-----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, MNo7OPhQMO55vJz5YAfgzW5ILWkiYEt4EgnRZQ4K0pD1Gl8N65t//q+TV414GgJp SlJf3o+pKCYqe4F8D+wFvQ== 0000950129-96-001915.txt : 19960816 0000950129-96-001915.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950129-96-001915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96614492 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 AMERICAN ECOLOGY CORPORATION - DATED 06/30/96 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 June 30, 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) 331-8400 --------------------------------------------------- (Registrants telephone number, including area code) Indicate by a check mark whether Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / At June 30, 1996 Registrant had outstanding 7,904,172 shares of its Common Stock. 2 PART I FINANCIAL INFORMATION ITEM 1 Financial Statements AMERICAN ECOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($ in 000's)
June 30, December 31, 1996 1995 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 1,754 $ 229 Investment securities 852 523 Receivables - trade and other, net of allowance for doubtful accounts of $1,293 and $1,322 respectively 15,737 16,938 Income tax receivable 740 5,339 Insurance claim receivable 727 2,538 Prepayments and other 1,996 1,675 ----------- ----------- Total current assets 21,806 27,242 Cash and investment securities, pledged 13,446 13,770 Property and equipment, net 20,252 21,764 Deferred site development costs 50,168 47,364 Intangible assets relating to acquired businesses, net 474 486 Other assets 3,631 3,499 ----------- ----------- Total assets $ 109,777 $ 114,125 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving credit loan $ 6,140 $ 6,416 Current portion of long term debt 722 780 Accounts payable 14,147 13,376 Accrued liabilities 18,820 21,022 Deferred site maintenance, current portion 1,763 1,763 ----------- ----------- Total current liabilities 41,592 43,357 Long term debt, excluding current portion 28,533 28,357 Deferred site maintenance, excluding current portion 19,863 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, 7,904,172 and 7,825,628 shares issued and outstanding, respectively 79 78 Additional paid-in capital 46,921 46,762 Unrealized gain (loss) on securities available-for-sale (468) (718) Retained earnings (deficit) (26,744) (24,099) ----------- ----------- Total shareholders' equity 19,789 22,024 ----------- ----------- Total Liabilities and Shareholders' Equity $ 109,777 $ 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 Six Months Ended June 30, June 30, 1996 1995 1996 1995 ------------------------ ----------------------- Revenues $ 14,038 $ 15,852 $ 26,188 $ 35,602 Operating costs 11,782 17,882 24,325 36,854 ---------- ---------- ---------- --------- Gross profit (loss) 2,256 (2,030) 1,863 (1,252) Selling, general and administrative expenses 3,103 6,091 6,420 9,844 Impairment losses on long-lived assets -- 27,153 -- 27,153 ---------- ---------- ---------- --------- Loss from operations (847) (35,274) (4,557) (38,249) Investment income (197) (198) (377) (332) Gain on sale of assets (63) (489) (76) (530) Other (income) expense 115 1,056 (114) 819 ---------- ---------- ----------- --------- Loss before income taxes (702) (35,643) (3,990) (38,206) Income tax expense (benefit) (1,016) (3,155) (1,345) (3,821) ----------- ----------- ----------- ---------- Net income (loss) 314 (32,488) (2,645) (34,385) Preferred stock dividends 105 -- 209 -- ---------- ---------- ---------- --------- Net income (loss) available to common shareholders $ 209 $ (32,488) $ (2,854) $ (34,385) ========== =========== =========== ========== Net earnings (loss) per share, primary $ .03 $ (4.15) $ (.36) $ (4.40) ========== =========== =========== ========== 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)
Six Months Ended June 30, ------------------------------- 1996 1995 ------------------------------- Cash flows from operating activities: Net loss $ (2,645) $ (34,385) Adjustments to reconcile net loss to net cash provided by operating activities: Impairment losses on long-lived assets -- 27,153 Depreciation and amortization 2,195 4,369 Deferred income tax provision -- 204 Gain on sale of assets (76) (530) Changes in assets and liabilities: Receivables 1,201 11,580 Income tax refund 4,521 -- Proceeds from insurance claim 1,811 -- Investment securities classified as trading -- (334) Other assets (593) (383) Accounts payable and accrued liabilities (1,272) (2,863) Deferred site maintenance (524) (829) ------------ ------------ Total adjustments 7,263 38,367 ----------- ----------- Net cash provided by operating activities 4,618 3,982 ----------- ----------- Cash flows from investing activities: Capital expenditures (571) (2,179) Site development costs, including capitalized interest (2,804) (2,970) Proceeds from sales of property and equipment 116 900 Transfers from cash and investment securities, pledged 324 372 ----------- ----------- Net cash used in investing activities (2,935) (3,877) ------------ ----------- Cash flows from financing activities: Proceeds from issuances of indebtedness 18,849 18,870 Repayments of indebtedness (19,007) (17,020) Proceeds from common stock issuances -- 20 Payment of cash dividends -- (195) ----------- ----------- Net cash provided by financing activities (158) 1,675 ------------ ----------- Increase in cash and cash equivalents 1,525 1,780 Cash and cash equivalents at beginning of period 229 231 ----------- ----------- Cash and cash equivalents at end of period $ 1,754 $ 2,011 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ -- $ -- Income taxes -- 86
