-----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, CnPOPxMl9B8XGVTWEPjLuTbCcUApggXHyX3g3Oz+jK15T+Vt54XPk+fufQN52HyI BsAclwjxMxAhftqTY/aO9A== 0000950129-97-002010.txt : 19970515 0000950129-97-002010.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950129-97-002010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97604669 BUSINESS ADDRESS: STREET 1: 805 W IDAHO STREET 2: STE 200 CITY: BOSIE STATE: ID ZIP: 83702 BUSINESS PHONE: 2083318400 MAIL ADDRESS: STREET 1: 805 W IDAHO STREET 2: STE 200 CITY: BOISE STATE: ID ZIP: 83702 10-Q 1 AMERICAN ECOLOGY - 03/31/97 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, 1997 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 April 30, 1997 Registrant had outstanding 8,015,308 shares of its Common Stock. 2 AMERICAN ECOLOGY CORPORATION QUARTERLY REPORT FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997 TABLE OF CONTENTS PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements PAGE Financial Statements 3 (Unaudited) Consolidated Statements of Operations 4 (Unaudited) Consolidated Statements of Cash Flows 5 (Unaudited) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition of Operations 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature 15
2 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERICAN ECOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($ in 000's)
March 31, December 31, 1997 1996 ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 439 $ 185 Investment securities 331 410 Receivables - trade and other, net of allowance for doubtful accounts of $1,224 and $1,028 respectively 8,025 10,396 Income tax receivable 783 740 Prepayments and other 569 949 ---------- ---------- Total current assets 10,147 12,680 Cash and investment securities, pledged 15,223 16,394 Property and equipment, net 13,622 14,255 Deferred site development costs 54,213 53,030 Intangible assets relating to acquired businesses, net 456 462 Other assets 2,119 2,206 ---------- ---------- Total assets $ 95,780 $ 99,027 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving credit loan $ -- $ -- Current portion of long term debt 62 503 Accounts payable 8,608 10,470 Accrued liabilities 16,509 16,876 Deferred site maintenance, current portion 1,524 1,524 ---------- ---------- Total current liabilities 26,703 29,373 Long term debt, excluding current portion 37,202 36,202 Deferred site maintenance, excluding current portion 19,566 19,848 COMMITMENTS AND CONTINGENCIES Shareholders' equity: Convertible preferred stock, $.01 par value, 1,000,000 shares authorized, none issued -- -- Series D cumulative convertible preferred stock, $.01 par value, 105,264 authorized, 105,264 shares issued and outstanding 1 1 Series E redeemable convertible preferred stock, $10.00 par value, 300,000 authorized, 300,000 shares issued and outstanding 3,000 3,000 Common stock, $.01 par value, 20,000,000 authorized, 8,015,308 and 8,010,017 shares issued and outstanding, respectively 80 80 Additional paid-in capital 47,018 46,971 Unrealized gain (loss) on securities available-for-sale (726) (477) Retained earnings (deficit) (37,064) (35,971) ---------- ---------- Total shareholders' equity 12,309 13,604 ---------- ---------- Total Liabilities and Shareholders' Equity $ 95,780 $ 99,027 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 4 AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($ in 000's except per share amounts)
Three Months Ended March 31, 1997 1996 -------- -------- Revenues $ 9,629 $ 12,150 Operating Costs 6,594 12,543 -------- -------- Gross profit (loss) 3,035 (393) Selling, general and administrative expenses 4,027 3,317 -------- -------- Loss from operations (992) (3,710) Investment income (loss) 42 180 (Gain) on sale of assets -- (13) Other income (83) (229) Loss before income taxes (951) (3,288) Income tax benefit (43) (329) -------- -------- Net loss (908) (2,959) Preferred stock dividends 186 104 -------- -------- Net income (loss) available to common shareholders (1,094) (3,063) ======== ======== Net loss per share, primary $ (.11) $ (.39) ======== ======== Dividends paid per common share $ -- $ -- ======== ========
See notes to consolidated financial statements. 4 5 AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($ in 000's)
Three Months Ended March 31, 1997 1996 ----------- ------------- Cash flows from operating activities: Net loss $ (908) $ (2,959) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 919 917 Deferred income tax provision (benefit) (33) (406) Gain on sale of assets -- (7) Changes in assets and liabilities: Receivables 2,328 3,729 Investment securities classified as trading 737 28 Other assets 367 271 Accounts payable and accrued liabilities (2,515) (3,328) Deferred site maintenance (282) (295) -------- -------- Total adjustments 1,521 909 -------- -------- Net cash provided by (used in) operating activities 613 2,050 -------- -------- Cash flows from investing activities: Capital expenditures (180) (393) Site development costs, including capitalized interest (551) (1,598) Proceeds from sales of property and equipment -- 53 Proceeds from the sale of investment securities 434 -- Transfers from cash and investment securities, pledged (169) (143) -------- -------- Net cash used in investing activities (466) (2,081) -------- -------- Cash flows from financing activities: Proceeds from issuances of indebtedness 5,800 10,959 Repayments of indebtedness (5,693) (6,905) Payment of cash dividends -- -- -------- -------- Net cash provided by (used in) financing activities (107) (3,954) -------- -------- Increase (decrease) in cash and cash equivalents 254 (177) Cash and cash equivalents at beginning of period 185 229 -------- -------- Cash and cash equivalents at end of period $ 439 $ 1,711 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ -- $ -- Income taxes -- --
