-----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, DfGPa4x7XtcLxdKhskRuptbqWoIoDghI0T1QQe7suJcZWbatXvTZm8jayaAf+CXQ ZyMwH87Xc1TbuloA2hVAzg== 0001015402-03-003213.txt : 20030812 0001015402-03-003213.hdr.sgml : 20030812 20030812163641 ACCESSION NUMBER: 0001015402-03-003213 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030812 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: 03837964 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 doc1.txt 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, 2003 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) Lakepointe Centre I, 300 E. Mallard, Suite 300 Boise, Idaho 83706 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (208) 331-8400 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by a check mark whether the 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] At August 8, 2003 Registrant had outstanding 16,965,748 shares of its Common Stock.
AMERICAN ECOLOGY CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 2003 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets (Unaudited) 4 Consolidated Statements of Operations (Unaudited) 5 Consolidated Statements of Cash Flows (Unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings 25 Item 2. Changes in Securities and Use of Proceeds 27 Item 3. Defaults Upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28
2 OFFICERS - -------- Stephen A. Romano Chief Executive Officer, President and Chief Operating Officer James R. Baumgardner Senior Vice President, Chief Financial Officer Treasurer and Secretary Michael J. Gilberg Vice President and Controller DIRECTORS - --------- Roger P. Hickey, Chairman President, Chicago Partners David B. Anderson Principal, Lochborn Partners LLC Rotchford L. Barker Independent Businessman Roy C. Eliff Independent Businessman Edward F. Heil Sole Member E.F. Heil, LLC Stephen A. Romano Chief Executive Officer, President and Chief Operating Officer Stephen M. Schutt Vice President Nuclear Fuel Services, Inc. CORPORATE OFFICE - ---------------- Lakepointe Centre I American Ecology Corporation 300 East Mallard Drive, Suite 300 Boise, Idaho 83706 (208) 331-8400 (208) 331-7900 (fax) www.americanecology.com - ----------------------- COMMON STOCK - ------------ American Ecology Corporation's common stock trades on the Nasdaq National Market under the symbol ECOL. FINANCIAL REPORTS - ----------------- A copy of American Ecology Corporation Annual and Quarterly Reports, as filed on Form 10-K and 10-Q with the Securities and Exchange Commission, may be obtained by writing: Lakepointe Centre I 300 E. Mallard, Suite 300 Boise, Idaho 83706 or at www.americanecology.com ----------------------- TRANSFER AGENT - -------------- Mellon Investor Services LLC Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 (201) 296-4000 or at www.mellon-investor.com ----------------------- AUDITOR - ------- Moss Adams LLP 1001 Fourth Avenue, Suite 2900 Seattle, WA 98154 3
PART I. FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS. AMERICAN ECOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS ($ IN 000'S EXCEPT PER SHARE AMOUNTS) June 30, 2003 December 31, 2002 --------------- ------------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 4,750 $ 135 Receivables, net 9,167 10,460 Income taxes receivable 740 740 Prepayments and other 659 498 Deferred income taxes -- 2,745 Assets held for sale or closure 4,068 10,722 --------------- ------------------- Total current assets 19,384 25,300 Cash and investment securities, pledged 244 244 Property and equipment, net 27,434 26,998 Facility development costs 6,478 27,430 Deferred income taxes 8,284 5,539 Other assets 59 129 Assets held for sale or closure 2,239 1,485 --------------- ------------------- Total Assets $ 64,122 $ 87,125 =============== =================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long term debt $ 1,455 $ 1,985 Accounts payable 2,697 2,192 Accrued liabilities 3,722 4,166 Accrued closure and post closure obligation, current portion 882 882 Income taxes payable 19 23 Current liabilities of assets held for sale or closure 5,322 7,965 --------------- ------------------- Total current liabilities 14,097 17,213 Revolving line of credit -- 603 Long term accrued liabilities 521 2,372 Long term debt 4,810 5,972 Accrued closure and post closure obligation, excluding current portion 9,479 9,318 Liabilities of assets held for sale or closure, excluding current portion 5,571 5,699 --------------- ------------------- Total liabilities 34,478 41,177 --------------- ------------------- Commitments and contingencies Stockholders' equity: Convertible preferred stock, 1,000,000 shares authorized, Designated as follows: Series D cumulative convertible preferred stock, $.01 par value, 0 and 100,001 shares issued and outstanding; -- 1 Common stock, $.01 par value, 50,000,000 authorized, 16,965,748 and 14,539,264 shares issued and outstanding 170 145 Additional paid-in capital 54,679 55,789 Accumulated deficit (25,205) (9,987) --------------- ------------------- Total stockholders' equity 29,644 45,948 --------------- ------------------- Total Liabilities and Stockholders' Equity $ 64,122 $ 87,125 =============== ===================
See notes to consolidated financial statements. 4
AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($ IN 000'S EXCEPT PER SHARE AMOUNTS) Three Months Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 ----------------- -------------- --------------- -------------- (Restated) (Restated) Revenue $ 12,020 $ 10,605 $ 22,791 $ 24,029 Direct operating costs 6,056 5,841 12,040 12,016 ----------------- -------------- --------------- -------------- Gross profit 5,964 4,764 10,751 12,013 Selling, general and administrative expenses 3,289 2,207 7,786 5,748 ----------------- -------------- --------------- -------------- Income from operations 2,675 2,557 2,965 6,265 Investment income 22 16 22 27 Interest expense 38 243 159 508 Loss on write off of Ward Valley facility development costs -- -- 20,951 -- Other income (loss) 93 140 93 (325) ----------------- -------------- --------------- -------------- Net income (loss) before income tax, discontinued operations, and cumulative effect of change in accounting principal 2,752 2,470 (18,030) 5,459 Income tax expense 63 -- 55 -- ----------------- -------------- --------------- -------------- Net income (loss) before discontinued operations and cumulative effect of change in accounting principal 2,689 2,470 (18,085) 5,459 Gain from discontinued operations - El Centro Landfill 16 34 4,960 224 (Loss) from discontinued operations - Oak Ridge LLRW Facility (692) (303) (2,029) (704) ----------------- -------------- --------------- -------------- Net Income (loss) before cumulative effect of change in accounting principle 2,013 2,201 (15,154) 4,979 Cumulative effect of change in accounting principle -- -- -- 13,141 ----------------- -------------- --------------- -------------- Net income (loss) 2,013 2,201 (15,154) 18,120 Preferred stock dividends -- 99 64 197 ----------------- -------------- --------------- -------------- Net income (loss) available to common shareholders $ 2,013 $ 2,102 $ (15,218) $ 17,923 ================= ============== =============== ============== Basic earnings (loss) from continuing operations .16 .16 (1.12) .37 Basic earnings (loss) from discontinued operations (.04) (.02) .18 (.03) Basic earnings from cumulative effect of accounting change -- -- -- .93 ----------------- -------------- --------------- -------------- Basic earnings (loss) per share $ .12 $ .14 $ (.94) $ 1.27 ================= ============== =============== ============== Diluted earnings (loss) from continuing operations .15 .14 (1.12) .33 Diluted earnings (loss) from discontinued operations (.04) (.02) .18 (.03) Diluted earnings from cumulative effect of accounting change -- -- -- .84 ----------------- -------------- --------------- -------------- Diluted earnings (loss) per share $ .11 $ .12 $ (.94) $ 1.14 ================= ============== =============== ============== Dividends paid per common share $ -- $ -- $ -- $ -- ================= ============== =============== ==============
See notes to consolidated financial statements. 5
AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, $ IN 000'S) Six Months Ended June 30, ------------------------------- 2003 2002 -------------- --------------- Cash flows from operating activities: (Restated) Net income (loss) $ (15,154) $ 18,120 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, amortization and accretion 3,704 2,993 (Income) loss from discontinued operations (2,931) 480 Cumulative effect of change in accounting principle -- (13,141) Write off of Ward Valley project 20,951 -- Changes in assets and liabilities: Receivables 1,351 (37) Other assets (161) (625) Accounts payable and accrued liabilities (198) (3,357) Closure and post closure obligation (449) (535) Income taxes payable (4) (60) -------------- --------------- Net cash provided by operating activities 7,110 3,838 Cash flows from investing activities: Capital expenditures (3,151) (1,750) -------------- --------------- Net cash used by investing activities (3,151) (1,750) Cash flows from financing activities: Payments of indebtedness (2,295) (5,503) Retirement of series D preferred stock (6,406) -- Stock options and warrants exercised 3,664 999 -------------- --------------- Net cash provided by (used in) financing activities (5,037) 145 -------------- --------------- Decrease in cash and cash equivalents (1,078) (2,416) Net cash provided by (used in) discontinued operations 5,693 (1,334) Cash and cash equivalents at beginning of period 135 4,217 -------------- --------------- Cash and cash equivalents at end of period $ 4,750 $ 467 ============== =============== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 159 $ 508 Income taxes paid 59 5 Non-cash investing and financing activities: Stock issuance-director's compensation 23 -- Preferred stock dividends accrued -- 197 Transfer of prepaid assets to settle closure liability -- 462
See notes to consolidated financial statements. 6 AMERICAN ECOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and disclosures necessary to present fairly the financial position, results of operations, and cash flows of American Ecology Corporation and its wholly-owned subsidiaries (the "Company"). These financial statements and notes should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission. The previously reported 2002 quarterly information has been restated, see Note 9. Certain reclassifications of prior quarter amounts have been made to conform with current quarter presentation, none of which affect previously recorded net income. NOTE 2. EARNINGS PER SHARE Basic earnings per share are computed based on net income available to common stockholders and the weighted average number of common shares outstanding during the quarter. Diluted earnings per share reflect the assumed issuance of common shares for outstanding options and conversion of warrants. The computation of diluted earnings per share does not assume exercise or conversion of securities whose exercise price is greater than the average common share market price as the assumed conversion of these securities would increase earnings per share. The computation of diluted loss per share does not assume exercise or conversion of any securities as the assumed conversion of securities would decrease loss per share.
