-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Apri7XgsSbJCOez57bJtpMqT1XLdOsgwv/y82aMfOeFSqQaxg4+1BOl0BG2NfCfs I17CLSAfqOWGllBxcaYXEA== 0000950129-96-000991.txt : 19960523 0000950129-96-000991.hdr.sgml : 19960523 ACCESSION NUMBER: 0000950129-96-000991 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960522 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ECOLOGY CORP CENTRAL INDEX KEY: 0000742126 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 953889638 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11688 FILM NUMBER: 96570755 BUSINESS ADDRESS: STREET 1: 805 W IDAHO STREET 2: STE 200 CITY: BOSIE STATE: OH ZIP: 83702-8916 BUSINESS PHONE: 2083318400 MAIL ADDRESS: STREET 1: 5333 WESTHEIMER STREET 2: STE 1000 CITY: HOUSTON STATE: TX ZIP: 77056-5407 10-Q 1 AMERICANECOLOGY FORM 10-Q FOR 03/31/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1996 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) 331-0135 (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 April 30, 1996 Registrant had outstanding 7,825,628 shares of its Common Stock. 2 PART I FINANCIAL INFORMATION ITEM 1 Financial Statements AMERICAN ECOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($ in 000's)
March 31, December 31, 1996 1995 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 52 $ 229 Investment securities 495 523 Receivables - trade and other, net of allowance for doubtful accounts of $1,373, and $1,322 respectively 13,209 16,938 Income taxes receivable 5,745 5,339 Insurance claim receivable 2,538 2,538 Prepayments and other 1,326 1,675 ----------- ----------- Total current assets 23,365 27,242 Cash and investment securities, pledged 13,913 13,770 Property and equipment, net 21,273 21,764 Deferred site development costs 48,962 47,364 Intangible assets relating to acquired businesses, net 480 486 Other assets 3,490 3,499 ----------- ----------- Total assets $ 111,483 $ 114,125 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving credit loan $ 7,444 $ 6,416 Current portion of long term debt 797 780 Accounts payable 13,059 13,376 Accrued liabilities 18,012 21,022 Deferred site maintenance, current portion 1,757 1,763 ----------- ----------- Total current liabilities 41,069 43,357 Long term debt, excluding current portion 31,266 28,357 Deferred site maintenance, excluding current portion 20,098 20,387 Commitments and contingencies Shareholders' equity: Convertible preferred stock, $.01 par value, 1,000,000 shares authorized, none issued -- -- 8 3/8% series D cumulative convertible preferred stock, $.01 par value, 105,264 shares authorized, issued and outstanding (liquidation preference of $47.50 per share) 1 1 Common stock, $.01 par value, 20,000,000 shares authorized, 7,825,628 shares issued and outstanding 78 78 Additional paid-in capital 46,762 46,762 Unrealized gain (loss) on securities available-for-sale (743) (718) Retained earnings (deficit) (27,048) (24,099) ----------- ----------- Total shareholders' equity 19,050 22,024 ----------- ----------- Total Liabilities and Shareholders' Equity $ 111,483 $ 114,125 =========== ===========
See notes to consolidated financial statements. - 2 - 3 AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($ in 000's except per share amounts)
Three Months Ended March 31, ------------------------- 1996 1995 ---------- ---------- Revenues $ 12,150 $ 19,750 Operating costs 12,543 18,972 ---------- ---------- Gross profit (loss) (393) 778 Selling, general and administrative expenses 3,317 3,753 ---------- ---------- Loss from operations (3,710) (2,975) Investment income (180) (134) Gain on sale of assets (13) (41) Other income (229) (237) ---------- ---------- Loss before income taxes (3,288) (2,563) Income tax benefit (329) (666) ---------- ---------- Net loss (2,959) (1,897) Preferred stock dividends 104 -- ---------- ---------- Net loss available to common shareholders $ (3,063) $ (1,897) ========== ========== Net loss per share, primary $ (.39) $ (.24) ========== ========== Dividends paid per common share $ -- $ .025 ========== ==========
See notes to consolidated financial statements. - 3 - 4 AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($ in 000's)
Three Months Ended March 31, --------------------------------- 1996 1995 ------------ ------------ Cash flows from operating activities: Net loss $ (2,959) $ (1,897) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 917 2,081 Deferred income tax provision (benefit) (406) 728 Gain on sale of assets (7) (41) Changes in assets and liabilities Receivables 3,729 4,707 Investment securities classified as trading 28 86 Other assets 271 (430) Accounts payable and accrued liabilities (3,328) (1,769) Deferred site maintenance (295) (469) ----------- ----------- Total adjustments 909 4,893 ----------- ----------- Net cash provided by (used in) operating activities (2,050) 2,996 ----------- ----------- Cash flows from investing activities: Capital expenditures (393) (1,717) Site development costs, including capitalized interest (1,598) (1,516) Proceeds from sales of property and equipment 53 54 Transfers from cash and investment securities, pledged (143) 127 ----------- ----------- Net cash used in investing activities (2,081) (3,052) ----------- ----------- Cash flows from financing activities: Proceeds from issuances of indebtedness 10,859 8,070 Repayments of indebtedness (6,905) (8,050) Payment of cash dividends -- (195) ----------- ----------- Net cash provided by (used in) financing activities 3,954 (175) ----------- ----------- Increase (decrease) in cash and cash equivalents (177) (231) Cash and cash equivalents at beginning of period 229 231 ----------- ----------- Cash and cash equivalents at end of period $ 52 $ -- =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ -- $ 7 Income taxes -- 48
