future cash flow demands resulting from
planned facility expansions.
Also during the first six months of 2000, the Company received commitments from
an equipment supplier to provide $1,500,000 in equipment financing for heavy
equipment purchased for the Company's El Centro facility.
20
<PAGE> 21
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:
In mid-July 2000, in a previously reported legal proceeding, IN THE MATTER OF
AMERICAN ECOLOGY RECYCLE CENTER, INC., RCRA DOCKET NO.: RCRA-4-99-0020, a
settlement and principle was reached with USEPA Region 4. The settlement in
principle would not have a material adverse impact on the Company's financial
position, results of operations, or cash flows.
On August 1, 2000, a previously reported legal proceeding, VIRGIE ADAMS, ET AL
V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, ET AL, Cause No.
236-165224-6 (Tarrant County, Texas District Court) 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.
RANDALL V. AMERICAN ECOLOGY, ET AL., CAUSE NO. 00-04270, 68TH JUDICIAL COURT
DALLAS COUNTY, TEXAS
On June 9, 2000, plaintiffs filed the original complaint against the company and
the company's truck driver individually, alleging that plaintiff suffered
personal injury and property damages in connection with a vehicular accident.
The Company has tendered the case to its insurance carrier, which is providing a
defense. The Company filed an answer in the case on July 7, 2000. Discovery has
not commenced. The Company does not believe it was negligent and intends to
vigorously defend the case.
U.S. ECOLOGY CORPORATION AND OIL, CHEMICAL & ATOMIC WORKERS INTERNATIONAL
UNION, AFL-CIO, CASES 10-CA-30847 AND 10-CA-31149
On May 23, 2000, a three-member panel of the NLRB rendered an adverse ruling
against the Company's subsidiary and issued a finding of unfair labor practices.
On May 26, 2000, the Company's subsidiary filed with the U.S. Sixth Circuit
Court Of Appeals a petition for review of the decision of the NLRB and a motion
to stay the order of the NLRB pending review by the court.
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. 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
21
<PAGE> 22
California filed a motion to dismiss the case, on which the court has not yet
ruled. The Company intends to pursue all three cases to final resolution.
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. Remaining state appeals are
expected to be decided in the summer of 2000, and 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.
The Company held its Annual Meeting of Stockholders on May 18, 2000. At the
meeting, Rotchford L. Barker, Paul C. Bergson, Keith D. Bronstein, Patricia
M. Eckert, Edward F. Heil, Jack K. Lemley, Paul F. Schutt, and John J.
Scoville were elected to serve as directors of the Company for the next year,
and the appointment of Balukoff, Lindstrom & Co., P.A. as independent public
accountants for the year ending December 31, 2000 was ratified.
The voting on such items was as follows:
(1) Election of Directors
<TABLE>
<CAPTION>
For Withheld Authority
---------- ------------------
<S> <C> <C>
Rotchford L. Barker 12,518,590 13,461
Paul C. Bergson 12,583,744 11,307
Keith D. Bronstein 12,581,514 13,307
Patricia M. Eckert 12,582,181 12,870
Edward F. Heil 12,583,716 11,335
Jack K. Lemley 12,578,982 16,069
Paul F. Schutt 12,584,043 11,008
John J. Scoville 12,583,659 11,392
</TABLE>
(2) Ratify Appointment of Independent Auditors of Balukoff, Lindstrom &
Co., P.A.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
12,578,034 11,402 5,615
</TABLE>
22
<PAGE> 23
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit Incorporated by
No. Description Reference from
--------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation, as 1989 Form 10-K
amended
--------------------------------------------------------------------------------
3.2 Certificate of Amendment to Restated Form S-4 dated 12-24-92
Certificate of Incorporation dated June 4, 1992
--------------------------------------------------------------------------------
3.3 Amended and Restated Bylaws dated February 28, 1994 Form 10-K
1995
--------------------------------------------------------------------------------
10.1 Sublease dated February 26, 1976, between the Form 10 filed 3-8-84
State of Washington, 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"), Form 10 filed 3-8-84
between the state of 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 1989 Form 10-K
Material License issued to US Ecology, Inc.