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------- ---------------------- ($in thousands except per share amounts) 2003 2002 2003 2002 ------------ ----------- --------- ----------- (Restated) (Restated) Income (loss) before discontinued operations and cumulative effect of accounting change $ 2,689 $ 2,470 $(18,085) $ 5,459 Income (loss) from operations of discontinued segments (676) (269) 2,931 (480) Cumulative effect of accounting change -- -- -- 13,141 ------------ ----------- --------- ----------- Net income (loss) 2,013 2,201 (15,154) 18,120 Preferred stock dividends -- 99 64 197 ------------ ----------- --------- ----------- Net income (loss) available to common shareholders $ 2,013 $ 2,102 $(15,218) $ 17,923 ============ =========== ========= =========== Weighted average shares outstanding- Common shares 16,969 14,408 16,223 14,094 Effect of dilutive shares Series E Warrants -- 1,238 -- 911 Chase Bank Warrants 629 711 -- 523 Stock Options 112 287 -- 201 ------------ ----------- --------- ----------- Average shares 17,710 16,644 16,223 15,729 ============ =========== ========= =========== Basic earnings (loss) per share from continuing operations $ .16 $ .16 $ (1.12) $ .37 Basic earnings (loss) per share from discontinued operations (.04) (.02) .18 (.03) Basic earnings per share from cumulative effect of accounting change -- -- -- .93 ------------ ----------- --------- ----------- Basic earnings (loss) per share $ .12 $ .14 $ (.94) $ 1.27 ============ =========== ========= =========== Diluted earnings (loss) per share from continuing operations $ .15 $ .14 $ (1.12) $ .33 Diluted earnings (loss) per share from discontinued operations (.04) (.02) .18 (.03) Diluted earnings per share from cumulative effect of accounting change -- -- -- .84 ------------ ----------- --------- ----------- Diluted earnings (loss) per share $ .11 $ .12 $ (.94) $ 1.14 ============ =========== ========= ===========
7 NOTE 3. EQUITY In 1996, the Company issued 300,000 shares of Series E Redeemable Convertible Preferred Stock ("Series E Preferred Stock") that were retired in 1998. The Series E Preferred Stock carried warrants ("Series E Warrants") to purchase 3,000,000 shares of common stock with a $1.50 per share exercise price. In February 2003, three Series E Warrant holders exercised the remaining 2,350,000 Series E Warrants at an exercise price of $1.50 per share. Consequently, the Company issued 2,350,000 shares of common stock and received $3,525,000 in cash. There are no Series E warrants outstanding. In September 1995, the Board of Directors authorized the issuance of 105,264 shares of preferred stock designated as 8 3/8% Series D Cumulative Convertible Preferred Stock ("Series D Preferred Stock"), which were sold in a private offering to a group of present and past members of the Board of Directors. Each of the remaining 100,001 shares of Series D Preferred Stock was convertible at any time at the option of the holder into 17.09 shares of the Company's common stock, equivalent to a conversion price of $3.71 per share due to dilution by subsequent sales of common stock. In January 2003, the Company extended an offer to all holders of Series D Preferred Stock to repurchase their stock for the original sales price of $47.50 a share plus accrued but unpaid dividends. Repurchase was subject to approval of the Company's Board of Directors and primary bank, Wells Fargo Bank, and required a minimum of 67% of the Series D Preferred Stock to be tendered by the Series D Preferred Stockholders. The offer was accepted by all Series D holders and approved by the Company's Board of Directors and Wells Fargo Bank. On February 28, 2003, the Company repurchased the remaining 100,001 shares of Series D Preferred Stock for the original sales price of $47.50 a share plus accrued but unpaid dividends of $16.56 a share, for a total payment of $6,406,000. NOTE 4. OPERATING SEGMENTS The Company operates with two segments based on its internal reporting structure and nature of services offered, Operating Disposal Facilities, and Non-Operating Disposal Facilities. The Operating Disposal Facility segment represents facilities accepting industrial, hazardous and radioactive waste. The Non-Operating Disposal Facility segment includes facilities that are no longer accepting waste, no longer owned by the Company, or represent new disposal site development projects awaiting approval to accept waste. On December 27, 2002, the Company discontinued commercial operations in its Low Level Radioactive Waste ("LLRW") Processing and Field Services segment which aggregated, volume-reduced, and performed remediation and other services on radioactive material. All prior segment information has been restated in order to present the operations at the Oak Ridge facility, including the Field Services division, as discontinued operations. Effective December 31, 2002, the Company classified the El Centro municipal landfill as an asset held for sale due to the expected sale of the facility which occurred on February 13, 2003. All prior segment information has been restated in order to present the El Centro landfill as a discontinued operation. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have been eliminated from the segment information and are not significant between segments. 8 Summarized financial information concerning the Company's reportable segments is shown in the following table ($ in thousands).
Operating Non-Operating Discontinued Disposal Disposal Processing and Facilities Facilities Field Services Corporate Total THREE MONTHS ENDED JUNE 30, 2003 - -------------------------------- Revenue $ 11,969 $ 51 $ -- $ -- $ 12,020 Direct operating cost 5,929 127 -- -- 6,056 ----------- --------------- ---------------- ----------- --------- Gross profit (loss) 6,040 (76) -- -- 5,964 S,G&A 1,831 284 -- 1,174 3,289 ----------- --------------- ---------------- ----------- --------- Income (loss) from operations 4,209 (360) -- (1,174) 2,675 Interest -- -- -- 16 16 Other income 26 67 -- -- 93 ----------- --------------- ---------------- ----------- --------- Income (loss) before income tax and discontinued operations 4,235 (293) -- (1,190) 2,752 Income tax expense -- -- -- 63 63 Discontinued operations 16 -- (692) -- (676) ----------- --------------- ---------------- ----------- --------- Net Income (loss) 4,251 (293) (692) (1,253) 2,013 =========== =============== ================ =========== ========= Depreciation, amortization, and accretion $ 1,990 $ 1 $ -- $ 9 $ 2,000 Capital Expenditures $ 1,427 $ -- $ -- $ -- $ 1,427 Total Assets $ 37,119 $ 6,546 $ 5,274 $ 15,183 $ 64,122 THREE MONTHS ENDED JUNE 30, 2002 (RESTATED) - ------------------------------------------- Revenue $ 10,492 $ 113 $ -- $ -- $ 10,605 Direct operating cost 5,564 277 -- -- 5,841 ----------- --------------- ---------------- ----------- --------- Gross profit (loss) 4,928 (164) -- -- 4,764 S,G&A 1,442 (25) -- 790 2,207 ----------- --------------- ---------------- ----------- --------- Income (loss) from operations 3,486 (139) -- (790) 2,557 Interest (income) 231 -- -- (4) 227 Other income (expense) 10 3 -- 127 140 ----------- --------------- ---------------- ----------- --------- Income (loss) before discontinued operations and cumulative effect of change in accounting principle 3,265 (136) -- (659) 2,470 Discontinued operations 34 -- (303) -- (269) ----------- --------------- ---------------- ----------- --------- Net Income (loss) $ 3,299 $ (136) $ (303) $ (659) $ 2,201 =========== =============== ================ =========== ========= Depreciation, amortization, and accretion $ 1,281 $ -- $ 107 $ 15 $ 1,403 Capital Expenditures $ 566 $ -- $ 235 $ -- $ 801 Total Assets $ 43,625 $ 27,491 $ 9,282 $ 3,722 $ 84,170 Operating Non-Operating Discontinued Disposal Disposal Processing and Facilities Facilities Field Services Corporate Total SIX MONTHS ENDED JUNE 30, 2003 - ------------------------------ Revenue $ 22,736 $ 55 $ -- $ -- $ 22,791 Direct operating cost 11,811 229 -- -- 12,040 ----------- --------------- ---------------- ----------- --------- Gross profit (loss) 10,925 (174) -- -- 10,751 S,G&A 3,657 1,801 -- 2,328 7,786 ----------- --------------- ---------------- ----------- --------- Income (loss) from operations 7,268 (1,975) -- (2,328) 2,965 Interest 38 -- -- 99 137 Other Income (expense) 29 64 -- -- 93 9 Write off of Ward Valley facility -- 20,951 -- -- 20,951 ----------- --------------- ---------------- ----------- --------- Income (loss) before income tax and discontinued operations 7,259 (22,862) -- (2,427) (18,030) Income tax expense (benefit) -- -- -- 55 55 Discontinued operations 4,960 -- (2,029) -- 2,931 ----------- --------------- ---------------- ----------- --------- Net Income (loss) 12,219 (22,862) (2,029) (2,482) (15,154) =========== =============== ================ =========== ========= Depreciation, amortization, and accretion $ 3,793 $ 2 $ -- $ 20 $ 3,814 Capital Expenditures $ 4,063 $ 23 $ 451 $ -- $ 4,537 Total Assets $ 37,119 $ 6,546 $ 5,274 $ 15,183 $ 64,122 SIX MONTHS ENDED JUNE 30, 2002 (RESTATED) - ----------------------------------------- Revenue $ 23,849 $ 180 $ -- $ -- $ 24,029 Direct operating cost 11,436 580 -- -- 12,016 ----------- --------------- ---------------- ----------- --------- Gross profit (loss) 12,413 (400) -- -- 12,013 S,G&A 4,096 55 -- 1,597 5,748 ----------- --------------- ---------------- ----------- --------- Income (loss) from operations 8,317 (455) -- (1,597) 6,265 Interest 441 -- -- 40 481 Other income (expense) 35 (487) -- 127 (325) ----------- --------------- ---------------- ----------- --------- Income (loss) before discontinued operations and cumulative effect of change in accounting principle 7,911 (942) -- (1,510) 5,459 Discontinued operations 224 -- (704) -- (480) Cumulative effect of change in accounting principle $ 14,983 $ 1,548 $ (3,390) $ -- $ 13,141 ----------- --------------- ---------------- ----------- --------- Net Income (loss) $ 23,118 $ 606 $ (4,094) $ (1,510) $ 18,120 =========== =============== ================ =========== ========= Depreciation, amortization, and accretion $ 3,118 $ 229 $ 269 $ 32 $ 3,648 Capital Expenditures $ 1,559 $ -- $ 247 $ -- $ 1,806 Total Assets $ 43,675 $ 27,491 $ 9,282 $ 3,722 $ 84,170
NOTE 5. STOCK OPTION PLANS The Company has two stock-based compensation plans, which are accounted for under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations. No stock-based employee compensation cost is reflected in net income. The following table illustrates the effect on net income and earnings per share if the Company applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation for the three and six months ended June 30, 2003 and 2002:
Three Months Ended Six Months Ended ------------------------ ---------------------- 2003 2002 2003 2002 ----------- ----------- ---------- ---------- Net income (loss), as reported $ 2,013 $ 2,201 $ (15,154) $ 18,120 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (121) (164) (630) (236) ----------- ----------- ---------- ---------- Pro forma net income (loss) $ 1,892 $ 2,037 $ (15,784) $ 17,884 =========== =========== ========== ========== EARNINGS (LOSS) PER SHARE: Basic - as reported $ .12 $ .14 $ (.94) $ 1.27 =========== =========== ========== ========== Basic - pro forma $ .11 $ .13 $ (.98) $ 1.25 =========== =========== ========== ========== Diluted - as reported $ .11 $ .12 $ (.94) $ 1.14 =========== =========== ========== ========== Diluted - pro forma $ .11 $ .11 $ (.98) $ 1.12 =========== =========== ========== ==========
10 The stock option plan summary and changes during the three and six months ended June 30 are as follows:
Three Months Ended Six Months Ended ------------------------ ------------------------ 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Options outstanding, beginning of period 1,434,874 946,650 753,150 1,128,650 Granted 55,000 50,000 813,724 130,000 Exercised (1,000) (2,000) (68,500) (2,000) Canceled (18,150) (40,500) (27,650) (302,500) ----------- ----------- ----------- ----------- Options outstanding, end of period 1,470,724 954,150 1,470,724 954,150 =========== =========== =========== =========== Weighted average exercise price of options, beginning of period $ 4.03 $ 3.39 $ 3.42 $ 2.90 Weighted average exercise price of options granted $ 2.60 $ 3.92 $ 4.30 $ 3.16 Weighted average exercise price of options exercised $ 1.60 $ 2.30 $ 1.68 $ 2.30 Weighted average exercise price of options canceled $ 10.13 $ 12.17 $ 7.72 $ 2.45 Weighted average exercise price of options, end of period $ 3.90 $ 3.08 $ 3.90 $ 3.08 Options exercisable at end of period 902,681 844,150 865,831 844,150 =========== =========== =========== =========== Options available for future grant at end of period 416,776 1,108,350 416,776 1,108,350 =========== =========== =========== ===========
The following table summarizes stock options outstanding under the Company's option plans as of June 30, 2003:
Weighted average Weighted Weighted remaining average average Range of exercise contractual life Number exercise price Number exercise price price per share (years) outstanding per share exercisable per share - ------------------ ----------------- ----------- --------------- ----------- --------------- 1.00 - $1.47 4.0 119,500 $ 1.33 119,500 $ 1.33 1.60 - $2.25 6.7 128,000 $ 1.98 128,000 $ 1.98 2.42 - $3.50 8.9 462,329 $ 2.94 259,582 $ 2.89 3.75 - $5.00 7.8 532,884 $ 4.30 296,346 $ 4.14 6.50 9.6 173,011 $ 6.50 43,253 $ 6.50 10.13 0.9 55,000 $ 10.13 55,000 $ 10.13 ----------- ----------- 1,470,724 901,681 =========== ===========
As of June 30, 2003, the 1992 Stock Option Plan for Employees had options outstanding to purchase 945,724 common shares with 92,926 shares remaining available for issuance under option grants. The 1992 Stock Option Plan for Directors had options outstanding to purchase 525,000 common shares with 360,700 shares remaining available for issuance under option grants. The fair value of each option grant is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during the three months ended June 30 as follows:
2003 2002 ---------- ---------- Expected volatility 83% 80% Risk-free interest rates 3.75% 4.75% Expected lives 10 years 10 years Dividend yield 0% 0% Weighted-average fair value of options granted during the quarter (Black-Scholes) $ 2.19 $ 3.29
11 NOTE 6. INCOME TAXES Income tax expense differs from that calculated using applicable income tax rates to pretax income due primarily to the presence of net operating loss carryforwards and a valuation allowance. The Company has historically recorded a valuation allowance for certain deferred tax assets due to uncertainties regarding future operating results and for limitations on utilization of acquired net operating loss carry forwards for tax purposes. The realization of a significant portion of net deferred tax assets is based in part on the Company's estimates of the timing of reversals of certain temporary differences and on the generation of taxable income before such reversals. During 2002, the Company reevaluated the deferred tax asset valuation allowance and determined it was "more likely than not" that a portion of the deferred tax asset would be realizable. Consequently, the Company decreased the portion of the valuation allowance related to its operating facilities. The Company's net operating loss ("NOL") carry forward of approximately $30,699,000 at December 31, 2002, and $48,000,000 at June 30, 2003, begins to expire in the year 2006. At June 30, 2003, the Company has approximately $25,000,000 of deferred tax assets and a corresponding valuation allowance which reduces the net deferred tax asset to $8,284,000. $8,284,000 represents the expected utilization of deferred tax assets in the foreseeable future. On March 26, 2003, the Company wrote off $20,951,000 in Ward Valley, California disposal site development costs and therefore does not expect to realize previously estimated taxable income in 2003. Management expects the $8,284,000 of deferred tax asset to be realized in the years subsequent to 2003, and therefore classified the total net deferred tax asset as a long term asset on its balance sheet. NOTE 7. LITIGATION Significant developments have occurred on the following legal matters since December 31, 2002: US ECOLOGY, INC. V. THE STATE OF CALIFORNIA, ET AL., CASE NO.GIC747562, SUPERIOR - --------------------------------------------------- COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO In May 2000, subsidiary US Ecology, Inc., sued the State of California, et. al. ("the State") for monetary damages exceeding $162 million. The suit stems from the State's abandonment of the Ward Valley low-level radioactive waste ("LLRW") disposal project. California law requires the state to build a disposal site for LLRW produced in California, Arizona, North Dakota and South Dakota; member states of the Southwestern Compact. US Ecology was selected in 1985 to locate and license the site using its own funds on a reimbursable basis. In 1993, US Ecology obtained a license from the State and entered a ground lease. The State successfully defended the license against court challenges and, until Governor Gray Davis took office, actively pursued conveyance of the site from the federal government. In September 2000, the Superior Court granted California's motion to dismiss all causes of action, which the Company appealed. In September 2001, the California Fourth Appellate District Court remanded the case for trial on promissory estoppel grounds. The case was tried in Superior Court for the County of San Diego during February and March 2003. On March 26, 2003, the Superior Court issued a Statement of Decision finding that the Company failed to establish causation and that its claim is further barred by the doctrine of unclean hands. The latter finding was based on actions the Court concluded had created obstacles to an agreement between the federal government and the State to convey the site. The Court also found that key elements of the Company's promissory estoppel claim had been proven at trial. Specifically, the Court ruled that the State made a clear and unambiguous promise to US Ecology in 1988 to use its best efforts to acquire the site, that Governor Davis' administration abandoned this promise, and that the Company's reliance on the State's promise was reasonable and foreseeable. However, the Court found that the State's breach of its best efforts promise was not a substantial factor in causing damages to US Ecology since the federal government had continued to resist the land transfer. 12 Based on the uncertainty of recovery following the trial court's adverse decision, the Company wrote off the $20,951,000 deferred site development asset at March 31, 2003. On May 2, 2003, the Company filed a motion to vacate and enter new judgment with the trial court, arguing that the March 26 decision misapplied the law to the facts. On May 30, 2003, this motion was denied without comment. On June 26, the Company filed a notice of appeal with the California Fourth Appellate District Court. The Company's financial interest in the pending claim against the State was improved by an amendment to the November 13, 1998 Ward Valley Interest Agreement and Assignment entered into by American Ecology and its former primary lender. This amendment, entered into by the Company and the successor in interest to that lender on June 27, 2003, provides that any monetary damages obtained shall first be allocated to the Company to recover past and future litigation fees and expenses relating to the pending claim. Thereafter, any remaining amount recovered shall be divided equally between the Company and the former lender. The 1998 agreement had provided that the first $29.6 million less up to $1.0 million in legal fees and expenses would be owed to the former lender, with any remaining recovery reserved to the Company. In early July, the Company engaged the law firm of Cooley Godward on a fixed price plus contingency basis to pursue the appeal, paying the fixed fee at the time of engagement. A briefing schedule has not been set. MANCHAK V. US ECOLOGY, INC., U.S. DISTRICT COURT FOR THE DISTRICT OF NEVADA, - -------------------------------- CIVIL ACTION NO. 96-494. In March 1996, Frank Manchak, Jr. ("Plaintiff" or "Manchak") filed suit alleging infringement of a sludge treatment patent to stabilize hazardous waste at the Company's Beatty, Nevada hazardous waste disposal facility. Plaintiff seeks unspecified damages for infringement, treble damages, interest, costs and attorney fees. On October 17, 2002, the US District Court for the District of Nevada granted the Company's motion for summary judgment to dismiss the suit. Manchak's motion for reconsideration was denied on January 8, 2003. Manchak appealed; however, plaintiff failed to timely file its appellant's brief and the Company moved to dismiss the appeal. On July 2, 2003, the US Court of Appeals for the Federal Circuit granted the Company's motion to dismiss, and denied plaintiff's request for an extension of time and relief from page/word brief limitations. On July 20, 2003 the plaintiff filed a motion for reconsideration with the appellate court. In January 2003, the Company filed a motion to recover legal fees and expenses. This motion was denied, which the Company is appealing. ENTERGY ARKANSAS, INC. ET AL, CENTRAL INTERSTATE LOW-LEVEL RADIOACTIVE WASTE - -------------------------------------------------------------------------------- COMMISSION AND US ECOLOGY, INC. ("PLAINTIFFS") V. STATE OF NEBRASKA, ET AL., - ------------------------------------------------------------------------------ CASE NO. 4:98CV3411, U.S. DISTRICT COURT, DISTRICT OF NEBRASKA This action was brought in federal court in December of 1999 by electric utilities that generate low-level radioactive waste ("LLRW") within the Central Interstate Low-Level Radioactive Waste Compact (CIC). CIC member states are Nebraska, Kansas, Oklahoma, Arkansas, and Louisiana. The action seeks declaratory relief and damages for bad faith in the State of Nebraska's processing and ultimate denial of US Ecology's application to site, develop and operate a LLRW disposal facility near Butte, Nebraska. US Ecology is the CIC's contractor and developer. The CIC was originally named as a defendant and subsequently realigned as a plaintiff. US Ecology intervened as a plaintiff. The CIC sought to recover contributions made by the utilities and US Ecology to the CIC for pre-licensing project costs in the approximate amounts of $95 million and $6.2 million, respectively, and removal of the State of Nebraska from the licensing process. The Eighth Circuit Court of Appeals subsequently dismissed the utilities' and US Ecology's independent claims against Nebraska for breach of the good faith provision of the Compact, and for denial of due process based on sovereign immunity. The utilities and US Ecology subsequently filed cross claims against the CIC for breach of contract and the imposition of a constructive trust. 13 On September 30, 2002, the US District Court for the District of Nebraska entered judgment against Nebraska in favor of the CIC for $153 million, including approximately $50 million for prejudgment interest. Of this amount, US Ecology's share was for a $6.2 million contribution and $6.1 for prejudgment interest. The $6.2 million contribution is included within the balance sheet amount of $6,478,000 of capitalized facility development costs. The Court also dismissed the utilities' and US Ecology's cross claims for breach of contract and imposition of a constructive trust, finding that it was premature to decide the merits of these claims and leaving the question open for future resolution if necessary. The State appealed the judgment to the Eighth Circuit Court of Appeals. The case was argued before the Eight Circuit on June 12, 2003. No assurance can be given that the trial court's decision will be affirmed on appeal or that US Ecology will recover its contributions or interest thereon. MATTIE CUBA, ET AL. V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, ET - -------------------------------------------------------------------------------- AL.,CAUSE NO. 2000-092, 4TH JUDICIAL DISTRICT COURT, RUSK COUNTY, TEXAS - ---- This suit was brought in November 2000 by 28 named plaintiffs against the Company and named subsidiaries, the former owners and approximately 60 former customers of its Winona, Texas facility. Plaintiffs seek recovery for personal injuries, property damages and exemplary damages based on negligence, gross negligence, nuisance and trespass. The Company filed a motion for summary judgment in July 2002 based on lack of evidence. In November 2002, the trial court granted partial summary judgment, dismissing certain causes of action and reducing the number of plaintiffs, but preserving other causes of action. The Company subsequently filed a motion for summary judgment seeking dismissal against all of the adult plaintiffs on statute of limitations grounds. On March 26, 2003 the court granted this motion and dismissed the adult plaintiffs. Seven minors and one intervenor remain party to the lawsuit. The Company believes plaintiffs' remaining case is without merit and will continue to vigorously defend the matter. No assurance can be given that the Company will prevail or that the matter can be favorably resolved. The Company's current insurance carrier is paying for defense of this matter subject to the Company's $250,000 deductible, which has been fully accrued in prior periods. NOTE 8. COMMITMENTS AND CONTINGENCIES Effective January 1, 2003, the Company established the American Ecology Corporation Management Incentive Plan. The Plan provides for selected participants to receive bonuses based on pre-tax operating income levels. Bonuses under the plan are to be paid out over three years with maximum bonus payments in any one year of $1,125,000 if pre-tax operating income exceeds $12,000,000. In February 2003, the Company entered into employment agreements with four key executive employees. The agreements expire December 31, 2004 and 2005, and provide for aggregate minimum annual salaries of $639,000. On May 21, 2003, the Company met with representatives of the insurance company that provides closure/post closure insurance to discuss policy renewal. The Company's current set of primary financial assurance policies expire September 27, 2003. To address risk-related concerns raised by the insurance carrier, the Company is proposing to increase collateral from the $1,150,000 currently provided through a standby letter of credit to $4,000,000 over the next five years, primarily in cash. The Company expects the insurance company to respond to the proposal in August, 2003. No assurance can be given that the Company's proposal will be accepted or that higher collateral amounts will be required. NOTE 9. ACCOUNTING CHANGES AND RESTATEMENT Effective January 1, 2002, the Company implemented Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (FAS 143) under the early adoption provisions. FAS 143 requires a liability to be recognized as part of the fair value of future asset retirement obligations and an associated asset to be recognized as part of the carrying amount of the underlying asset. Previously the Company recorded a closure and post closure obligation for the pro-rata amount of space used of the total permitted space available. On January 1, 2002, in accordance with FAS 143, this obligation was valued at the current closure cost, increased by a cost of living adjustment for the estimated time of payment, and discounted back to its present value. In further accordance with FAS 143, upon calculation of the asset retirement obligation the Company also recorded an associated asset for the retirement 14 obligation. This asset is amortized over the estimated useful life of the related long-lived asset. FAS 143 allows for the aggregation of certain assets in calculating and subsequently amortizing this asset. During the fourth quarter of 2002, the Company reassessed its methodology of applying FAS 143 and disaggregated certain individual facility assets. In recalculating the overall asset under the revised methodology, the Company recorded a $3,182,000 reduction with no corresponding change in the recorded liability. Consequently, the initial 2002 gain on implementation of the new accounting standard recorded in the first quarter of 2002 was reduced by $3,182,000, and the amortization associated with the asset was reduced from what was previously recorded during the first three quarters of 2002. The following restatements were made to account for this change in FAS 143 implementation methodology (in thousands):