See notes to consolidated financial statements. - 4 - 5 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 1994 Annual Report on Form 10-K for the year ended December 31, 1995, as filed with the Securities and Exchange Commission. Certain reclassifications have been made in prior period financial statements to conform to the current period presentation. NOTE 2. LONG-TERM DEBT On June 30, 1995, the Company refinanced its prior bank debt under the terms of a Second Amended and Restated Credit Agreement ("Credit Agreement"). The secured bank credit facility matures on December 31, 1998 and is comprised of a $27,000 term Loan ("Term Loan"), an $8,000,000 revolving credit loan ("Revolver"), and a $5,000,000 standby letter of credit facility. Accelerated Term Loan principal repayments are due upon occurrence of certain contingent events, including the opening of the Ward Valley Facility and sales of assets. Upon closing of the Credit Agreement on June 30, 1995, the lender bank agreed to accept a note, known as the Fee Capitalization Note, from the Company to capitalize the fees associated with the Credit Agreement. The note, which provides for borrowings up to $4,000,000, includes an initial amount of $1,000,000 representing the fees (including previously deferred fees) to compensate the bank for the restructured commitment. The Fee Capitalization Note matures on December 31, 1998 and is entitled to the benefits of the Credit Agreement. The bank has the option of requiring payment of the Fee Capitalization Note with shares of the Company's common stock. As of March 31, 1996 the Company had borrowings of $38,433,000 outstanding under its Credit Agreement. The outstanding balance under the Revolver is included as a component of current liabilities based on the terms of the Credit Agreement. Interest on the Term Loan and Revolver is accrued daily at a rate equal to the bank's prime rate, as it changes, plus 1% with that rate increasing by 0.25% each calendar quarter. As of March 31, 1996 the Company's actual accrual interest rate was 9.75%. Each month, the Company pays interest at a rate, known as the pay rate, which is equal to the bank's prime rate, as it changes. As of March 31, 1996, the actual interest rate was 8.25%. The incremental difference between the accrual rate and the pay rate calculated each month is capitalized into the Fee Capitalization Note. Each month, the Company accrues and pays interest on the Fee Capitalization Note at a rate equal to the bank's prime rate, as it changes, which was 8.25% at March 31, 1996. On February 7, 1996 the Company entered into an agreement (First Amendment to Second Amended and Restated Credit Agreement) with its bank for the issuance of a note, the Advance Note, in the amount of $4,000,000. This note was issued to provide the Company working capital funds over and above the availability of the Revolver and matures on the earlier of June 30, 1996 or upon obtaining the tax refund attributable to carrybacks of 1995 tax losses or other receipts, as defined. Interest on the Advance Note accrues at a rate equal to the bank's prime rate, as it changes, plus 1.5% and is paid monthly by the Company. The Advance Note is entitled to the benefits of the Credit Agreement. Also on February 7, 1996 the bank issued a $1,100,000 standby letter of credit on behalf of the Company. Borrowings under the Credit Agreement are secured by substantially all of the Company's assets. Additionally, the holders of the Company's 8 3/8% Series D Cumulative Convertible Preferred Stock have pledged the preferred stock as security for the Credit Agreement. The Credit Agreement requires, among other things, the maintenance of certain financial covenants including (i) minimum consolidated net worth, as defined, of $18 million through June 30, 1996 and minimum consolidated net worth to remain at the June 30, 1996 level for the remainder of 1996, subject to certain adjustments thereafter, and (ii) minimum monthly and quarterly earnings, as defined, of $250,000 and $1 million, respectively, for the third and fourth quarters of 1996, subject to certain adjustments thereafter. Further, the Credit Agreement requires the Company to maintain a lock box arrangement for cash receipts with the bank and restricts the Company from additional borrowings, prohibits payment of dividends on common stock, and limits capital expenditures. Under the terms of the Credit Agreement, the bank may accelerate the maturity of debt in the event of violation of any covenant of the Credit Agreement or if a material adverse event is deemed by the bank to have occurred. The Company has obtained waivers from the bank for certain financial and other covenant violations during 1995 and for the first and second quarters of 1996. If the Company is unable to remain in compliance with the terms of the Credit Agreement or is unable to obtain additional waivers in the event of a default and the bank accelerates maturity of the Credit Agreement, the Company does not have adequate financial resources to retire the debt. As a result, the Company's operations may be negatively impacted. While management believes the Company will be able to remain in compliance with the terms of the Credit Agreement or obtain waivers in the event of default, there are no assurances such levels of compliance will be achieved or further forebearance will be provided by the bank. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity. - 5 - 6 NOTE 3. DEFERRED SITE DEVELOPMENT COSTS The Company has been selected to locate, develop and operate the low-level radioactive waste ("LLRW") facilities for the Southwestern Compact ("Ward Valley facility") and the Central Interstate Compact ("Butte facility"). The license application for the Southwestern Compact was approved by the California Department of Health Services ("DHS") in September 1993. All costs related to the development of the Ward Valley facility have been paid and capitalized by the Company. As of March 31, 1996, the Company had deferred $42,270,000 of pre-operational facility development costs of which $4,591,000 was capitalized interest. These deferred costs relating to the development of the Ward Valley facility are expected to be recovered during the facility's 20 year operating period from future waste disposal revenues based upon disposal fees approved by the DHS in accordance with existing state rate-base regulations. The disposal fee approval process is expected to include an independent prudency review of all the pre-operational costs incurred by the Company prior to their inclusion in the rate-base. The Company expects all of the costs which it has deferred for this facility, plus additional, unrecognized project interest costs to be included as a component of the rate-base; however, there can be no assurance that all of the costs will be approved by the DHS. Allowable costs incurred by the Company for the development of the Butte facility are reimbursed under a contract with the Central Interstate LLRW Compact Commission ("CIC") and are recognized as revenues. Substantially