See notes to consolidated financial statements. 5 6 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 1996 Annual Report on Form 10-K for the year ended December 31, 1996, 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. TERM LOAN AND LONG-TERM DEBT. Long term debt at March 31, 1997 and December 31, 1996 consisted of the following (in thousands):
March 31, December 31, 1997 1996 ----------- ------------ Secured bank credit facility $ 36,992 $ 36,116 Capital lease obligations and other 272 589 ----------- ----------- $ 37,264 $ 36,705 Less: Current maturities (62) (503) ----------- ----------- Long-term debt $ 37,202 $ 36,202
Aggregate maturities of long-term debt and the future minimum payments under capital leases are as follows (in thousands):
Year Ended December 31, ------------ 1997 $ 62 1998 86 1999 5,000 2000 32,054 Total $ 37,202
On October 31, 1996 the Company renegotiated its prior bank debt under the terms of a Third Amended and Restated Credit Agreement ("Credit Agreement"). The new term loans, subject to satisfaction of certain conditions, extend the maturity of the Company's existing bank debt to December 31, 2000 (the maturity date). Interest on this debt will accrue at a rate of 7% through 1998. Thereafter, interest is to be paid quarterly at the rate of 10% or prime, whichever is greater. Principal repayments will commence on December 31, 1999 with $5,000,000 due on that date and quarterly payments of $250,000 thereafter. The total debt balance remaining at the maturity date will be due and payable on that date. The secured debt now consists solely of a Term Loan and a Revolving Credit Loan. Subject to the terms and conditions of the Credit Agreement, the Company's bank agrees to lend the Company an advancing term loan, in a series of advances, up to a maximum of $38,000,000. The Revolving Credit loan portion of this loan is represented by a single revolving promissory note in the original principal sum of $5,000,000 (the "Revolving Credit Note"). No further advances of any Revolving Credit Loans shall occur after the Maturity Date. The agreement to lend the 6 7 Company up to a maximum of $38,000,000 does not constitute new debt, but is a restructuring of existing debt plus some additional availability solely for the capitalization of accrued interest and certain fees. Under the terms of the Credit Agreement the Company increased long-term debt by $1,684,000. Included in the total long- term debt balance is accrued unpaid interest of $1,244,019 and $266,604 for debt restructuring fees. As of December 31, 1996, the outstanding balance of the Term Loan was $36,202,000. The Company also had incurred $212,843 in accrued interest (at 7%) since October 31, 1996 which was capitalized into the term loan. Additionally, interest accrued at an incremental rate of 3% on the entire amount of debt outstanding since October 31, 1996 amounted to $180,071 as of December 31, 1996. Then at March 31, 1997 the outstanding balance of the Term Loan was $36,992,273. Interest accrued at 7% in the amount of $2,315,759 was capitalized into the term loan. Additionally, interest accrued at the incremental rate of 3% on the entire amount of debt outstanding since October 31, 1996 amounted to $450,734 at March 31, 1997. In exchange for extending the terms, the bank received warrants, exercisable only upon maturity or the occurrence of a monetary default, to purchase up to 10% of the Company's then outstanding shares for $1.50 per share. However, the Company can eliminate these warrants by the payment on maturity of all principal and interest plus additional interest equal to the difference between the interest accrued through 1998 and interest for the same period at the fixed rate of 10%. The bank eliminated its existing conversion feature on the Fee Capitalization portion of the outstanding debt. In addition to the changes in economic terms, the Company's financial covenants were restructured to match the Company's current situation and financial plan. The new covenants should allow the Company to operate without requesting quarterly waivers of covenant defaults. The bank has agreed also to allow the Company to use some of the capital freed up by its restructuring as working capital. The terms of the bank loan prohibit dividend payments on the Company's common stock until the bank debt is fully retired. As part of the new arrangements regarding the secured credit facility with its bank, the Company obtained $3,000,000 in new equity from two of its directors and shareholders, Rotchford Barker and Edward Heil, who in exchange for this amount agreed to purchase 300,000 shares of new Class E Redeemable Convertible Preferred Stock. The new Preferred Stock is nonvoting, has a stated value and preference in liquidation of $10 per share, and has the right to receive dividends, payable solely in