dated December 29, 1989
--------------------------------------------------------------------------------
10.5 Administrative Order by Consent between the 1985 Form 10-K
United States Environmental Protection Agency
and US Ecology, Inc. ("USE") dated September
30, 1985
--------------------------------------------------------------------------------
10.6 State of Washington Radioactive Materials 1986 Form 10-K
License issued to US Ecology, Inc. dated
January 21, 1987
--------------------------------------------------------------------------------
10.11 Agreement between the Central Interstate 2nd Quarter 1988 10-Q
Low-Level Radioactive Waste 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 1994 Form 10-K
Agreement May 1, 1990
--------------------------------------------------------------------------------
10.13 Second Amendment to Central Interstate Compact 1994 Form 10-K
Agreement dated June 24, 1991
--------------------------------------------------------------------------------
10.14 Third Amendment to Central Interstate Compact 1994 Form 10-K
Agreement dated July 1, 1994
--------------------------------------------------------------------------------
10.15 Settlement agreement dated May 25, 1988 among Form 8-K dated 6-7-88
the Illinois Department of Nuclear Safety,
US Ecology, Inc. and American Ecology Corpor-
ation 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 1988 Form 10-K
Permit for Hazardous Waste Treatment, Storage
and Disposal (Part B) issued to US Ecology,
Inc. dated June 24, 1988
--------------------------------------------------------------------------------
10.17 Texas Water Commission Permit for Industrial 1988 Form 10-K
Solid Waste Management Site (Part B) issued to
Texas Ecologists, Inc. dated December 5, 1988
--------------------------------------------------------------------------------
23
<PAGE> 24
--------------------------------------------------------------------------------
10.18 Memorandum of Understanding between American 1989 Form 10-K
Ecology Corporation and the State of California
dated August 15, 1988
--------------------------------------------------------------------------------
10.19 United States Environmental Protection Agency 1989 Form 10-K
approval to dispose of non-liquid poly-
chlorinated biphenyl (PCB) wastes at the
Beatty, Nevada chemical waste disposal facility
--------------------------------------------------------------------------------
10.26 Amended and Restated American Ecology Proxy Statement dated
Corporation 1992 Stock Option Plan* 4-26-94
--------------------------------------------------------------------------------
10.27 Amended and Restated American Ecology Proxy Statement dated
Corporation 1992 Outside Director Stock Option 4-26-94
Plan*
--------------------------------------------------------------------------------
10.28 American Ecology Corporation 401 (k) Savings 1994 Form 10-K
Plan*
--------------------------------------------------------------------------------
10.29 American Ecology Corporation Retirement Plan* 1994 Form 10-K
--------------------------------------------------------------------------------
10.33 Lease Agreement between American Ecology Form S-4 filed 12-24-92
Corporation and VPM 1988-1, Ltd. dated
October 14, 1992
--------------------------------------------------------------------------------
10.34 Rights Agreement dated as of December 7, 1993 Form 8-K dated 12-7-93
between American Ecology Corporation and
Chemical Shareholders Services Group, Inc.
as Rights Agent
--------------------------------------------------------------------------------
10.36 Settlement Agreement dated September 24, 1993 1993 Form 10-K
by US Ecology, Inc., 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, 1993 Form 10-K
1994 by and among US 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 Form 8-K dated 2-3-94
American Ecology 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.
--------------------------------------------------------------------------------
10.50 Increase Additional Number of Share Options to Form S-8 dated 12-30-98
Directors Plan of 1992
--------------------------------------------------------------------------------
10.51 Increase Additional Number of Share Options of Form S-8 dated 12-20-99
1992 Employees Plan
--------------------------------------------------------------------------------
10.52 Amended and Restated American Ecology Proxy Statement dated
Corporation 1992 Outside Director Stock Option 4-8-98
Plan
--------------------------------------------------------------------------------
10.53 Amended and Restated American Ecology Proxy Statement dated
Corporation 1992 Stock Option Plan 4-12-99
--------------------------------------------------------------------------------
21 List of Subsidiaries 1994 Form 10-K
--------------------------------------------------------------------------------
23.2 Consent of Balukoff, Lindstrom & Co., P.A.
--------------------------------------------------------------------------------
27 Financial Data Schedule
--------------------------------------------------------------------------------
*Management contract or compensatory plan.
(b) REPORTS ON FORM 8-K
16.1 Change of Auditors Letter - November 25, 1996 Form 8-K
--------------------------------------------------------------------------------
10.44 Series E Redeemable Convertible Preferred Stock Form 8-K
- November 27, 1996
--------------------------------------------------------------------------------
24
<PAGE> 25
10.45 Third Amended & Restated Credit Agreement - Form 8-K
February 18, 1997
--------------------------------------------------------------------------------
10.48 Court Judgement Houston 88-January 26, 1998 Form 8-K
--------------------------------------------------------------------------------
10.49 Bank Restructure-Chase Bank of Texas N.A. Form 8-K
November 19, 1998
--------------------------------------------------------------------------------
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN ECOLOGY CORPORATION
(REGISTRANT)
Date: August 13, 2000 By: /s/ Jack K. Lemley
------------------
Jack K. Lemley
Chairman and Chief
Executive Officer
Date: August 13, 2000 By: /s/ James R. Baumgardner
------------------------
James R. Baumgardner
Senior Vice President and
Chief Financial Officer
26
<PAGE> 27
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