all funding to develop the Butte facility is being provided by the major generators of the waste in the CIC. As of March 31, 1996, the Company has contributed and deferred approximately $6,692,000, of which $600,000 was capitalized interest, toward the development of the Butte facility and no additional capital investment is expected to be required from the Company prior to granting of the license. The Company expects all of the costs which it has deferred for this facility plus additional, unrecognized project interest costs to be included as a component of the rate-base; however, there can be no assurance that all of these amounts will be realized. The construction and operation of the Ward Valley and Butte facilities are currently being delayed by various political and environmental opposition toward the development of the sites and by various legal proceedings. At this time, it is not possible to assess the length of these delays or when, or if, the Butte facility license will be granted, and when, or if, the land for the Ward Valley facility will be obtained by the State of California. Although the timing and outcome of the matters referred to above are not presently determinable, the Company continues to actively urge the conveyance of the land from the federal government to the State of California so that construction may begin, and to actively pursue licensing of the Butte facility. The Company believes that the Butte facility license will be granted, operations of both facilities will commence and that the deferred site development costs for both facilities will be realized. In the event the Butte facility license is not granted, operations of either facility do not commence or the Company is unable to recoup its investments through legal recourse, the Company would suffer losses that would have a material adverse effect on its financial position and results of operations. In 1994, the Company began to capitalize interest in accordance with Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost, on the site development projects while the facilities being developed are undergoing activities to ready them for their intended use. Interest capitalized during the three month periods ended March 31, 1996 and 1995 was $942,000 and $705,000, respectively. - 6 - 7 NOTE 4. NET LOSS PER SHARE The calculation of net loss per common and common equivalent share for the three months ended March 31, 1996 and 1995, respectively, is as follows:
(000's except per share amounts) Three Months Ended March 31, ----------------------- 1996 1995 ---------- ---------- Net loss $ (2,959) $ (1,897) Adjustments to net loss: Preferred stock dividends 104 -- ---------- ---------- Adjusted net loss available to common shareholders (3,063) (1,897) Weighted average shares outstanding: Common shares outstanding at end of period 7,826 7,819 Effect of using weighted average common and common equivalent shares outstanding 4 -- ---------- ---------- Shares used in computing loss per share 7,822 7,819 ========== ========== Net loss per common equivalent share $ (.39) $ (.24) ========== ==========
NOTE 5. COMMITMENTS AND CONTINGENCIES Other than the information set forth in Part II, Item I, herein, there have been no other significant changes to any commitments and contingencies as described in Note 13 to the financial statements included in the Company's 1995 Annual Report on Form 10-K. - 7 - 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. CAPITAL RESOURCES AND LIQUIDITY The Company has incurred recurring losses from operations, had a working capital deficit of $17,704,000 as of March 31, 1996, and is currently experiencing difficulty paying its on-going obligations as they become due. The Company has been successful in improving some of its short-term operating results which may help relieve this situation. Of course, the Company cannot be certain about its ability to further improve short-term operating results. The Company's financial statements as of March 31, 1996, do not contain any adjustments to asset carrying amounts or for the amount of liabilities that might result from asset liquidations or discontinued operations. Management's actions and plans to address these issues are as follows: Credit Agreement Effective June 30, 1995, the Company and its bank lender amended the existing Credit Agreement to extend the maturity of the Credit Agreement to December 31, 1998, and to modify certain other terms. A description of the Credit Agreement as so amended is set forth in Note 2 of "Item 1 - Financial Statements". As of March 31, 1996, the Company had available borrowings of $1,840,000 under its Credit Agreement. Strategic Plan The Company has adopted a strategic plan focusing on its low-level radioactive waste disposal and processing operations and its chemical waste disposal and processing operations as separate businesses. The Company has been reorganized under those respective lines and conducts its radioactive waste disposal and processing under the name U.S. Ecology Company and conducts its chemical business under the name American Ecology Chemical Services Company. One purpose of the reorganization is to facilitate potential strategic alliances with other companies which may provide additional sources of capital and open greater opportunities. Senior Management Changes The Company has appointed two new officers, a Treasurer and a Vice-President of Administration. Measures to Reduce Costs The Company continues the effort which began early in 1995 to reduce costs. These include further reducing personnel, among them certain members of senior management, and various sales, operating, and administrative personnel. The Company is decentralizing responsibility to the LLRW and chemical waste operating groups and has transferred most of the functions formerly performed at the corporate office to the operating divisions to drastically reduce corporate overhead. Other than the capital required for developing the Ward - 8 - 9 Valley facility and for regulatory compliance at the Winona facility, the Company has deferred almost all other capital expenditures planned for 1996. The Company is also evaluating the viability of certain other operations and their current potential to perform at an acceptable level. As a consequence of the personnel reductions and the reorganization, effective March 1, 1996, the corporate office was relocated to smaller space