common shares of the Company, at the rate of 11.25% per annum. As a condition to the extension of these terms, and in addition to the $3,000,000 in equity already raised, the Company is required to use its best efforts to raise an additional $2,000,000 in equity on or before June 30, 1997. In order to meet this second equity condition and to give all common shareholders the ability to participate in the Company's increased equity base, the Company will use its best efforts to register a rights offering to holders of the Company's common stock. In the rights offering, which will be made only by means of a prospectus, the Company would offer each common shareholder, as of a record date expected to be on or about the second business day before the registration statement for the rights offering is declared effective by the Securities and Exchange Commission (SEC), the right to purchase for $1 one share of newly issued common stock for each share of common stock held on such record date. The rights would expire unless exercised within 30 days after the offer commences. As of March 31, 1997, the Company had 8,015,308 shares of common stock outstanding. 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, issued to provide the Company working capital funds, was paid in full before its maturity, June 30, 1996. 7 8 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, 1997, the Company had deferred $54,213,000 (57% of total assets) of pre- operational facility development costs of which $7,543,000 was capitalized interest. These deferred costs relating to the development of the Ward Valley facility are expected to be recovered during the facility's first 30 years of operating 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 waste in the CIC. As of March 31, 1997 the Company has contributed and deferred approximately $7,258,000 (8% of total assets), of which $1,166,000 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 the granting of the license. The Company expects all costs which it has deferred for this facility, plus additional unrecognized project interest costs, to be included as a component of the rate-base. The agreed contract interest cost reimbursement as part of the rate-base may yield an additional $15 million in revenue, however, there can be no assurance that all of these amounts will be approved. In addition, the CIC has the option to terminate the contract, upon ten (10) days written notice, in the event it has expended the additional $31.1 million provided under the last contract amendment, and the State of Nebraska's licensing decision has not been made, and the major generators in the compact region have either ceased funding the project or thereafter notified the CIC, pursuant to amendment No. 5 of its contract with the CIC, that the major generators intend to cease funding of the project. As of December 31, 1996, approximately $25.2 million had been expended under the last contract amendment. If the CIC elects to terminate the contract, then the Company has no further claim or right to reimbursement of its contributions or accrued interest unless the CIC and the Company agree to go forward with the facility, in which event the Company retains its rights to recover its contribution together with any accrued interest. 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 as further discussed under "Business - Low-Level Radioactive Waste Services - Disposal Services - Proposed Ward Valley, California Facility" and "-Proposed Butte, Nebraska Facility". At this time, it is not possible to assess the length of these delays 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. Although the timing and outcome of the proceedings 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 facilities being developed are 8 9 undergoing activities to ready them for their intended use. Interest during the three month periods ended March 31, 1997 and 1996 capitalized was $902,000 and $942,000, respectively. NOTE 4. EARNINGS PER SHARE. The calculation of net loss per common and common equivalent share for the three months ended March 31, 1997 and 1996, respectively, is as follows:
(000'S EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, -------------------------------- 1997 1996 ----------- ------------ Net loss $ (908) $(2,959) ======= ======= Weighted average shares outstanding: Common shares outstanding at end of period 8,015 7,826 Effect of using weighted average common and common equivalent shares outstanding (4) (4) ------- ------- Shares used in computing earnings (loss) per share 8,011 7,822 ======= ======= Net loss per common equivalent share $ (.11) $ (.37) ======= =======