3 Months Ending Six Months Ending June 30, 2002 June 30, 2002 ---------------- ------------------- Reported Net Income $ 2,175 $ 21,252 Effect of Restatement: Cumulative Effect of Accounting Change -- (3,182) Amortization 26 50 ---------------- ------------------- Restated Net Income $ 2,201 $ 18,120 ================ =================== Reported Diluted EPS $ .12 $ 1.34 Effect of Restatement: Cumulative Effect of Accounting Change -- (.20) Amortization -- -- ---------------- ------------------- Restated EPS $ .12 $ 1.14 ================ ===================
NOTE 10. CLOSURE AND POST CLOSURE OBLIGATIONS Closure and post closure obligations are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated consistent with Statement of Financial Accounting Standards No. 5. The Company performs periodic reviews of both non-operating and operating facilities and revises accruals for estimated post-closure, remediation and other costs when necessary. The Company's recorded liabilities are based on best estimates of current costs and are updated periodically to reflect current technology, laws and regulations, inflation and other economic factors. Changes to reported closure and post closure obligations were as follows (in thousands):
Accrued Closure and Closure Obligation of Assets Total Closure and Post Post Closure Obligation Held for Sale or Closure Closure Obligations ------------------------- ------------------------------ ------------------------ December 31, 2002 obligation $ 10,200 $ 6,560 $ 16,760 Accretion of obligation 477 65 542 Payment of obligation (449) -- (449) Adjustment of obligation 133 (1,107) (974) ------------------------- ------------------------------ ------------------------ June 30, 2003 obligation $ 10,361 $ 5,498 $ 15,859 ========================= ============================== ========================
On February 13, 2003, the Company sold substantially all of the assets of the El Centro landfill. The sale included transfer of the accrued landfill closure and post closure obligation, which was $1,107,000 at the date of the sale. At June 30, 2003, $244,000 of pledged cash and investment securities were legally restricted. The pledged cash has been set aside to settle any closure and post closure obligations that are not directly paid by the Company. NOTE 11. OPERATING LEASE BUY OUT On August 3, 2000, the Company entered into a $2,000,000 equipment sale and leaseback transaction based on the sale of specified equipment and rolling stock to a third party lessor. The Company received $2,000,000 in proceeds from the asset sale and entered into an operating lease for the use of the equipment beginning August 8, 2000 with monthly payments scheduled through September 8, 2006. The Company realized a $1,098,000 gain on the sale of the equipment to be amortized over the life of the lease. 15 On March 28, 2003 the Company exercised an early buyout of the operating lease for $1,159,000 and recorded equipment purchases with a book value of $702,000 along with a reduction in the deferred gain of $457,000. In conjunction with the early buyout, the Company recorded an impairment charge of $225,000 on certain equipment at the discontinued Oak Ridge facility. NOTE 12. DISCONTINUED OPERATIONS As of June 30, 2003, "Assets held for sale or closure" consisted of certain assets at the El Centro municipal waste disposal facility, which the Company sold to a wholly-owned subsidiary of Allied Waste Industries, Inc. on February 13, 2003, and the assets and liabilities of the discontinued Oak Ridge processing and field services operations classified as "Held for sale or closure". Accordingly, the revenue, costs and expenses and cash flows for the El Centro landfill and Oak Ridge processing and Field Services operations have been excluded from continuing operations results and reported as "Income (loss) from discontinued operations" and "Net cash used by discontinued operations". Prior periods have been restated to reflect the discontinued operations. The assets and liabilities of discontinued operations included within the consolidated balance sheet as of June 30, 2003 are as follows (in thousands):
Processing and Field El Centro Disposal Total Assets Held Services Facility Facility for Sale or Closure --------------------- ------------------- -------------------- Current assets - -------------- Current assets $ 3,166 $ 350 $ 3,516 Property & equipment, net 552 -- 552 --------------------- ------------------- -------------------- 3,718 350 4,068 ===================== =================== ==================== Non-current assets - ------------------ Property, plant & equipment, net 1,509 -- 1,509 Other 48 682 730 --------------------- ------------------- -------------------- 1,557 682 2,239 ===================== =================== ==================== Current liabilities - ------------------- Accounts payable & accruals 5,252 6 5,258 Current portion long term debt 64 -- 64 --------------------- ------------------- -------------------- 5,316 6 5,322 ===================== =================== ==================== Non-current liabilities - ----------------------- Closure/post closure obligations 5,517 -- 5,517 Long-term debt 44 -- 44 Other 10 -- 10 --------------------- ------------------- -------------------- 5,571 -- 5,571 ===================== =================== ====================
Operating results for the discontinued operations were as follows for three and six months ending June 30:
Processing and Field El Centro Disposal Total Discontinued ($in thousands) Services Operations Facility Operations ---------------------- -------------------- -------------------- Three Months Ending June 30, 2003 - --------------------------------- Revenues, net $ 1,240 $ -- $ 1,240 Operating income (loss) (690) (3) (693) Net income (loss) (692) 16 (676) Basic earnings (loss) per share (.04) -- (.04) Diluted earnings (loss) per share (.04) -- (.04) Three Months Ending June 30, 2002 - --------------------------------- Revenues, net $ 5,579 $ 597 $ 6,176 Operating income (loss) (214) 139 (75) Net income (loss) (303) 34 (269) Basic earnings (loss) per share (.02) -- (.02) Diluted earnings (loss) per share (.02) -- (.02) 16 Six Months Ending June 30, 2003 - ------------------------------- Revenues, net $ 2,019 $ 469 $ 2,488 Operating income (loss) (1,793) 74 (1,719) Net income (loss) (2,029) 4,960 2,931 Basic earnings (loss) per share (.12) .30 .18 Diluted earnings (loss) per share (.12) .30 .18 Six Months Ending June 30, 2002 - ------------------------------- Revenues, net $ 9,913 $ 1,216 $ 11,129 Operating income (loss) (479) 295 (184) Net income (loss) (704) 224 (480) Basic earnings (loss) per share (.05) .02 (.03) Diluted earnings (loss) per share (.05) .02 (.03)
El Centro Disposal Facility. On February 13, 2003, the Company sold the El - ------------------------------ Centro municipal and industrial waste landfill to a subsidiary of Allied Waste Industries, Inc. ("Allied") for $10 million cash at closing and future volume-based royalty payments. Under the Agreement, Allied will pay the Company minimum royalties of at least $215,000 annually. Once Allied has paid the Company $14,000,000 in royalties, it no longer has an obligation to pay annual minimum royalties, but will still be required to pay royalties if disposal volumes exceed a minimum volume threshold. The Purchase Agreement provides incentives for Allied to bring Texas Class 1 industrial waste to the Company's adjacent hazardous waste facility, and for the Company to utilize the El Centro landfill. The Company sold $7,047,000 of Property and equipment in exchange for $10,000,000 of Cash, royalties valued at $858,000, and the assumption by Allied of $1,098,000 of closure liabilities. A gain of $4,909,000 was recognized in discontinued operations related to this sale. The royalties, valued at $858,000, represent the present value of 5 years of minimum royalty payments. Annual payments in excess of $215,000 or payments subsequent to 2007 would be included in Other income at the time of their receipt. This royalty represents substantially all of the assets held by the discontinued El Centro disposal facility. While the El Centro disposal facility is currently classified as a discontinued operation, royalty payments are expected to be received for at least five years. After fiscal year 2003 the El Centro disposal facility should realize interest income and other income from the royalty payments which would not be classified as discontinued operations due to their recurring nature. For segment reporting purposes, El Centro landfill operating results were previously classified as "Operating Disposal Facilities". Oak Ridge Processing Facility and Field Services. During 2002, the Company - ----------------------------------------------------- offered for sale its LLRW Processing Facility and Field Services operations based in Oak Ridge, TN, but was unable to consummate a sale based on continuing commercial operations. On December 27, 2002, the Company discontinued commercial waste processing. Since that time, the Company has devoted its primary efforts to removing accumulated waste from the facility to prepare the facility for sale. Removal of all customer waste from the facility was completed during July 2003. The majority had been shipped off site for processing and disposal as of June 30, 2003. Detailed information on the exact amount and character of waste removed at the time of shipment was used to refine initial waste disposition cost estimates. This resulted in an additional accrual of $911,000 for the three months ending March 31, 2003 and an additional $465,000 for the three months ending June 30, 2003. On June 16, 2003, the Company formally began discussions with a potential buyer of the Oak Ridge facility. A non-binding letter of intent has been entered into, based on sale of the facility's assets, including licenses, for a nominal sales 17 price along with buyer assumption of specified liabilities. The sale is contingent upon numerous items of which a satisfactory radiological characterization of the facility is a primary consideration. There is no assurance that the Company will be able to sell the Oak Ridge facility on terms favorable to the Company. On March 28, 2003, the Company recorded an additional impairment charge of $225,000 on certain Oak Ridge equipment acquired under the early buyout of an operating lease. On December 27, 2002, management informed all Oak Ridge employees that the Company was discontinuing commercial processing at the Oak Ridge facility and implemented a substantial reduction in the facility's labor force. Terminated union employees were compensated for prior service, provided health coverage through January 31, 2003, and presented with a proposed severance package. Terminated non-union employees were paid severance in accordance with written Company policy. For employees covered under the collective bargaining agreement, the Company entered into good faith severance negotiations with union representatives. The Company met on several occasions with the union to negotiate severance. Both sides amended their original proposals during these negotiations with a severance package being accepted in principle on July 12, 2003. On July 16, 2003, a final written agreement was executed which provides $152,000 of severance to the terminated union employees and a release from all claims related to their employment with the Company. Costs incurred at the Oak Ridge facility to remove waste and prepare the facility for sale during the three and six months ended June 30, 2003 are summarized as follows: (in thousands $000)
Three Months Six Months ------------- ----------- Net operating costs in excess of previous accrual $ 227 $ 428 Additional impairment of property and equipment -- 225 Increase in estimated cost for disposal of waste at facility 465 1,376 ------------- ----------- Disposal costs for the period ended June 30, 2003 $ 692 $ 2,029 ============= ===========
Cost changes for Oak Ridge facility on-site activities and disposal liabilities for removed wastes are as follows:
($in thousands) December 31, 2002 Cash Payments Adjustments June 30, 2003 ----------------- -------------- ----------- ------------- Waste disposal liability 1,827 (1,301) 3,703 4,229 On-site discontinued operation cost liability 1,800 (1,509) 428 719