in Boise, Idaho and negotiations are in progress to sublease the corporate office space in Houston, Texas. The Company believes that it has a viable plan to improve its cost structure and operating results. However, considering, the Company's recent losses and insufficient cash flow from operations, there can be no assurance that this plan will resolve the Company's liquidity problem in a timely fashion. The Company will more likely than not need to raise additional financing or sell assets. There can be no assurance, however, that any such financing or asset sales will be consummated. In either event, the Company may experience increasing cash flow problems which could cause the Company to materially reduce the current level of its operating activities. For the three months ended March 31, 1996, the Company had negative cash flows from operations of $2,050,000, spent $393,000 for capital expenditures, invested $656,000 in site development costs for the Ward Valley facility and incurred capitalized interest of $942,000 related to the Ward Valley and Butte facilities. FUTURE CONSIDERATIONS As a result of the changes to its management and operations in 1996, the Company believes that the future operating results of its existing businesses will improve, although no assurances can be given that such improvements will occur. In addition, the Company expects to receive federal income tax refunds of approximately $6,700,000 during the second quarter of 1996. In April 1996, $5,947,000 of such tax refunds were received and $4,000,000 of the proceeds was used to pay down a short-term bank loan entered into in February 1996. The Company is also currently negotiating insurance claims relating to the July 1994 fire at the Recycle Center and expects to settle such claims in the near future. The Company has a $2,538,000 receivable recorded for these claims at March 31, 1996. In May 1996, the Company received a $1,800,000 portion of the claim, which will be used to replace property and equipment damaged in the fire. - 9 - 10 RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 AND 1995 The Company reported a net loss of $2,959,000 for the three months ended March 31, 1996, compared to a net loss of $1,897,000 for the three months ended March 31, 1996. REVENUES Revenues for the first quarter of 1996 decreased $7,600,000, or 62% decline, compared to the first quarter of 1995. Low-level radioactive waste ("LLRW") revenues decreased $3,873,000. LLRW remediation project revenues decreased due to the completion of certain projects. Revenues for the Richland, Washington, disposal facility were $1,118,000 for the quarter, a decrease of $65,000 from the prior year period due to severe weather conditions in the Northwest. Chemical waste revenues increased $3,539,000. Disposal revenues generated by the Company's chemical waste landfill operation in Beatty, Nevada, decreased by approximately $450,000 due principally to weather related volume reductions. OPERATING COSTS Total operating costs decreased $6,429,000 for the first quarter of 1996 as compared to the first quarter of 1995 for a variety of reasons. While the Winona facility has incurred operating losses since its acquisition, these losses have decreased. The Recycle Center for the first time should make a profit this next quarter and is demonstrating a positive trend in operating results on increased revenues from recapturing a portion of the market share lost prior to being acquired. In addition to regaining market share and leveraging its niche technical services, the Recycle Center is entering the relatively high margin service markets of scanning potentially radioactive soils and then disposing of them. Other decreases in operating costs resulted from the decline in site development activities related to the Butte facility, decreases in subcontracted field services and transportation costs at the Beatty facility, and decreases in LLRW brokerage and remedial services. - 10 - 11 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES For the quarter ended March 31, 1996 selling, general and administrative expenses ("SG&A") decreased $436,000 as compared to the quarter ended March 31, 1995. During the same period, corporate overhead decreased by approximately $36,000 due to reductions in corporate personnel, a decrease in amortization of deferred debt issuance costs and other cost saving measures taken by the Company over the last 12 months as described under the caption Capital Resources and Liquidity. INVESTMENT INCOME Investment income is comprised principally of interest income earned on various investments in securities held-to-maturity, and dividend income and capital gains and losses earned on the Company's preferred stock portfolio classified as trading securities. As of March 31, 1996, the Company reported an unrealized loss of $180,000, on securities available-for-sale as a component of shareholders' equity. The realized gains or losses on securities available-for-sale are included as a component of investment income when realized. INCOME TAXES For the three months ended March 31, 1996, the Company reported an effective income tax benefit rate of 10%. The 1996 tax benefit rate is substantially lower than the statutory rates due to the Company's inability to recognize deferred tax benefits for net operating loss carryforwards. - 11 - 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The Company's business inherently involves risks of unintended or unpermitted discharge of materials into the environment. In the ordinary course of conducting its business activities, the Company becomes involved in judicial and administrative proceedings involving governmental authorities at the federal, state and local levels (including, in certain instances, proceedings instituted by citizens or local governmental authorities seeking to overturn governmental action where governmental officials or agencies are named as defendants together with the Company or one or more of its subsidiaries, or both). In the majority of the situations where regulatory enforcement proceedings are commenced by governmental authorities the matters involved relate to alleged technical violations of licenses or permits pursuant to which the Company operates or of laws or regulations to which its operations are subject, or are the result of different interpretations of the applicable requirements. In addition, the Company and certain