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 1995 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 $27,000,000 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 June 30, 1996, the Company had borrowings of $34,368,000 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. On June 26, 1996, the Company entered into an agreement with its bank whereby the Company's borrowing privileges under the Credit Agreement were suspended. As a result, the Company was unable to access funds available under the Revolver. In its place, the bank agreed to extend to the Company a line of credit up to a maximum of $850,000, at 8.25% interest, documented by a demand promissory note of that amount. Under the June 26, 1996 agreement, the Company pays down the outstanding balance of the Revolver as the bank receives the Company's trade account receivable funds, and advances to the Company the same amount plus the $850,000 line of credit. As of June 30, 1996, the Company had an outstanding balance of $5,515,000 under the revolver, and a balance of $625,000 under the terms of the June 26, 1996 agreement. Under the terms of the June 26, 1996 agreement with the bank, all principal and interest due by the Company under the Credit Agreement is suspended indefinitely. 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 June 30, 1996, the Company's actual accrual interest rate was 10.00%. As of June 30, 1996, the actual interest rate was 8.25%. - 5 - 6 Each month, the Company accrues interest on the Fee Capitalization Note at a rate equal to the bank's prime rate, as it changes, which was 8.25% at June 30, 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, in the amount of $4,000,000. This note was paid in full before its maturity, June 30, 1996. 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 obtain waivers in the event of default, there are no assurances further forbearance will be provided by the bank. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity. 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 June 30, 1996, the Company had deferred $43,476,000 of pre-operational facility development costs of which $5,400,000 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 that 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 any or all of the costs will be recovered. Allowable costs incurred by the Company for the development of the Butte facility are reimbursed under a - 6 - 7 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 June 30, 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 any or all of these costs will be recovered. 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, 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 six month periods ended June 30, 1996 and 1995 was $1,751,000 and $1,530,000, respectively. - 7 - 8 NOTE 4. EARNINGS PER SHARE The calculation of earnings per share for the three and six months ended June 30, 1996 and 1995, respectively, is as follows:
(000's except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ---------------------- ------------------------- 1996 1995 1996 1995 ------ --------- -------- ---------- Net earnings (loss) available to common shareholders $ 209 $ (32,488) $ (2,854) $ (34,385) ====== ========= ======== ========== Weighted average shares outstanding: Common shares outstanding at end of period 7,904 7,826 7,904 7,826 Effect of using weighted average common and common equivalent shares outstanding (16) (5) (47) (6) ------ --------- -------- ---------- Shares used in computing earnings (loss) per share 7,888 7,821 7,857 7,820 ====== ========= ======== ========== Net earnings (loss) per common and common equivalent share, primary $ .03 $ (4.15) $ (.36) $ (4.40) ====== ========= ======== ==========
There was no difference between the primary and fully diluted earnings per share calculations in 1996 and 1995. 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. - 8 - 9 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 $19,786,000 as of June 30, 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. The Company cannot be certain about its ability to further improve short-term operating results. The Company's financial statements as of June 30, 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 amended the existing Credit Agreement to extend the maturity of the Credit Agreement to December 31, 1998, and to modify certain other terms, however, the Credit Agreement has been suspended since June 26, 1996. A description of the Credit Agreement as so amended is set forth in Note 2 of "Item 1 - Financial Statements". As of June 30, 1996, the Company had available borrowings of $225,000 under its June 26, 1996, agreement. Strategic Plan The Company is focusing on its low-level radioactive waste (LLRW) disposal and processing operations as well as its chemical waste disposal and processing operations, as separate operations. The Company's operations have been reorganized under those respective lines 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 one new officer as Secretary and General Counsel. Also, Mr. Jack K. Lemley, Chairman and Chief Executive Officer has assumed the position of President. Measures to Reduce Costs The Company continues the effort that 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 reducing corporate overhead. Other than the capital required for developing the Ward Valley facility and for regulatory compliance at its Winona, Texas 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. Effective March 1, 1996, the corporate office was relocated to smaller space in Boise, Idaho. 