The Adjustments represent differences between the estimated costs accrued at December 31, 2002 and the actual costs incurred during 2003 and changes in estimated future costs for waste disposal. The Adjustments amount in the above rollforward is different from the Income statement amount due to discontinued operations revenue realized by the Company upon disposal of customer waste. NOTE 13. FACILITY DEVELOPMENT COSTS The Company is involved in litigation requiring estimates of timing and loss potential whose disposition is controlled by the judicial process. During the quarter ended March 31, 2003, the Company wrote off its entire $20,951,000 Ward Valley deferred site development asset following an adverse trial court decision which cast substantial doubt on the Company's ability to recover its investment in the project. The decision to accrue costs or write off assets is based upon the specific facts and circumstances pertaining to each case and management's evaluation of present circumstances. See Note 7. The Company continues to believe that the facility development costs which were capitalized for development of the proposed Butte, Nebraska disposal facility will be realized, although no assurance can be given that a favorable trial court decision will be affirmed on appeal. See Note 7. 18 NOTE 14. SUBSEQUENT EVENTS On July 7, 2003 the Company received a check for $645,000 of a $740,000 federal income tax receivable. The remaining income tax receivable of $95,000 plus additional accrued interest is still in the refund process. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This document contains forward-looking statements that involve known and unknown risks and uncertainties which may cause actual results in future periods to differ materially from those indicated herein. These risks include, but are not limited to, the ability to sell Oak Ridge processing facility assets, compliance with and changes to applicable laws, regulations and permits, exposure to litigation, access to capital, access to insurance and financial assurances, new technologies, competitive environment, labor disputes, general economic conditions, and loss or diminution of major contracts. The Form 10-K for the year ending December 31, 2002 contains additional risk factors and an expanded disclosure of these risks. When the Company uses words like "will", "may," "believes," "expects," "anticipates," "should," "estimates," "project," "plans," their opposites and similar expressions, the Company is making forward-looking statements. These terms are most often used in statements relating to business plans, strategies, anticipated benefits or projections about the anticipated revenues, earnings or other aspects of our operating results. The Company makes these statements in an effort to keep stockholders and the public informed about our business based on management's current expectations about future events. Such statements should be viewed with caution and are not guarantees of future performance or events. As noted elsewhere in this report, our business is subject to uncertainties, risks and other influences, many of which the Company has no control over. Additionally, these factors, either alone or taken together, could have a material adverse effect on the Company and could change whether any forward-looking statement ultimately turns out to be true. The Company undertakes no obligation to publicly release updates or revisions to these statements. The following discussion should be read in conjunction with the audited consolidated financial statements and the notes thereto filed on Form 10-K for the year ending December 31, 2002. Unless otherwise described, changes discussed relate to the increase or decrease from the three and six month period ended June 30, 2002 to the three and six month period ended June 30, 2003. INTRODUCTION - ------------ The Company is a hazardous, PCB, industrial and radioactive waste management company providing transportation, treatment and disposal services to commercial and government entities including, but not limited to nuclear power plants, petro-chemical refineries, steel mills, the U.S. Department of Defense, biomedical facilities, universities and research institutions. The majority of its revenues are derived from fees charged for use of the Company's four fixed waste disposal facilities. The Company and its predecessors have been in business for 51 years. OVERALL COMPANY PERFORMANCE - ----------------------------- The Company's financial performance for the three and six months ended June 30, 2003 was weaker than the first and second quarters of 2002. Quarter to quarter comparisons are affected by a single large project undertaken in early 2002, higher 2003 litigation expenses, costs related to discontinuation of the Company's Oak Ridge, Tennessee low-level radioactive waste processing and field services business, a significant gain on sale of assets in early 2003, and changes in accounting to comply with recently issued Financial Accounting Standards. These factors are further discussed below. Ward Valley Litigation Expenses: Due to the adverse California state court - ---------------------------------- decision on March 26, 2003, the Company wrote off $20,951,000 of facility development costs for the Ward Valley project. This is reported as Loss on write off of Ward Valley facility development costs in the Consolidated Statement of Operations. Litigation and related costs totaling $288,000 and $1,786,000 were incurred and included in SG&A during the three and six months, respectively, ending June 30, 2003. The Company has appealed the Ward Valley ruling, but expects the appeal cost to be minimal based on a fixed price legal representation agreement entered in July, 2003 for the appeal. 19 Army Corps of Engineers Fort Greely, Alaska Project: The Company performed a - ------------------------------------------------------- $3,850,000 waste packaging and disposal project during the quarter ended March 31, 2002 which represented 29% of first quarter 2002 revenues. This large project was not replaced by like business in the first quarter of 2003. FAS 143: The Company implemented FAS 143 on January 1, 2002. FAS 143 requires a - -------- liability to be recognized as part of the fair value of future asset retirement obligations and an associated asset to be recognized as part of the carrying amount of the underlying asset. The implementation of FAS 143 resulted in a $13,141,000 cumulative effect of change in accounting principle gain during the quarter ended March 31, 2002. Sale of El Centro: On February 13, 2003, the Company sold the El Centro - --------------------- municipal waste landfill to Allied Waste and recognized a $4,909,000 gain on sale. This gain was included in discontinued operations during the quarter ended March 31, 2003. Oak Ridge Disposal Plan: On December 27, 2002, the Company discontinued - --------------------------- operations at the Oak Ridge facility and recognized $7,018,000 of additional estimated costs required under its asset and liability disposal plan. During the three and six months ended June 30, 2003, the Company identified or incurred an additional $692,000 and $2,029,000, respectively, in costs required to remove accumulated waste from the facility and prepare the facility for sale. This primarily reflects more accurate information on the specific quantity and type of waste which became available when specific wastes were prepared for shipment to off-site service providers. A significant portion of the Company's revenue is attributable to discrete waste clean-up projects ("Event Business"). The project-specific nature of the Event Business necessarily creates variability in revenue and earnings. This can produce large quarter to quarter swings, depending on the relative contribution from Event Business. Management's strategy is to expand its recurring customer business ("Base Business") while simultaneously securing both large and small event projects. Management believes that by structuring its operating costs so that the Company's Base Business covers fixed costs, much of the Event Business revenue will fall through to the bottom line. This strategy takes advantage of the high fixed cost nature of the disposal business. CRITICAL ACCOUNTING POLICIES - ------------------------------ In preparing the financial statements, management makes many estimates and assumptions that affect the Company's financial position and results of operations. Disposal Facility Accounting, Accounting for Discontinued Operations, Litigation, Income Taxes, and Project Accounting involve subjective judgments, estimates and assumptions that would likely produce a materially different financial position and result of operation if different judgments, estimates, or assumptions were used. These matters are discussed below. DISPOSAL FACILITY ACCOUNTING In general terms, a disposal cell development asset exists for the cost of building usable disposal space and a closure liability exists for closing, maintaining and monitoring the disposal unit once this space has been filled. Major assumptions and judgments used to calculate cell development assets and closure liabilities are as follows: - - Personnel and equipment costs incurred to construct disposal cells are capitalized as a cell development asset. - - The cell development asset is amortized as each available cubic yard of disposal space is filled. Periodic independent engineering surveys and inspection reports are used to determine the remaining volume available. These reports take into account waste volume, compaction rates and space reserved for capping filled cells. - - The closure liability is the present value based on a current cost estimate prepared by an independent engineering firm of the costs to close, maintain and monitor filled disposal units. Management estimates the timing of payment and then accretes the current cost estimate by an estimated cost of living (1.5%), and then discounts (9.3%) the accreted current cost estimate back to a present value. The final payments of the closure liability are estimated as being paid in 2056 based upon current permitted capacity and estimated annual usage. ACCOUNTING FOR DISCONTINUED OPERATIONS Accounting for discontinued operations requires numerous subjective and complex judgments, estimates and assumptions that materially affect financial results and position of discontinued operations. 20 At December 27, 2002, the Company discontinued operation of its former Processing and Field Services segment in Oak Ridge, Tennessee facility. The discontinued operations were accounted for under Emerging Issues Task Force Issue No 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), which requires a liability to be recognized at the time that the decision to exit the segment was made. EITF 94-3 was chosen as the guiding literature rather than Statement of Financial Accounting Standards No. 146 Accounting for Costs Associated with Exit or Disposal Activities (FAS 146), which requires a liability to be recognized at the time that the liability is incurred. FAS 146 is required for exit activities entered into after December 31, 2002 and was optional for exit activities prior to December 31, 2002. Approximately $1,800,000 of liabilities was recognized as of December 31, 2002 under EITF 94-3 that would not have been recognized until incurred had the Company adopted FAS 146 prior to December 27, 2002. The Company has recognized $692,000 and $1,804,000 in incremental liabilities and $0 and $225,000 for impairment of equipment as of the three and six months ending June 30, 2003, respectively, relating to discontinuation of its Oak Ridge LLRW Processing and Field Services operations. The Oak Ridge facility was cleared of remaining customer waste in July 2003. Due to the ongoing status of efforts to prepare the facility for sale, the cost estimate for exit from the segment may change, potentially by a material amount. LITIGATION The Company is involved in litigation requiring estimates of timing and loss potential whose disposition is controlled by the judicial process. During the quarter ended March 31, 2003, the Company wrote off $20,951,000 due to an adverse trial court decision which cast substantial doubt on the Company's ability to recover its investment in the Ward Valley project. The decision to accrue costs or write off assets is based upon the specific facts and circumstances pertaining to each case and management's evaluation of present circumstances. INCOME TAXES The Company has historically recorded a valuation allowance against its deferred tax assets in accordance with FAS 109, Accounting for Income Taxes. This past valuation allowance reflected management's belief that due to a history of tax losses and the previously weak financial condition and prospects for the business, it would likely not utilize portions of the deferred tax assets prior to their expiration. The valuation allowance is based on management's contemporaneous evaluation of whether it is more likely than not that the Company will be able to utilize some, or all of the deferred tax assets. During 2002, the Company assessed the valuation allowance and reversed approximately $8,284,000 of the valuation allowance that the Company expected to utilize in the foreseeable future. During the three months ended March 31, 2003, the Company reclassified the entire net deferred tax asset as long term, given that no taxable income is expected during 2003 due to the impact of the write off of the Ward Valley Project. PROJECT ACCOUNTING The Company has performed relatively large, fixed fee and long-duration remediation projects through the Company's discontinued Oak Ridge Field Services Division. Securing contracts to perform work required the Company to make assumptions regarding job duration, percentage of completion for waste processing, and disposal costs that would not be known until the actual project was complete. Differences between estimated and actual cost to remove, process and arrange final disposal of contaminated material can vary widely, resulting in potentially significant changes in individual project profit or loss. As of June 30, 2003, the Company is awaiting final payment on a Field Service project completed earlier in the year. Although no remediation work remains, completion of several contract requirements may positively or negatively impact the results of discontinued operations. RESULTS OF OPERATIONS - ----------------------- The following table presents, for the periods indicated, the operating costs as a percentage of revenues in the consolidated income statement: 21