of its subsidiaries are involved in civil litigation relating to the conduct of their business. While the outcome of any particular lawsuit or governmental investigation cannot be predicted with certainty, the Company believes that the ultimate disposition of these matters will not have a material adverse effect upon the consolidated financial position of the Company. Richland, Washington Facility. In 1964, the Washington Department of Ecology ("WDOE") leased from the DOE a 1,000 acre portion of the Hanford Reservation. In 1965, the WDOE subleased 100 acres of that property to the Company for use as a Low-Level Radioactive Waste ("LLRW") disposal facility under the regulation of the Washington Department of Health pursuant to the Atomic Energy Act. In 1990, the DOE applied to the EPA for a permit under the Resource Conservation and Recovery Act of 1976, as amended ("RCRA") and other laws and regulations to obtain the appropriate regulatory approvals needed to proceed with the environmental cleanup of the Hanford Reservation. In 1994, the EPA issued a corrective action permit that includes most of the land owned by the DOE at the Hanford Reservation, including that portion leased to WDOE, which includes the 100 acres subleased to the Company for its LLRW disposal facility. Since the Company's Richland, Washington facility is located on land owned by the DOE, the EPA considered the Company's disposal site to be part of the "Facility" covered by the RCRA permit. Thirteen trenches at the Company's LLRW disposal facility have been included in the final permit as "solid waste management units" which may require further investigation to determine whether releases of any hazardous wastes have occurred. Because portions of the Company's facility remain included in the final permit issued to the DOE, the Company is potentially subject to proposed permit conditions for site investigation and possible cleanup should any releases be discovered even though the Company is not a permittee and though it was not involved in the activities contributing to the DOE Hanford facility contamination that are the subject of the DOE Hanford consent order. It is the Company's opinion that it has legal defenses that may preclude the inclusion of its Hanford site in the DOE permit and to any corrective action relating to the LLRW disposal facility that may be proposed pursuant to the DOE permit. Both the Company and the DOE have appealed to the Environmental Appeals Board ("EAB") of the EPA those terms of the permit that may potentially apply to any of the Company's facilities. That appeal has been stayed during protracted negotiations with the EPA, DOE, Washington Department of Ecology and Washington Department of Health. The purpose of the negotiations is to determine whether an agreeable process for site investigation can be negotiated. It appears at this time that all parties will agree upon a method of sampling below certain trenches and testing for hazardous constituents under RCRA. All parties to the appeal before the EAB have requested a two-year stay while the negotiations are completed and the Company conducts the site investigation. The EAB recently issued an order dismissing the Company's appeal without prejudice to raising the identical issues in any subsequent appeal and remanding the matter to the EPA to modify the permit if necessary. The order specifically allows any party to resume the appeal if negotiations fail. The EPA does not believe a modification is necessary (thereby obviating the need for the Company to file another appeal at this time). The Company is presently negotiating an agreement with state agencies for a Company investigation of the site. Depending on the results of the site investigation, the cost of conducting the site investigation and any corrective action, if any, could be material. As part of its negotiations, the Company is seeking to have all the costs of investigations and any resultant corrective actions included in its rate base. As of December 31, 1995, the Company had not recognized any liability in its financial statements for any costs associated with the site investigation because the site investigation terms have not been determined and the costs of any site investigation may be recovered in the rate base. In 1992, the Benton County assessor issued property tax assessments on improvements owned by the Company and located on the Company's leasehold at the Hanford Reservation. The increased property taxes totaled $1.7 million for the years 1989, 1990 and 1991. Prior to 1989, the annual taxes had been about $5,400. The Company sued Benton County and the Assessor and Treasurer to enjoin them from collecting these taxes. An injunction was granted by the Benton County Superior Court but overturned by the State Court of Appeals which ruled that the Company should first pursue all of its administrative remedies. Accordingly, the Company has prosecuted its - 12 - 13 appeal to the State Board of Tax Appeals. A hearing was held in November 1995. A decision is expected in 1996. The Company has recently been assessed an additional $1.9 million in taxes for 1992, 1993 and 1994. Management believes that Benton County's assessments were improper and intends to vigorously defend this matter in the courts and through any appropriate administrative process, if necessary. The Company has not recognized any liability in its financial statements for any of the tax assessments discussed above. Winona, Texas Facility - The Company purchased the stock of Gibraltar Chemical Resources, Inc. ("Gibraltar"), since renamed American Ecology Environmental Services Corporation, from Mobley Environmental Services, Inc. ("Mobley") on December 31, 1994. The Company's stock purchase agreement with Mobley provides that Mobley will indemnify the Company, without limitation as to amount, for any damages or costs, including legal fees, associated with certain pre-closing liabilities, including the claims set forth hereunder. Pursuant to its stock purchase agreement with Mobley, the Company was also named as an additional insured for a one year period (1995) for pre-closing claims under Mobley's pollution liability insurance policy. The policy has a $10 million aggregate limit and a $5 million per loss limit. Permit renewal filings were made for the Winona, Texas facility in November 1994 and a hearing on the renewal was held November 28, 1995. The renewal