NOTE 5. COMMITMENTS AND CONTINGENCIES. 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. 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 to the litigation described below in Part II, Item 1., the Company and certain of its subsidiaries are involved in other civil litigation and administrative matters, including permit application proceedings in connection with the established operation, closure and post-closure activities of certain sites. Management has not established reserves for the matters discussed in Part II, Item 1., other than for certain anticipated legal fees, based on management's estimates of the outcome. During the course of legal proceedings, management's estimates with respect to such matters may change. While the outcome of any particular action or administrative proceeding cannot be predicted with certainty, management is unable to conclude that the ultimate outcome, if unfavorable, of the litigation and other matters described herein, will not have a material adverse effect on the operations or financial condition of the Company. NOTE 6. PREFERRED STOCK Effective October 31, 1996, and executed on November 13, 1996, was the Certificate of Designation, Preferences and Rights of Series E Redeemable Convertible Preferred Stock. The Board of Directors duly authorized and adopted, by all necessary action on the part of the Company, the resolution creating this Series E of 300,000 shares of preferred stock. The Company sold all 300,000 shares of this 11.25% Series E Redeemable Convertible Preferred Stock, $10 par value with a $10 per share liquidation preference, principally to two members of the Board of Directors of the Company. The Company received cash proceeds of $3,000,000 for the issuance of these 300,000 preferred shares. 9 10 By redemption, each share shall be redeemed by the Company on the first business day following the issuance of Common Stock in a Rights Offering, to the extent that the purchase price of the Common Stock sold in the Rights Offering plus the stated amount of the Series E Preferred outstanding on the redemption date is in excess of $5,000,000. If less than all of the Series E Preferred Stock outstanding is redeemed, the Series E Preferred Stock to be redeemed shall be determined pursuant to the agreement for the initial purchase of the Series E Preferred Stock. Any Rights Offering shall be an offer, to all holders of record of the Company's Common Stock on or about the second business day preceding the date the registration of the Rights Offering is declared effective by the SEC, to purchase one share of Common Stock held on the record date at a purchase price of $1 per share, payable within 30 days after the Rights Offering. By conversion, if there is a Rights Offering and less than 5,000,000 shares of Common Stock are sold, one share of Series E Preferred Stock shall be converted into 10 shares of fully paid and non-assessable Common Stock for each 10 shares or portion thereof of Common Stock less than 5,000,000 sold in the Rights Offering. Such conversion shall occur on the first business day following the expiration of the Rights Offering. Each share of this 11.25% Series E Preferred Stock includes 10 warrants to purchase Common Stock for an exercise price of $1.50 per share. There shall be no voting rights or powers attached to this 11.25% Series E Preferred Stock. In September 1995, the Board of Directors of the Company authorized 105,264 shares of preferred stock designated as 8 3/8% Series D Cumulative Convertible Preferred Stock ("8 3/8% Preferred Stock") and authorized the issuance of 105,264 of such shares and warrants to purchase 1,052,640 shares of the Company's common stock. During September through December 1995, the Company sold 105,264 of 8 3/8% Preferred Stock with warrants in a private offering to a group comprised principally of members of the company's directors ("the Investing Group") and received cash proceeds of $4,759,000 which is net of offering expenses of $101,000 and $140,000 in settlement of liabilities to two members of the Investing Group. Each 8 3/8% Preferred Stock share is convertible at any time at the option of the holder into 8.636 shares of the Company's common stock, equivalent to a conversion price of $5.50 on the $47.50 total per share offering price. Dividends on the 8 3/8% Preferred Stock are cumulative from the date of issuance and payable quarterly commencing on October 15, 1995. Accrued unpaid dividends totaled $514,000 and $88,000 at December 31, 1996 and 1995, respectively. The 8 3/8% Preferred Stock shares are not redeemable and the liquidation preference is $47.50 per share plus unpaid dividends. Each share of the 8 3/8% Preferred Stock issued includes ten warrants to purchase shares of the Company's common stock. Each warrant entitles the holder to purchase on share of common stock for an exercise price of $4.75. The $4.75 warrants are exercisable at any time and expire September 12, 1999. No value was assigned to the warrants in the accompanying consolidated financial statements as the value is deemed to be de minimus. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion contains trend information and other forward looking statements that involve a number of risks and uncertainties. The Company's actual results could differ materially from the Company's historical results of operations and those discussed in the forward looking comments. Factors that could cause actual results to differ materially are included, but are not limited to, those identified in Notes 3 and 5 to the Consolidated Financial Statements herein, Part II, Item 1. Legal Proceedings, and the discussion below. CAPITAL RESOURCES AND LIQUIDITY The Company has incurred recurring losses from operations, had a working capital deficit of $16,556,000 as of March 31, 1997, 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. There has been an improvement in working capital over the past twelve months when the working capital deficit was $17,704,000 at March 31, 1997. 