Three Months Ended Six Months Ended ------------------------------------ --------------------------------------- (Restated) (Restated) ($in 000's) June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 ----------------- ----------------- ------------------- ------------------ $ % $ % $ % $ % ------- -------- ------- -------- --------- -------- -------- -------- Revenue 12,020 10,605 22,791 24,029 Direct operating costs 6,056 50.4% 5,841 55.1% 12,040 52.8% 12,016 50.0% ------- ------- --------- -------- Gross profit 5,964 49.6% 4,764 44.9% 10,751 47.2% 12,013 50.0% SG & A 3,289 27.4% 2,207 20.8% 7,786 34.2% 5,748 23.9% ------- ------- --------- -------- Income from operations 2,675 22.3% 2,557 24.1% 2,965 13.0% 6,265 26.1% Investment income 22 0.2% 16 0.2% 22 0.1% 27 0.1% Interest expense 38 0.3% 243 2.3% 159 0.7% 508 2.1% Loss on write off of Ward Valley -- 0.0% -- 0.0% 20,951 91.9% -- 0.0% Other income (expense) 93 0.8% 140 1.3% 93 0.4% (325) -1.4% ------- ------- --------- -------- Net income (loss) before income taxes 2,752 22.9% 2,470 23.3% (18,030) -79.1% 5,459 22.7% Income tax expense 63 0.5% -- 0.0% 55 0.2% -- 0.0% ------- ------- --------- -------- Net income (loss) before discontinued operations and cumulative effect of accounting change 2,689 22.4% 2,470 23.3% (18,085) -79.4% 5,459 22.7% ======= ======= ========= ========
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 AND 2002 - ------------------------------------------------------- REVENUE - ------- For the three months ended June 30, 2003, the Company reported consolidated revenue of $12,020,000, a 13% increase from the $10,605,000 reported for the same period in 2002. During the three months ending June 30, 2003 and 2002, $3,702,000 and 742,000 or 31% and 7% of revenue, respectively, represented work performed under contract with the U.S. Army Corps of Engineers. The Corps of Engineers and other federal agencies continue to ship waste under this contract to the Company's Grand View, Idaho treatment and disposal facility. Operating Disposal Facilities - ------------------------------- The Richland, Washington LLRW disposal facility's revenue increased $745,000 for the three months ended June 30, 2003 from the same period in 2002. The increase in revenue was primarily due to disposal of a relatively high radiation level shipment during June 2003. While a significant portion of the Richland facility's revenue is fixed due to its regulated rate structure, during the fourth quarter of 2002 the Company hired an experienced salesperson to improve unregulated revenues at the site. Second quarter 2003 unregulated revenues increased $174,000 to $305,000 from first quarter 2003 unregulated revenues of $131,000. At the Grand View, Idaho disposal facility, revenue increased $2,767,000 or 77% from the same period last year. During the second quarter, the facility disposed of 87,000 tons of material, primarily waste from the Army Corps of Engineers contract. It is expected that the Army Corps of Engineers and other federal agencies will continue to ship significant volumes under this contract to the facility throughout 2003. The Company has also entered into a significant "Event" business contract for work expected to be completed before year end. At the Beatty, Nevada hazardous treatment and disposal facility, revenue decreased $316,000 for the three months ended June 30, 2003 from the same period in 2002. The decrease in revenue was primarily due to decreased volumes of waste due to general economic weakness, resulting in little "Event" business to be competed for. The Company continues its efforts to increase revenue at the facility through focused sales efforts. Revenue is not expected to increase significantly, however, until the economy improves. At the Robstown, Texas hazardous treatment and disposal facility, revenue decreased $1,719,000 for the three months ended June 30, 2003 from the same period in 2002. The decrease in revenue was primarily due to reduced "Event" 22 business, including a large steel mill clean-up project performed during the second quarter 2002. General economic weakness was also a factor. The Company continues its efforts to increase revenue and throughput at this facility, primarily focusing on operational improvements and focused sales efforts. Revenue is not expected to increase significantly, however, until the economy improves. DIRECT OPERATING COSTS - ------------------------ For the three months ended June 30, 2003, consolidated direct operating costs increased 4% to $6,056,000 (50% of revenue) compared to $5,841,000 (55% of revenue) for the same period in 2002. The relatively lower direct operating costs reflect the high fixed cost nature of the disposal business (direct costs do not materially vary with changes in revenue). The Company continues its efforts to minimize direct costs through operational improvements. Operating Disposal Facilities - ------------------------------- A decrease in direct operating costs at the Robstown, Texas disposal facility during the three months ended June 30, 2003 was offset by higher direct operating costs at the Grand View, Idaho facility. Direct costs at the Richland, Washington and Beatty, Nevada facilities essentially remained flat. The increase in direct operating costs at Grand View was due to increased volumes of waste received. Conversely, the decrease in the direct operating costs at the Robstown facility was largely due to decreased volumes of waste processed and disposed of. Non Operating Disposal Facilities - ------------------------------------ Non Operating Disposal Facilities incur primarily engineering consulting costs required to meet regulatory agency requirements, and labor costs required to perform remedial work and safely close the facilities subsequent to operational use. For the three months ended June 30, 2003 and 2002, the Company reported $24,000 and $283,000 of expenses related to licensing facilities for initial use and $104,000 and $19,000 of costs in 2003 and 2002 to remediate or close facilities subsequent to use. GROSS PROFIT - ------------- For the quarter, the higher revenue combined with relatively lower direct costs generated improved gross profit and gross margin. Gross profit for the quarter was $6.0 million or 50% of revenue, compared with gross profit of $4.8 million or 45% of revenue during the same quarter last year. Increased revenue at the Grand View and Richland facilities allowed the Company to take advantage of the relatively fixed cost nature of the business and get more 'fall through.' Of the $1.4 million increase in revenue, $1.2 million was reflected in gross profit for the quarter. SELLING, GENERAL AND ADMINISTRATIVE COSTS (SG&A) - ------------------------------------------------ For the three months ended June 30, 2003, the Company reported SG&A of $3,289,000 (27% of revenue), a 49% increase from the $2,207,000 (21% of revenue) for the same three months of 2002. The increase in SG&A resulted from a number of factors including $290,000 of legal fees in second quarter 2003 associated with the Ward Valley trial, contrasted with $255,000 of legal and state fee refunds and $200,000 of reversed legal fee accruals that reduced second quarter 2002 SG&A. Company efforts to refocus operations and consolidate administrative activities have incurred incremental costs. On May 6, 2003, the Company implemented a new information systems upgrade at two of its hazardous waste treatment and disposal facilities with a third facility upgraded on July 24, 2003. Management believes that implementation of an enhanced information system platform along with the recently completed centralized accounting will increase operational efficiency and improve the availability and timeliness of financial and management information. Non Operating Disposal Facilities - ------------------------------------ Non Operating Disposal Facilities incur primarily legal costs to protect the Company's investment in proposed new disposal sites in Ward Valley, California and Butte, Nebraska, and legal and engineering consulting costs to meet obligations at facilities subsequent to operational use. For the three months 23 ended June 30, 2003 and 2002, the Company reported $284,000 and ($25,000) of SG&A expenses at Non Operating Disposal Facilities with substantially all of the 2003 expenses being legal costs associated with the Ward Valley litigation. The credit in second quarter 2002 SG&A expenses reflects actual legal fees being less than the previously estimated and accrued legal fees related to the litigation settled in 2002. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - ----------------------------------------------------- REVENUE - ------- For the six months ended June 30, 2003, the Company reported consolidated revenue of $22,791,000, 5% lower than the $24,029,000 reported for the same period in 2002. During the six months ending June 30, 2003 and 2002, $7,858,000 and 6,871,000 or 35% and 29% of revenue, respectively, represented work performed under contract with the U.S. Army Corps of Engineers. During the six months ending June 30, 2003, 10% of revenue represented work performed for Nucor Steel Company. Operating Disposal Facilities - ------------------------------- At the Company's Grand View, Idaho disposal facility, revenue increased $3,909,000 or 47% over the same six months last year. During the first six months of 2003, the facility disposed of 165,000 tons of material, mostly under the Army Corps of Engineers contract, including increased shipments from both the Army and other federal agencies utilizing the contract. It is expected that the Army and other federal agencies will continue to ship significant volumes of material to the facility throughout 2003. The Richland, Washington facility's revenue decreased $2,463,000 for the six months ended June 30, 2003 from the same period in 2002. The decrease in revenue was primarily due to a 3,850,000 clean-up project performed for the Army Corps of Engineers unrelated to the Company's Idaho site contract during the first quarter of 2002 which was not replaced by a like project in 2003. A significant portion of the Richland facility's revenue is fixed due to a stipulated rate agreement entered with the Washington Utility and Transportation Commission. During the fourth quarter of 2002 the Company hired an experienced salesperson to improve unregulated revenues at the site. The hiring of this sales person resulted in higher unregulated revenues for the six months, as this part of the business recorded revenue growth of $437,000 as of June 30, 2003. In the six months ending June 30, 2003, revenue at the Beatty, Nevada disposal facility was $119,000 lower than the same six months in 2002, primarily due to decreased volumes of waste received for disposal. As general economic weakness has continued, less waste has been produced and fewer remedial projects have occurred. The Beatty site continues to experience transportation and state tax disadvantages when competing for large remedial projects and base business customers in the southern California industrial waste market. At the Robstown, Texas hazardous treatment and disposal facility, revenue decreased $2,440,000 for the six months ended June 30, 2003 from the same period in 2002. The decrease in revenue was primarily due to reduced event business. Like Richland, a large first half 2002 event project was not replaced in 2003. General economic weakness was also a factor. The Company continues its efforts to increase revenue and throughput at this facility, primarily focusing on operational improvements and focused sales efforts. Site revenue is not expected to increase significantly, however, until the economy improves. DIRECT OPERATING COSTS - ------------------------ For the six months ended June 30, 2003, consolidated direct operating costs increased less than 1% to $12,040,000 (53% of revenue) compared to $12,016,000 (50% of revenue) in the same period in 2002. The small change in direct operating costs largely reflect the high fixed cost nature of the disposal business (direct costs do not materially vary due to revenue). The Company continues its efforts to minimize direct costs through operational improvements. Operating Disposal Facilities - ------------------------------- A decrease in direct operating costs at the Robstown, Texas disposal facility during the six months ended June 30, 2003 was offset by higher direct operating costs at the Grand View, Idaho facility. Direct costs at the Richland, Washington and Beatty, Nevada facilities essentially remained flat. The increase in direct operating costs at Grandview was due to increased volumes of waste. Conversely, the decrease in the direct operating costs at the Robstown facility was due to decreased volumes of waste. 