of the Permits is required under Part B of RCRA and other environmental regulatory laws. There is active opposition in the local area to the renewal of these permits. This matter will be determined by the TNRCC, and the Company expects a final determination in late 1996. If these permits are not ultimately renewed, such result could have a material adverse effect on the Company's consolidated financial position and results of operations. A group called Mothers Organized to Stop Environmental Sins filed a lawsuit in 1994 against the Company in the United States Eastern District Court for the State of Texas alleging that the Winona facility violated certain permits and regulations, and contributed to the handling, storage, treatment, transportation and disposal of solid and hazardous waste that presents an imminent and substantial endangerment to health and the environment. The plaintiffs have requested that the facility be shut down and civil penalties imposed on the Company. The Company has filed a Motion for Summary Judgment in this matter and the Court has granted a partial summary judgment but has yet to rule on all issues presented in the Motion. In December 1995, legal counsel was retained by the Company in connection with a potential conflict of interest which arose from the October merger of a law firm retained by the Company in other matters with the law firm representing the plaintiff's counsel. The Company is in the process of preparing a motion to disqualify plaintiffs' counsel in this matter. The case is in its initial phases of discovery and it is too early to accurately evaluate this case. The Company believes there is no factual background to support this claim and intends to vigorously defend this case. Four lawsuits, including one purported class action, were filed against Gibraltar in 1992 and 1993 which are pending in State District Court in Smith County, Texas, by certain persons in Winona, Texas. In August 1995, another lawsuit was filed in Dallas County, Texas by other Winona citizens. The suits assert various theories of liability, including subsurface trespass, nuisance per se, negligence, gross negligence, and fraudulent concealment for alleged air emissions. The suits also allege that the plaintiffs have experienced personal injuries, diminution in property values, and other economic losses which are alleged to have been caused by operation of the Winona facility. The plaintiffs assert various grounds for recovery, and seek unspecified altered and punitive damages. On August 4, 1995, a jury in one of the lawsuits found that the Company's Winona facility did not use or possess the plaintiffs' property and awarded nothing in damage. To date, the Company and Mobley have settled certain of the plaintiffs' claims in these actions for amounts that were not material and which were funded by the Mobley insurance policy referred to above. In 1992, a citizens group filed a petition with the TNRCC for revocation of the Winona facility's deepwell permits alleging that a geological fault exists in the vicinity of the Winona facility's deepwells and other alleged grounds. The EPA has previously concluded in its proceedings relating to the Winona facility's second injection well that no such fault exists. There has been a recent filing with TNRCC by the opponents asking that there be a - 13 - 14 decision made on the revocation request. At this time we know of no response by the agency to that filing. The Company believes the petition is without merit. Compact Related Disputes. The Company is involved in numerous challenges and legal proceedings in connection with its siting efforts for LLRW facilities for the Southwest Compact and Central Interstate Compact. For a description of these proceedings, see "Business - Low-Level Radioactive Waste Services - Disposal Services - Proposed Ward Valley, California Facility" and "- Proposed Butte, Nebraska Facility". A claim has been made by the Central Interstate Low-Level Radioactive Waste Commission ("Commission") against the Company in a letter dated May 1, 1995, in the amount $195,000, resulting from bonuses paid by the Company to certain of its employees for the period July 1987 through December 1993. The Commission apparently reimbursed the Company for the payment of these bonuses and now is claiming that the reimbursement was not authorized under the contract between the Company and the Commission. The Company has disputed the claim and believes such reimbursement was proper. The parties have attempted to negotiate a settlement but as of this time none has been reached. The Company believes that a settlement can be reached. There has been no threat of suit as of this time. In August 1995, the Company and the Southeast Compact Commission reached a mutually acceptable agreement on past access fee assessments incurred by Quadrex Corporation, the previous parent company of the Recycle Center. The Company had received and objected to invoices from the Southeast Compact for approximately $1.5 million and a notice that an additional $1.5 million could also be subsequently invoiced. In disputing the assessment fees the Company argued that the fees were calculated on abnormal past waste volumes shipped to the Barnwell, South Carolina disposal facility. The assessment calculations included extraordinary cleanup events at the Recycle Center that were not indicative of normal operations. In August 1995, the Southeast Compact Commission agreed to recalculate the fee assessment on an average of normal historical waste disposal volumes. This action resulted in a total access fee liability of $206,156 which the Company paid during 1996. The Company had previously recognized this liability in its consolidated financial statements. Other Litigation. The City of San Antonio filed suit against several parties related to environmental issues in connection with the acquisition, development and construction of a bus transit station and multi-purpose dome stadium and sports complex, commonly known as the Alamodome. The City named as the defendants: the former owner of the property, various consultants involved in the project, the project manager, and a subsidiary of the Company which served as the construction contractor for the project. The City alleged that its consultants failed to advise the City that the site selected for construction of the Alamodome was environmentally contaminated, thereby breaching