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, 1997, do not contain any adjustments to asset carrying amounts or for the amount of liabilities that might result from asset liquidations. Management's actions and plans to address these issues are as follows: 10 11 CREDIT AGREEMENT A Third Amended and Restated Credit Agreement was executed on December 31, 1996, but dated effective October 31, 1996 between the Company and its bank lender, Texas Commerce Bank. This Credit Agreement extends the maturity of the credit agreement to December 31, 2000, and modifies certain other terms. A description of the Credit Agreement as so amended is set forth in Note 2 to the Consolidated Financial Statements. As of March 31, 1997, the Company had available borrowings of $684,000 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 hazardous waste disposal and processing operations as separate operations. The Company is continuing to improve as reorganized under those respective operating divisions. The reorganization was to facilitate potential strategic alliances with other companies that may provide additional sources of capital and open greater opportunities. SENIOR MANAGEMENT CHANGES Mr. Joe Nagel was appointed Chief Operating Officer of USEcology, one of the Company's principal operating subsidiaries. MEASURES TO REDUCE COSTS Management has been implementing a very aggressive plan since 1995, where the Company has sized up its position to the surrounding market, where customer potentials have been measured, where managing the Company can be improved and as a result, unprofitable divisions have been either eliminated or reorganized to be efficient and effective. The reorganized divisions have been dissected and analyzed to measure break-even points, maximum revenues from customers, and optimum operating levels to maximize profitability. These variables of operation for the Company have been adjusted and measured to fit the changing times of the environmental industry. Waste generators are generating less waste now due to both Federal and State constricting the areas in the regulations where generators were relaxed about disposal practices. These environmental proceedings and regulations have forced all of the environmental companies to evaluate their part in the industry. The outcome in many areas is difficult to forecast, but the management of the Company and the strategic plans include the flexibility to adapt to these industry changes. The Company continues to evaluate the viability of certain other operations, and their current potential to perform at an acceptable level of profitability. In the plan, capital expenditures were limited in 1996, and will be for 1997, to the development of the Ward Valley Project, certain regulatory obligations, and required operational repairs. Again, in 1997, capital expenditures will be limited in the same way, with the addition of the new cell constructed at TECO in Robstown, Texas for non-hazardous industrial waste. The Company believes its plan will improve both 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 intends to raise additional capital through a Rights Offering to its shareholders on or before June 1, 1997. There can be no assurance, however, that any such rights offering will provide sufficient capital to support operations. In any event, the Company may experience increasing cash flow problems that could cause the Company to materially reduce the current level of its operating activities. For the three months ended March 31, 1997, the Company raised no additional capital, but generated cash from operations of $613,000, spent $180,000 for capital expenditures excluding site development costs, invested $281,000 in site development costs for the Ward Valley facility and incurred capitalized interest of $902,000 related to the Ward Valley and Butte facilities. 11 12 FUTURE CONSIDERATIONS In April 1996, the Company received a letter from the State of Tennessee Department of Environment and Conservation division of Radiological Health. This letter specified that they had accepted the Company's plan to dispose of the legacy waste on site at the Oak Ridge, Tennessee facility by December 31, 1997. The Company signed a contract February 24, 1997 with another disposal company that is licensed to accept this waste. This arrangement will provide for a considerable cost savings to dispose of the legacy waste, however, it is still estimated that this cost will be $6.2 million. In addition, the Company expects to receive federal income tax refunds of approximately $740,000 during the third quarter of 1997. The Company will make its best effort to register a Rights Offering to holders of the Company's common stock. This offering will offer each shareholder the opportunity to buy an additional share of stock for each one owned at one dollar. This will make available, by full subscription, the possibility to raise an additional $8,000,000 of capital. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997 AND 1996 The Company reported a net loss of $908,000 for the three months ended March 31, 1997, compared to a net loss of $2,959,000 for the three months ended March 31, 1996, which indicates a marked improvement of the previous year comparison when revenues decreased $7,600,000 from the first quarter of 1995. REVENUES Revenues for the first quarter of 1997 decreased $2,521,000, a 21% decline, compared to the first quarter of 1996. Low-level radioactive waste ("LLRW") revenues increased $862,000. LLRW remediation project revenues increased due to Richland and Nebraska. Revenues for the Richland, Washington, facility were $1,797,000 compared to $1,118,000 for the 1st quarter a year ago. Chemical waste revenues decreased $3,383,000. Disposal revenues generated by the Company's chemical waste landfill operation in Beatty, Nevada, decreased by approximately $924,000 due principally to volume reductions as a result of California pricing on similar landfills. Further reductions of $2,477,000 are a result of the Winona, Texas facility closure. The Winona site stopped accepting waste in August 1996. Then management agreed to a closure plan for the Winona facility, within the corporation, as of March 17, 1997. OPERATING COSTS Total operating costs decreased $5,949,000 for the first quarter of 1997 as compared to the first quarter of 1996 for a variety of reasons. The Winona facility has not received any waste from customers since August 1996, the Beatty facility has decreased operations by about 70-75%, AET, our transportation division decreased by 30-35% when the Winona facility closed, and the Oak Ridge facility has been faced with several problems, delays and shortage of working capital. The many efforts exercised by both Chemical and LLRW divisions should allow for improved performance next quarter. The Company as a whole is demonstrating a positive trend in operating results even with decreasing revenues by recapturing a portion of the market share lost and monitoring all costs very closely. In addition to regaining market share, the Company has been making every effort to analyze each aspect of the two operating divisions and determine how they can best maximize operating performance. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES For the quarter ended March 31, 1997 selling, general and administrative expenses ("SG&A") increased $710,000 as compared to the quarter ended March 31, 1996, with the major component being legal expenses. During the same period, corporate overhead decreased by approximately $672,000 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 18 months as described under the caption Capital Resources and Liquidity. 12 13 INVESTMENT INCOME Net investment income is comprised of interest income earned on various debt securities, certificates of deposit and other interest bearing deposits, and dividend income and capital gains and losses earned on the Company's preferred stock portfolio. This portfolio is principally the Company's captive insurance investments reinsuring the present value of certain long-term closure and post-closure liabilities. The amount of investment income in 1997 increased $40,000 from the same first three months of 1996 due principally to a closer supervision on outstanding investments in 1997 as compared to 1996. In December 1996, the Company terminated the trustee of the Company's captive insurance investment portfolio, and appointed a new trustee, Merrill Lynch Trust Company of America. INCOME TAXES The Company's effective income tax (benefit) rates for the three months ended March 31, 1997 was (5)% and (10)% for the same period one year ago. The effective benefit rate of (5)% in 1997 and 1996 does not reflect any recognition of future tax benefits on timing differences or net operating loss carryforwards. 13 14 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. 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 to the litigation previously reported, the Company and certain of its subsidiaries are involved in other civil litigation and administrative matters, including permit application proceedings in connection with the established operation, closure and post-closure activities of certain sites. Management has not established reserves for litigation, other than for certain anticipated legal fees, based on management's estimates of the outcome. During the course of legal proceedings, management's estimates with respect to such matters may change. While the outcome of any particular action or administrative proceeding cannot be predicted with certainty, management is unable to conclude that the ultimate outcome, if unfavorable, of the litigation previously reported , will not have a material adverse effect on the operations or financial condition of the Company. For the period reported herein, there were no material developments with respect to previously reported legal proceedings. ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits 27 Financial Data Schedule b. Reports on Form 8-K February 18, 1997 Form 8-K filed relating to the Third Amended and Restated Credit Agreement. 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: May 14, 1997 By: /s/ Jack K. Lemley ----------------------------------- Jack K. Lemley Chief Executive Officer Date: May 14, 1997 By: /s/ R. S. Thorn ----------------------------------- R. S. Thorn Vice President of Administration Chief Accounting Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 MAR-31-1997 439 331 8,025 1,224 0 10,147 13,622 919 95,780 26,703 0 0 3,001 80 12,309 95,780 9,629 9,629 6,594 4,027 3,035 908 0 (951) (43) 0 0 0 0 (1,094) .11 .11
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