24 Non Operating Disposal Facilities - ------------------------------------ Non Operating Disposal Facilities incur primarily legal and engineering consulting costs required to maintain licenses and labor costs required to remediate and safely close facilities subsequent to operational use. For the six months ended June 30, 2003 and 2002, the Company reported $24,000 and $470,000 of expenses related to licensing facilities for initial use and $206,000 and $137,000 in 2003 and 2002 to remediate or close facilities subsequent to use. GROSS PROFIT - ------------- For the six months ending June 30, gross profit decreased to $10.7 million (47% of revenue) from $12 million (50% of revenue) during the same six months last year. The decreased gross profit in the first six months of 2003 reflected a large project at the Company's Richland facility that was not replaced. This Richland project accounted for more than $2 million of gross profit in the first half of 2002. SELLING, GENERAL AND ADMINISTRATIVE COSTS (SG&A) - ------------------------------------------------ For the six months ended June 30, 2003, the Company reported SG&A of $7,786,000 (34% of revenue), a 35% increase from the $5,748,000 (24% of revenue) for the same six months of 2002. The primary increase in SG&A is due to $1,790,000 in 2003 legal and related fees associated with the Ward Valley state court trial. The Company has invested in centralization, and staffing upgradesand expects to continue to do so for the remainder of 2003 COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - --------------------------------------------------------------- INVESTMENT INCOME - ------------------ For the six months ended June 30, 2003, the Company earned $22,000 of investment income, down from $27,000 in the same period of 2002. Investment income is earnings on cash balances, restricted investments, and notes receivable of which the Company traditionally maintains minimal amounts and are a function of prevailing market rates. The Company received approximately $10,000,000 from the February 13, 2003 sale of the El Centro municipal waste landfill. This cash was utilized to support operations, for capital expenditures and to fund the retirement of Series D Preferred Stock and accrued dividends. The balance has been maintained in very short term investments. Based on anticipated cash balances and low interest rates, the Company does not anticipate significant investment income in the future. INTEREST EXPENSE - ----------------- For the three months ended June 30, 2003, the Company reported interest expense of $38,000, a decrease of $205,000 from the corresponding period in 2002. The primary cause of this decrease is the refinancing of the $8,500,000 industrial revenue bond ("IRB") for the Grand View, Idaho facility, which bore an interest rate of 8.25%. The IRB was substantially refinanced on November 1, 2002 through a $7,000,000, five year, fully amortizing term loan from the Company's primary lender, Wells Fargo Bank. The term loan provides for a variable interest rate of the bank's prime rate or an offshore rate plus an applicable margin that is based upon the Company's performance. For the three and six months ended June 30, 2003, the interest rate paid on the majority of the outstanding term loan was 3.7%. Additional reductions in interest expense are attributable to management's initiative to retire high cost debt, with no new debt being incurred other than periodic short term borrowings under the line of credit. OTHER INCOME (LOSS) - --------------------- Other Income is composed of the following ($ in thousands): 25
Three Months Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 ----------------- ------------ --------------- ------------- Litigation accrual related to GM settlement $ -- $ -- $ -- $ (740) Payment received on National Union settlement -- -- -- 250 Other litigation related settlements -- 100 -- 100 Insurance claim refunds -- 2 -- 27 Data processing services 8 27 8 27 Cash receipts for sale or rent of property rights 80 -- 80 -- Other miscellaneous income, net 5 11 5 11 ----------------- ------------ --------------- ------------- Total other income (loss) $ 93 $ 140 $ 93 $ (325) ================= ============ =============== =============
INCOME TAXES - ------------ The components of the income tax provision (benefit) were as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 ----------------- ------------ --------------- ------------ State tax expense (benefit) $ 63 $ -- $ 55 $ -- ================= ============ =============== ============
The tax effects of temporary differences between income for financial reporting and taxes give rise to deferred tax assets and liabilities. The Company has historically recorded a valuation allowance for certain deferred tax assets due to uncertainties regarding future operating results and for limitations on utilization of acquired net operating loss carry forwards for tax purposes. The potential realization of a significant portion of net deferred tax assets is based in part on the Company's estimates of the timing of reversals of certain temporary differences and on the generation of taxable income before such reversals. In 2002, the Company reevaluated the deferred tax asset valuation allowance, determined it was then "more likely than not" that a portion of the deferred tax asset would be realizable, and decreased the portion of the valuation allowance related to its operating facilities. During the quarter ended March 31, 2003, the Company wrote off its entire $20,951,000 Ward Valley asset. This large write off effectively assures the Company of a tax loss in 2003. Due to this expected loss, the $8,284,000 net deferred tax asset has been classified as long term. Management expects to realize a portion of this asset in 2004. The net operating loss carry forward is approximately $48,000,000 at June 30, 2003. Of this carry forward, approximately $2,745,000 is limited pursuant to the net operating loss limitation rules of Internal Revenue Code Section 382 and begins to expire in 2006. The remaining unrestricted net operating loss carry forward expires at various dates between 2010 and 2020. SEASONAL EFFECTS - ----------------- Operating revenues are generally lower in the winter months than the warmer summer months when short duration, one-time remediation projects tend to occur. However, both disposal and processing revenue are more affected by market conditions than seasonality. CAPITAL RESOURCES AND LIQUIDITY - ---------------------------------- At June 30, 2003, cash and cash equivalents totaled $4,750,000, an increase of $4,615,000 from December 31, 2002. The increase in cash was primarily due to the sale of El Centro for $10,000,000 in cash. The Company expects reductions in cash balances during the remainder of 2003 as cash is utilized for new disposal cell construction at its Grand View, Idaho facility and disposal of waste removed from the Oak Ridge, Tennessee facility. Also, in September of 2003, the Company's insurance policy for financial assurance at its hazardous waste disposal facilities expires. It is expected that the cost and cash collateral requirements to renew this insurance will increase. Depending on collateral requirements, the new terms could have a material, adverse impact on the Company's available cash. On February 28, 2003, the Company repurchased all 100,001 shares of Series D Preferred Stock outstanding for a net cash outflow of $2,800,000 after netting 26 out $3,525,000 in cash received for 2,350,000 common shares issued upon exercise of the Series E Warrants. Repurchase of the Series D Preferred Stock eliminated an 8 3/8% debt instrument due to the preferred stockholders and removed the potential dilution that the conversion of these shares would have had on common stockholders. In addition to regularly scheduled debt payments, the Company early retired $1,014,000 of relatively high cost debt in the first six months of 2003 and retired an additional $658,000 of debt secured by equipment included in the sale of El Centro. These preferred stock and debt reduction actions reflect continuing management initiatives to improve the Company's balance sheet and maximize asset utilization. On March 28, 2003 the Company exercised an early buyout of an operating lease for $1,159,000 and recorded equipment purchases with a book value of $702,000 along with a reduction in the deferred gain of $457,000. In conjunction with the early buyout, the Company recorded an impairment charge of $225,000 on certain equipment utilized at the discontinued Oak Ridge facility which was included in the early lease buyout. The early lease buyout accomplished three objectives. The primary objective was to repay Wells Fargo Bank $500,000 required by the Bank as a condition for their approving the repurchase of the Series D Preferred Stock. In addition, the Company cleared title to certain leased equipment at the Oak Ridge facility to support ongoing efforts to sell the facility. Lastly, buyout of the operating lease eliminated an expensive source of capital, improving the Company's overall cost of capital. During the first six months of 2003, the Company's days sales outstanding ("DSO") decreased to 73 days at June 30, 2003, compared to 77 days at December 31, 2002. Continued improvements in cash and receivable balances are a priority objective. The Company expects that implementation of its new information system and the hiring of a credit and collections manager will improve DSO in the second half of 2003. As of June 30, 2003 the Company's liquidity, as measured by the current ratio, decreased to 1.4 to 1.0 from 1.5 to 1.0 at December 31, 2002. Likewise, the Company's reported working capital decreased to $5,287,000 at June 30, 2003 from $8,087,000 on December 31, 2002. The primary reasons for the decrease in working capital were the repurchase of the Series D Preferred Stock, which resulted in a net cash outflow of $2,800,000, the retirement of debt, and $3,151,000 in capital expenditures paid for with cash. The majority of these capital expenditures were devoted to construction of new disposal capacity at the Grand View, Idaho facility. The Company's leverage, as evidenced by debt to equity ratio, has increased since December 31, 2002. The debt to equity ratio increased to 1.3:1.0 at June 30, 2003, compared to 0.9:1.0 at fiscal year-end 2002. The increase in the Company's debt to equity ratio was caused by the $20,951,000 write off of the Ward Valley asset, which outweighed the Company's repayment of approximately $6,600,000 in liabilities during the first six months of 2003. The debt to equity ratio is defined as total liabilities divided by shareholders equity On June 30, 2003, the Company had in place a $6,000,000 revolving line of credit with Wells Fargo Bank in Boise, Idaho maturing June 15, 2004. The line of credit is secured by the Company's accounts receivable. At June 30, 2003 and December 31, 2002, the outstanding balance on the revolving line of credit was $0 and $603,000, respectively. The Company borrows and repays according to business demands and availability of cash. It currently reserves $1,400,000 as a letter of credit used as collateral for an insurance policy and a lien bond. Management estimates total capital expenditure needs for 2003 of approximately $8,600,000. Along with the normal upgrading and replacement of aging assets, a $4,500,000 expansion of disposal capacity at the Grand View, Idaho facility is projected to be completed in the third quarter of 2003. The Company's Oak Ridge facility continues to require cash. Usage of cash is expected to increase as waste shipped off site is disposed of and billed. At June 30, 2003, the Company's Oak Ridge facility had liabilities expected to be paid in 2003 of $5,300,000. The Company believes that cash on hand and cash flow from operations, augmented as needed by periodic borrowings under the line of credit, will be sufficient to meet the Company's cash needs for the foreseeable future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 27 The Company does not maintain equities, commodities, derivatives, or any other instruments for trading or any other purposes, and does not enter into transactions denominated in currencies other than the U.S. Dollar. The Company has minimal interest rate risk on investments or other assets as the amount held is traditionally the minimum requirement imposed by insurance or government agencies. At June 30, 2003, $244,000 is held in short term pledged investment accounts and $740,000 in tax refunds is due from the Federal Government. Together these items earn interest at approximately 5%, and comprise 1.5% of assets. An additional $4,500,000 is held in short term investments with the majority expected to be utilized by the Company in 2003 for scheduled capital expenditures and payment of accrued liabilities. The Company does have interest rate risk on debt instruments. On October 28, 2002, the Company substantially refinanced the 8.25% fixed rate $8,500,000 Industrial Revenue Bond with a $7,000,000 five year term loan from the Company's primary lender. The term loan provides for a variable interest rate of the bank's prime rate or an offshore rate plus an applicable margin that is based upon the Company's performance. At June 30, 2003 the interest rate incurred by the Company was 3.7% on the outstanding term loan balance of $6,183,000. As of June 30, 2003, each 1% change in the term loan interest rate would result in an annual $59,000 change in interest expense. ITEM 4. CONTROLS AND PROCEDURES. (a) Within the 90 day period prior to the filing of this report, Company management, under the direction of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer believe that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed in the Company's Exchange Act filings. (b) The Company maintains a system of internal controls that is designed to provide reasonable assurance that its records and filings accurately reflect the transactions engaged in. For the quarter ending June 30, 2003, there were no significant changes to internal controls or in other factors that could significantly affect these internal controls. PART II OTHER INFORMATION. - -------------------------- ITEM 1. LEGAL PROCEEDINGS. Significant developments have occurred on the following legal matters since December 31, 2002: US ECOLOGY, INC. V. THE STATE OF CALIFORNIA, ET AL., CASE NO.GIC747562, SUPERIOR - --------------------------------------------------- COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO In May 2000, subsidiary US Ecology, Inc., sued the State of California, et. al. ("the State") for monetary damages exceeding $162 million. The suit stems from the State's abandonment of the Ward Valley low-level radioactive waste ("LLRW") disposal