their contracts and committing torts. The City also alleged that following the discovery of actual or potential environmental problems, that the consultants and project manager failed to act properly in handling allegedly contaminated soil and groundwater. Various citizen groups raised concerns over the on-site landfill and lobbied the TNRCC to force the City to move the landfill off-site. In June 1994, the TNRCC wrote a letter to the City stating that the agency believed that the on-site landfill should be removed. During the summer and fall of 1995, the on-site landfill was removed. In January 1996, the Company's insurance carrier and the City of San Antonio reached an agreement to settle the City's claim against the Company. Prior to such settlement, however, one of the defendants filed a cross claim against the Company. The Company has filed two motions for Summary Judgment and a hearing was held March 29, 1996 on one such motion. The Company is unable to predict the outcome of this cross claim. In November 1994, the Company was named as a defendant in a purported class action lawsuit by former employees of Quadrex that relates to unpaid medical benefits and an underfunded pension plan of Quadrex. Based on information available to it, the Company believes that the aggregate amount of these claims are less than $1 million. The Company purchased the assets of the Quadrex Recycle Center from Quadrex on September 19, 1994. However, the asserted claims in the purported class action were specifically excluded by the purchase agreement pursuant to which the Company purchased the assets of the Quadrex Recycle Center. Some of the former Quadrex employees on whose behalf the suit was brought are now employees of the Company. The - 14 - 15 Company does not believe it has any liability in this matter and as such has not recognized any liability in its financial statements. The Company intends to contest the matter vigorously. The Company's purchase agreement with Quadrex provides that Quadrex will indemnify the Company for any damages or costs, including legal fees, associated with a claim of this sort. However, because Quadrex filed for bankruptcy protection in February 1995, it is very likely that the Company will not realize the benefits of such indemnification. In September 1994, an unfair labor practice charge was filed against the Company by the Oil, Chemical and Atomic Workers International Union ("Union"). The Complaint alleges that the Company and Quadrex have operated as joint employers at the Oak Ridge, Tennessee facility during the period April 8, 1994 to September 1, 1994. As a result of this contention, the National Labor Relations Board ("NLRB") asserts that the Company was obligated at all times since April 8, 1994 to assume and abide by the collective bargaining agreement negotiated by the Union and Quadrex. A hearing was held on December 12, 1995 before an administrative law judge of the NLRB. If the NLRB prevails in this action, the Company will be liable for any and all variances for the collective bargaining agreements since April 8, 1994. The Company recognized a liability of $447,000 in its consolidated financial statements during 1995 for the estimated settlement of this claim. The Company has received a notice from an individual purporting to own debt secured by certain real property in Midlothian, Texas. The individual alleges that a predecessor of the Company's subsidiary, Texas Ecologists, caused environmental contamination of the property in the early 1970's. The Company believes it has no liability in connection with the matter and intends to contest the matter vigorously. In connection with its investigation of the matter, the Company also conducted its own assessment of the property with an independent environmental consultant and concluded that any contamination on the property falls below material levels. In April 1995, management learned that one of its subsidiaries had not always complied with the transit time limitations allowed for hazardous waste being transferred from generators to final disposal sites. These requirements are under the regulatory supervision of the TNRCC and the Company promptly reported the situation to the TNRCC. As a result of an internal review of this matter, the Company determined that there was a substantial number of instances where the transit time limitations were exceeded over approximately eight months from June 1994 through February 1995. As a direct result of this circumstance, the Company has reorganized the operations of the subsidiary, including the replacement of a number of personnel, and the adoption of stronger internal systems for monitoring the movement of boxes and transportation vehicles. At this time, the Company does not know whether the TNRCC will ultimately assess any fines against the Company for exceeding transit time limitations. While the Company believes the steps that it has taken are appropriate and responsible, it is possible that the TNRCC may seek to impose a fine on the Company in connection with the matter. The Company is not in a position to assess the amount of such a fine. However, a fine of sufficient magnitude could have a material adverse effect upon the consolidated financial position of the Company. In 1990, the Company was sued by certain landowners owning property adjacent to the Robstown, Texas facility. The landowners have alleged that there has been migration of pollutants through groundwater which has contaminated the subterranean reservoir and other water resources on their respective properties. These landowners have alleged theories including nuisance per se, negligence and trespass. The case had a trial date in September 1995. However, the landowners' counsel withdrew prior to the trial date and to our knowledge, they have yet to obtain new counsel. The case has been continued. The Company's investigation has found no migration of pollutants onto the adjacent landowners' properties and the Company intends to contest this matter vigorously. In 1992, the U.S. EPA initiated an administrative enforcement action against US Ecology and alleged in its complaint that the Company had failed to comply with certain regulatory requirements to provide financial assurances for closure and post-closure costs as well as liability insurance relating to its hazardous waste management facility in Sheffield, Illinois. The EPA is seeking a penalty of