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. - 9 - 10 For the six months ended June 30, 1996, the Company had positive cash flows from operations of $4,618,000, which includes $6,332,000 in tax refunds and insurance claim proceeds. Net cash used in investing activities total $2,935,000 of which $571,000 was spent for capital expenditures, $1,052,000 was invested in site development costs for the Ward Valley facility and incurred capitalized interest of $1,751,000 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. No assurances can be given that such improvements will occur. The Company expects to receive additional federal income tax refunds of approximately $740,000 during the third quarter of 1996. The Company is also currently negotiating business interruption insurance claims relating to the July 1994 fire at its Oak Ridge, Tennessee facility and expects to settle such claims in the near future. In May 1996, the Company received fire insurance proceeds of $1,811,000, which will be used to replace property and equipment damaged in the fire. The Company has a $727,000 receivable recorded for these claims at June 30, 1996. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 AND 1995 The Company reported net income of $314,000 for the three months ended June 30, 1996, compared to a net loss of $32,488,000 for the three months ended June 30, 1995. The 1995 results included pretax charges totaling $31,611,000 for unusual and non-recurring adjustments of which $27,153,000 related to impairment losses on long lived assets. In 1996 the Company has not incurred any such charges. REVENUES Revenues for the second quarter of 1996 decreased $1,814,000, a 11% decline, compared to the second quarter of 1995. Low-level radioactive waste ("LLRW") revenues increased $1,703,000. Quarterly revenues for the Recycle Center were $2,697,000, an increase of $1,586,000 over the prior year period. The 1995 period revenues were lower after the change of ownership in September, 1994 due to a fire, processing a backlog of non-revenue producing waste, and working to bring the facility up to industry standards for better customer acceptance. Revenues for the Richland, Washington disposal facility were $1,328,000 for the quarter, an increase of $459,000 from the prior year period due to favorable weather conditions in the Northwest in 1996. Chemical waste revenues declined $3,769,000. Revenues generated by the Company's landfill operation in Beatty, Nevada, fell by $2,361,000 due principally to diminished activity in the off-site remediation market, elimination of transportation services, and customers lost to a noncompetitive State of Nevada disposal fee structure created when California decreased their fees in January 1996. OPERATING COSTS Operating costs as a percentage of revenues for the three months ended June 30, 1996 and 1995 were 84% and 113% respectively. Total operating costs decreased $6,100,000 for the second quarter of 1996 as compared to the second quarter of 1995 for a variety of reasons. The 1995 costs include $1,112,000 in non-recurring charges. Management evaluated how operations had been managed, and determined what improvements could be made to enhance operating efficiency and effectiveness at each site location. General - 10 - 11 improvements have been made in the second quarter by timing of waste turnaround, reduction of excess spending, employee awareness, reductions of excess overtime, and reductions in both staff and labor force. In order to maintain the proper mix of operating costs to future revenues, management will continue to monitor operations closely. Continuing this analytical process is important for the future success of each site location. All site locations have participated in the reductions of capital spending. 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. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES For the second quarter ended June 30, 1996 selling, general and administrative expenses ("SG&A") decreased $2,988,000 as compared to the second quarter ended June 30, 1995, a 49% decrease. Included in SG&A for 1995 are several non-recurring expenses which increased SG&A by $2,346,000. During 1996, corporate overhead decreased by approximately $644,000 due to reductions in corporate personnel, corporate travel, 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. IMPAIRMENT LOSSES ON LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which is intended to establish more consistent accounting standards for measuring the recoverability of long-lived assets. The Company adopted this statement during the second quarter of 1995 and, accordingly, took a substantial writedown of goodwill and certain property and equipment in the second quarter of 1995. The impairment losses were calculated as the excess of carrying amounts of long-lived assets as compared to estimated fair values of the respective assets. Fair values were determined using the present value of management's estimated expected future cash flows. INCOME TAXES For the three months ended June 30, 1996, the Company reported an effective income tax benefit rate of 145% reflecting the receipt during the quarter of a larger income tax refund than had been estimated and recorded at December 31, 1995. The Company has now recorded all realized or expected refunds for loss carrybacks, and is unable to recognize deferred tax benefits for net operating loss carryforwards. SIX MONTHS ENDED JUNE 30, 1996 AND 1995 The Company reported a net loss of $2,645,000 for the six months ended June 30, 1996 compared to a net loss of $34,385,000 for the six months ended June 30, 1995. The 1995 results included pretax charges totaling $30,875,000 for unusual events and non-recurring adjustments of which $27,153,000 related to impairment losses on long-lived assets. REVENUES Revenues for the six months ended June 30, 1996 decreased $9,414,000, or 26% compared to the six months ended June 30, 1995. - 11 - 12 Low-level radioactive waste ("LLRW") revenues decreased $978,000, or 7%. Chemical waste revenues declined $8,436,000, or 37%. Revenues at the Beatty facility accounted for $5,526,000 of the decline due to the elimination of the former practice of providing transportation services at cost, and reduced disposal receipts as a result of customers lost to competing landfills which do not have the high cost burden of the State of Nevada's fees. OPERATING COSTS Total operating costs as a percentage of revenues for the six months ended June 30, 1996 and 1995 were 93% and 104%, respectively. The 1995 operating costs included $1,112,000 in non-recurring charges. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") for the six months ended June 30, 1996 were $6,420,000 compared to $9,844,000 for the six months ended June 30, 1995. Included in SG&A for the 1995 period are several non-recurring charges which increased SG&A by $2,410,000. These expenses related principally to severance of certain corporate executives and other corporate personnel, recognition of a loss for a portion of the corporate office lease and furniture, and a writedown of deferred debt issuance costs related to the bank credit facility which was amended effective June 30, 1995. IMPAIRMENT LOSSES ON LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which is intended to establish more consistent accounting standards for measuring the recoverability of long-lived assets. The Company adopted this statement during the second quarter of 1995 and, accordingly, took a substantial writedown of goodwill and certain property and equipment in the second quarter of 1995. 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 June 30, 1996, the Company reported an unrealized loss of $468,000, 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 six months ended June 30, 1996, the Company reported an effective income tax benefit rate of 34% compared to an effective income tax benefit rate of 10% for 1995. The 1996 tax benefit rate reflects the receipt during the second quarter of a larger income tax refund than had been estimated and recorded at December 31, 1995. The Company has now recorded all realized or expected refunds from loss carrybacks, and is unable to recognize deferred tax benefits for net operating loss carryforwards. - 12 - 13 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 result from different interpretations of applicable regulations. The Company and its subsidiaries are also parties to various other matters or proceedings, including permit application and renewal proceedings in connection with the Company's established operations, closure and post-closure activities at certain of its sites, and other matters that could result in further proceedings or litigation. Management has established reserves as deemed necessary for legal proceedings based on management's estimates of the outcome. It is reasonably possible that the Company's estimates for such matters will change or may prove inadequate. Due to the Company's financial condition, management is unable to conclude that an unfavorable outcome with respect to previously reported legal proceedings or the case described below, will not have a material adverse effect on the operations or financial condition of the Company. Except as described below, there were no material developments with respect to previously reported legal proceedings. US ECOLOGY, INC. V BARBARA WAGNER, BENTON COUNTY ASSESSOR, BOARD OF TAX APPEALS, STATE OF WASHINGTON, DOCKET NOS. 92-63--92-65 AND 95-43--95-45. In 1992, the Benton County (Washington) assessor issued property tax assessments on improvements owned by the Company and located on the Company's leasehold at the US Department of Energy's Hanford Reservation. The property tax increases totaled $1.7 million for the years 1989, 1990, and 1991. Prior to 1989, annual taxes had been about $5,400. The Company sued Benton County, the Assessor and Treasurer to enjoin them from collecting the increased taxes. An injunction was granted by the Benton County Superior Court but was reversed by the Washington Court of Appeals which ruled that the Company should first pursue all of its administrative remedies. Accordingly, the Company prosecuted its appeal to the Washington Board of Tax Appeals and a hearing was held in November 1995. The Company has recently been assessed an additional $1.9 million in taxes for 1992, 1993, and 1994. On July 1, 1996, the Board of Tax Appeals issued an Interim Decision that the Company's concession right to operate a low-level radioactive waste disposal site at the Hanford Reservation is subject to property tax but that the hearing will be reopened to allow the parties to submit additional evidence regarding the fair market value of the concession right. The Company believes that Washington law does not provide for taxation of "concession rights" and that in any event, since its permits and licenses may not be transferred, the market value thereof is minimal. The Company intends to continue to contest this matter. - 13 - 14 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 - 14 - 15 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, 1996 By: /s/ Jack K. Lemley ---------------------------- Jack K. Lemley Chief Executive Officer Date: August 13, 1996 By: /s/ R. S. Thorn ---------------------------- R. S. Thorn Vice President of Administration Chief Accounting Officer 16 INDEX TO EXHIBITS 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JUN-30-1996 1,754 0 17,030 1,293 0 21,806 44,391 24,139 109,777 41,592 28,533 79 0 1 19,709 109,777 14,038 14,038 11,782 11,782 3,103 319 0 (702) (1,016) 0 0 0 0 314 .03 .03
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