project. California law requires the state to build a disposal site for LLRW produced in California, Arizona, North Dakota and South Dakota; member states of the Southwestern Compact. US Ecology was selected in 1985 to locate and license the site using its own funds on a reimbursable basis. In 1993, US Ecology obtained a license from the State and entered a ground lease. The State successfully defended the license against court challenges and, until Governor Gray Davis took office, actively pursued conveyance of the site from the federal government. In September 2000, the Superior Court granted California's motion to dismiss all causes of action, which the Company appealed. In September 2001, the California Fourth Appellate District Court remanded the case for trial on promissory estoppel grounds. The case was tried in Superior Court for the County of San Diego during February and March 2003. On March 26, 2003, the Superior Court issued a Statement of Decision finding that the Company failed to establish causation and that its claim is further barred by the doctrine of unclean hands. The latter finding was based on actions the Court concluded had created obstacles to an agreement between the federal 28 government and the State to convey the site. The Court also found that key elements of the Company's promissory estoppel claim had been proven at trial. Specifically, the Court ruled that the State made a clear and unambiguous promise to US Ecology in 1988 to use its best efforts to acquire the site, that Governor Davis' administration abandoned this promise, and that the Company's reliance on the State's promise was reasonable and foreseeable. However, the Court found that the State's breach of its best efforts promise was not a substantial factor in causing damages to US Ecology since the federal government had continued to resist the land transfer. Based on the uncertainty of recovery following the trial court's adverse decision, the Company wrote off the $20,951,000 deferred site development asset at March 31, 2003. On May 2, 2003, the Company filed a motion to vacate and enter new judgment with the trial court, arguing that the March 26 decision misapplied the law to the facts. On May 30, 2003, this motion was denied without comment. On June 26, the Company filed a notice of appeal with the California Fourth Appellate District Court. The Company's financial interest in the pending claim against the State was improved by an amendment to the November 13, 1998 Ward Valley Interest Agreement and Assignment entered into by American Ecology and its former primary lender. This amendment, entered into by the Company and the successor in interest to that lender on June 27, 2003, provides that any monetary damages obtained shall first be allocated to the Company to recover past and future litigation fees and expenses relating to the pending claim. Thereafter, any remaining amount recovered shall be divided equally between the Company and the former lender. The 1998 agreement had provided that the first $29.6 million less up to $1.0 million in legal fees and expenses would be owed to the former lender, with any remaining recovery reserved to the Company. In early July, the Company engaged the law firm of Cooley Godward on a fixed price plus contingency basis to pursue the appeal, paying the fixed fee at the time of engagement. A briefing schedule has not been set. MANCHAK V. US ECOLOGY, INC., U.S. DISTRICT COURT FOR THE DISTRICT OF NEVADA, - -------------------------------- CIVIL ACTION NO. 96-494. In March 1996, Frank Manchak, Jr. ("Plaintiff" or "Manchak") filed suit alleging infringement of a sludge treatment patent to stabilize hazardous waste at the Company's Beatty, Nevada hazardous waste disposal facility. Plaintiff seeks unspecified damages for infringement, treble damages, interest, costs and attorney fees. On October 17, 2002, the US District Court for the District of Nevada granted the Company's motion for summary judgment to dismiss the suit. Manchak's motion for reconsideration was denied on January 8, 2003. Manchak appealed; however, plaintiff failed to timely file its appellant's brief and the Company moved to dismiss the appeal. On July 2, 2003, the US Court of Appeals for the Federal Circuit granted the Company's motion to dismiss, and denied plaintiff's request for an extension of time and relief from page/word brief limitations. On July 20, 2003 the plaintiff filed a motion for reconsideration with the appellate court. In January 2003, the Company filed a motion to recover legal fees and expenses. This motion was denied, which the Company is appealing. ENTERGY ARKANSAS, INC. ET AL, CENTRAL INTERSTATE LOW-LEVEL RADIOACTIVE WASTE - -------------------------------------------------------------------------------- COMMISSION AND US ECOLOGY, INC. ("PLAINTIFFS") V. STATE OF NEBRASKA, ET AL., - ------------------------------------------------------------------------------ CASE NO. 4:98CV3411, U.S. DISTRICT COURT, DISTRICT OF NEBRASKA This action was brought in federal court in December of 1999 by electric utilities that generate low-level radioactive waste ("LLRW") within the Central Interstate Low-Level Radioactive Waste Compact (CIC). CIC member states are Nebraska, Kansas, Oklahoma, Arkansas, and Louisiana. The action seeks declaratory relief and damages for bad faith in the State of Nebraska's processing and ultimate denial of US Ecology's application to site, develop and operate a LLRW disposal facility near Butte, Nebraska. US Ecology is the CIC's contractor and developer. The CIC was originally named as a defendant and subsequently realigned as a plaintiff. US Ecology intervened as a plaintiff. The CIC sought to recover contributions made by the utilities and US Ecology to the CIC for pre-licensing project costs in the approximate amounts of $95 million and $6.2 million, respectively, and removal of the State of Nebraska from the licensing process. The Eighth Circuit Court of Appeals subsequently dismissed the utilities' and US Ecology's independent claims against Nebraska for breach of the good faith provision of the Compact, and for denial of due process based on sovereign immunity. The utilities and US Ecology subsequently filed cross claims against the CIC for breach of contract and the imposition of a constructive trust. 29 On September 30, 2002, the US District Court for the District of Nebraska entered judgment against Nebraska in favor of the CIC for $153 million, including approximately $50 million for prejudgment interest. Of this amount, US Ecology's share was for a $6.2 million contribution and $6.1 for prejudgment interest. The $6.2 million contribution is included within the balance sheet amount of $6,478,000 of capitalized facility development costs. The Court also dismissed the utilities' and US Ecology's cross claims for breach of contract and imposition of a constructive trust, finding that it was premature to decide the merits of these claims and leaving the question open for future resolution if necessary. The State appealed the judgment to the Eighth Circuit Court of Appeals. The case was argued before the Eight Circuit on June 12, 2003. No assurance can be given that the trial court's decision will be affirmed on appeal or that US Ecology will recover its contributions or interest thereon. MATTIE CUBA, ET AL. V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, ET - -------------------------------------------------------------------------------- AL.,CAUSE NO. 2000-092, 4TH JUDICIAL DISTRICT COURT, RUSK COUNTY, TEXAS - ---- This suit was brought in November 2000 by 28 named plaintiffs against the Company and named subsidiaries, the former owners and approximately 60 former customers of its Winona, Texas facility. Plaintiffs seek recovery for personal injuries, property damages and exemplary damages based on negligence, gross negligence, nuisance and trespass. The Company filed a motion for summary judgment in July 2002 based on lack of evidence. In November 2002, the trial court granted partial summary judgment, dismissing certain causes of action and reducing the number of plaintiffs, but preserving other causes of action. The Company subsequently filed a motion for summary judgment seeking dismissal against all of the adult plaintiffs on statute of limitations grounds. On March 26, 2003 the court granted this motion and dismissed the adult plaintiffs. Seven minors and one intervenor remain party to the lawsuit. The Company believes plaintiffs' remaining case is without merit and will continue to vigorously defend the matter. No assurance can be given that the Company will prevail or that the matter can be favorably resolved. The Company's current insurance carrier is paying for defense of this matter subject to the Company's $250,000 deductible, which has been fully accrued in prior periods. ITEM 2. CHANGES IN SECURITIES AND USE O PROCEEDS. On February 28, 2003, the Company repurchased all 100,001 shares of Series D Preferred Stock for the original sales price of $47.50 a share plus accrued but unpaid dividends of $16.56 a share. A total cost of $6,406,000 was incurred to complete the repurchase. During February, 2003, three remaining Series E warrant holders exercised 2,350,000 Series E warrants with an exercise price of $1.50 per share. Consequently, the Company issued 2,350,000 shares of common stock and received $3,525,000 in cash. There are no Series E warrants outstanding. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held its Annual Meeting of Stockholders on May 29, 2003. On the record date of March 31, 2003 there were 16,960,901 shares of common stock. At the meeting the Company's nominees for Director were all elected to the Board, the selection of Moss Adams LLP as the Company's independent auditor was ratified, and the 1992 Employee Stock Option Plan was extended for 10 years. The voting on the three items was as follows:
Nominee for Director For Withheld - ---------------------------------------------------- ---------- --------- David B. Anderson 16,200,174 86,511 Rotchford L. Barker 16,255,261 31,424 Roy C. Eliff 15,838,324 448,361 Edward F. Heil 12,903,286 3,383,399 30 Roger P. Hickey 16,259,624 27,061 Stephen A. Romano 16,133,791 152,894 Stephen M. Schutt 16,200,184 86,501 Ratification of Moss Adams LLP - ------------------------------ For 16,230,665 Against 9,033 Abstain 46,987 10 Year Extension of 1992 Employee Stock Option Plan - ---------------------------------------------------- For 16,082,980 Against 161,529 Abstain 42,176
ITEM 5. OTHER INFORMATION. On January 28, 2003, John M. Couzens resigned from the Board of Directors. On February 17, 2003, the Board of Directors appointed David B. Anderson to the Board of Directors. Mr. Anderson is a Principal at Lochborn Partners LLC, in Chicago, Illinois. He has held senior executive positions with GATX Corporation and Inland Steel Industries. An attorney, Mr. Anderson has extensive experience in corporate strategy, compliance, acquisitions, and business development. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are filed as part of this report: Exhibit 31.1 Certification of June 30, 2003 Form 10-Q by Chief Executive Officer dated August 12, 2003 Exhibit 31.2 Certification of June 30, 2003 Form 10-Q by Chief Financial Officer dated August 12, 2003 Exhibit 32.1 Certification of June 30, 2003 Form 10-Q by Chief Executive Officer dated August 12, 2003 Exhibit 32.2 Certification of June 30, 2003 Form 10-Q by Chief Financial Officer dated August 12, 2003 (b) Reports on Form 8-K. On April 28, 2003, the Company issued an 8-K to announce first quarter 2003 earnings. On July 28, 2003, the Company issued an 8-K to announce second quarter 2003 earnings. 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 12, 2003 By: /s/ Stephen A. Romano --------------------------------------- Stephen A. Romano President, Chief Executive Officer and Chief Operating Officer 31 Date: August 12, 2003 By: /s/ James R. Baumgardner --------------------------------------- James R. Baumgardner Senior Vice President, Chief Financial Officer, Secretary and Treasurer 32 EXHIBIT INDEX Exhibit Description - ------- ----------- Exhibit 31.1 Certification of June 30, 2003 Form 10-Q by Chief Executive Officer dated August 12, 2003 Exhibit 31.2 Certification of June 30, 2003 Form 10-Q by Chief Financial Officer dated August 12, 2003 Exhibit 32.1 Certification of June 30, 2003 Form 10-Q by Chief Executive Officer dated August 12, 2003 Exhibit 32.2 Certification of June 30, 2003 Form 10-Q by Chief Financial Officer dated August 12, 2003 33 EX-31.1 3 doc2.txt Exhibit 31.1 I, Stephen A. Romano, certify that: 1. I have reviewed this Form 10-Q of American Ecology Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. August 12, 2003 /s/ Stephen A. Romano - -------------------------------- Chief Executive Officer EX-31.2 4 doc3.txt Exhibit 31.2 I, James R. Baumgardner, certify that: 1. I have reviewed this Form 10-Q of American Ecology Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. August 12, 2003 /s/ James R. Baumgardner - -------------------------- Chief Financial Officer EX-32.1 5 doc4.txt Exhibit 32.1 WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SEC.1350 Solely for the purposes of complying with 18 U.S.C. Sec.1350, I, the undersigned Chief Executive Officer of American Ecology Corporation (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stephen A. Romano - --------------------- Stephen A. Romano August 12, 2003 EX-32.2 6 doc5.txt Exhibit 32.2 WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SEC.1350 Solely for the purposes of complying with 18 U.S.C. Sec.1350, I, the undersigned Chief Financial Officer of American Ecology Corporation (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James R. Baumgardner - ------------------------ James R. Baumgardner August 12, 2003 -----END PRIVACY-ENHANCED MESSAGE-----