approximately $1 million and ordering compliance. The Company ceased operating that facility in 1983 and it has been undergoing closure and corrective action pursuant to regulatory requirements and a RCRA 3008(h) Consent Order since that time. - 15 - 16 Because the Sheffield facility has not been an interim status facility under the RCRA regulations since November of 1985, the Company has responded that the interim status regulatory requirements for financial assurance and liability insurance do not apply to the facility. Moreover, the Company has objected to the penalties demanded by U.S. EPA in its complaint as entirely unwarranted. Recently, the administrative law judge has ruled that the Sheffield facility is subject to the RCRA regulatory requirements for financial assurance and liability insurance, notwithstanding its loss of interim status in 1985. The Company has appealed that decision to the Environmental Appeals board. The penalty amount, if any, has yet to be litigated or decided. Though the outcome of this matter is uncertain, the Company believes these insurance requirements are not applicable to this closed site and intends to vigorously contest this matter. As of December 31, 1995, the Company had not recognized any liability in its financial statements for the penalty. Since 1987, the Company has been engaged in litigation with many of its former insurers regarding coverage for environmental damages at two facilities formerly operated by the company. The Company has been seeking coverage for costs arising from its Sheffield, Illinois waste facility which ceased receiving waste in 1983. Most of the defendant-insurers entered into settlement agreements with the Company. Several of the insurers continued to litigate, however, and moved for summary judgment on the grounds that the Company either knew of its loss at the Sheffield facility before the subject insurance policies were issued or failed to notify the insurers of the occurrences at the Sheffield facility as soon as practicable. In September 1995, the Bureau County Circuit Court granted summary judgment in favor of the remaining insurers on grounds of both known loss and late notice. The Company has filed a notice of appeal from that ruling with respect to certain of those insurers. The Company has been litigating against the same insurers with respect to the Maxey Flats waste disposal facility which the Company operated in Kentucky through the mid-1970's. All but two of the insurers have entered into settlement agreements with the Company regarding that dispute. The Circuit Court of Jefferson County, Kentucky has denied several major motions of the insurers for summary judgment and discovery is now proceeding with respect to the remaining issues in the litigation. In October 1995, Boston Edison Company ("Boston Edison") filed a complaint against U.S. Ecology, Inc. (the "Company") in the United States District Court of Massachusetts alleging claims related to the Company's alleged failure to indemnify Boston Edison for various costs arising out of the shipping and burial of waste materials at the Maxey Flats Nuclear Disposal Site. The Company had entered into a series of contracts with Boston Edison to provide radioactive waste disposal services at this site. Boston Edison alleges that the Company breached these contracts because the Company failed to indemnify Boston Edison for its costs. Boston Edison also alleges that the Company committed an unfair and deceptive trade practice in the State of Massachusetts because of its failure to indemnify Boston Edison as required by these contracts. Finally, Boston Edison seeks a declatory judgment that would set forth the contractual rights and liabilities of the parties. Boston Edison claims $600,000 in past and future costs for the alleged breach of the contracts. It also seeks treble damages equal to three times the actual damages caused by the Company's alleged violation of the Massachusetts Deceptive Trade Practices Act. At this time, the Company is not in a position to predict a favorable or unfavorable outcome of this case or the amount of potential loss, if any, which might result to the Company if the outcome in this matter was unfavorable. The Company intends to answer the complaint and defend this action vigorously. In addition to the above described litigation, the Company and its subsidiaries are involved in various other administrative matters of litigation, including personal injury and other civil actions, as well as other claims, disputes and assessments that could result in additional litigation or other proceedings. The Company and its subsidiaries are also involved in various other environmental matters or proceedings, including permit application proceedings in connection with the established operation, closure and post-closure activities of certain sites, as well as other matters or claims that could result in additional environmental proceedings. - 16 - 17 Management has established reserves as deemed necessary for the matters discussed above based on management's estimates of the outcome. It is reasonably possible that the Company's estimates for such matters will change in the near term. Due to the Company's current financial condition and liquidity issues, management is unable to conclude that the outcome of these claims, disputes and other matters described above and adjustments, if any, which may result from these matters will not have a material adverse effect on the operations or financial position of the Company. ITEM 2 Changes in Securities None ITEM 4 Submission of Matters to a Vote of Security Holders None ITEM 6 Exhibits and Reports on Form 8-K a. Exhibits 27 Financial Data Schedule b. Reports on Form 8-K None -17- 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN ECOLOGY CORPORATION (REGISTRANT) Date: May 21, 1996 By: /s/ Jack K. Lemley ------------------------------------- Jack K. Lemley Chairman of the Board and Chief Executive Officer Date: May 21, 1996 By: /s/ Edmund J. Gorman ------------------------------------- Edmund J. Gorman President and Chief Operating Officer (Principal Financial and Accounting Officer) -18- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 MAR-31-1996 52 0 14,582 1,373 0 23,365 44,278 23,005 111,483 41,069 32,063 78 0 1 18,971 111,483 12,150 12,150 12,543 12,543 3,317 51 0 (3,288) (329) 0 0 0 0 (2,959) (.39) (.39)
-----END PRIVACY-ENHANCED MESSAGE-----