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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1996 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 NO.)
805 W. IDAHO, SUITE #200, BOISE, IDAHO 83702-8916
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (208) 331-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 25, 1997, Registrant had outstanding 8,015,308 shares of its
Common Stock. The aggregate market value of the Registrant's voting stock held
by non-affiliates at this date was approximately $10,031,000 based on the
closing price of $1.75 per share as reported on the Nasdaq Stock Market, Inc.'s
National Market System. For purposes of the foregoing calculation, all
directors and officers of the Registrant have been deemed to be affiliates, but
the Registrant disclaims that any of such directors or officers is an affiliate.
Documents Incorporated by Reference
Portions of the Proxy Statement for 1997 Annual
Meeting of Stockholders. Part III
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PART I
ITEM 1. BUSINESS
American Ecology Corporation and its subsidiaries (hereinafter
collectively referred to as the "Company" unless the context indicates
otherwise) provide processing, packaging, transportation, remediation and
disposal services for generators of hazardous waste and low-level radioactive
waste. Hazardous waste consists primarily of industrial waste, including waste
regulated under the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA" or "Superfund"), and the Toxic Substance Control Act
("TSCA"). Low-level radioactive waste ("LLRW" or "low-level waste") consists of
materials contaminated with low-levels of radioactivity and is generated by
nuclear power facilities, industry, hospitals, universities, laboratories and
other research facilities. In 1996, 47% of the Company's revenues were derived
from hazardous waste services and 53% of the Company's revenues were derived
from LLRW services.
The Company generally performs its operations through its wholly owned
subsidiaries. The Company's material subsidiaries are: US Ecology, Inc., a
California corporation ("US Ecology"), Texas Ecologists, Inc., a Texas
corporation wholly owned by US Ecology ("Texas Ecologists"); American Ecology
Recycle Center, Inc., a Delaware corporation ("AERC"), American Ecology
Environmental Services Corporation, a Texas corporation ("AEESC"), and American
Liability and Excess Insurance Company, a Vermont corporation.
The Company and its predecessors have been in business for over 40
years. The company was originally incorporated in California in October 1983.
In May 1987, the Company was reincorporated as a Delaware corporation by merger
into a newly formed wholly owned subsidiary incorporated in Delaware for that
purpose.
HAZARDOUS WASTE SERVICES
The Company provides a variety of hazardous waste management services to
its customers including stabilization, solid waste disposal, transportation,
and brokerage. The Company's customers are generally in the chemical,
petroleum, pharmaceutical, manufacturing, electronics and transportation
industries.
The hazardous waste management services provided by the Company are
generally performed pursuant to non-exclusive service agreements that obligate
the Company to accept hazardous waste from the customer. Fees are determined
by such factors as the chemical composition and volume or weight of the wastes
involved, the type of transportation or processing equipment used and distance
to the processing or disposal facility. The Company periodically reviews and
adjusts the fees charged for its services.
Prior to performing services for a customer, the Company's specially
trained personnel review the waste profile sheet prepared by the customer which
contains information about the chemical composition of the waste. A sample of
the waste may be analyzed in a Company laboratory or in an independent
laboratory to enable the Company to recommend and approve the best method of
stabilization, transportation, treatment and disposal. Upon arrival at one of
the Company's facilities, and prior to unloading, a sample of the delivered
waste is analyzed to confirm that it conforms to the customer's waste profile
sheet.
STABILIZATION AND DISPOSAL SERVICES
The Company operates two of the eighteen commercial hazardous waste
landfill disposal sites in the United States. The facilities are located in
Robstown, Texas and Beatty, Nevada. In addition, until August 1996, the
Company operated one of the nation's nine commercial deepwell disposal
facilities, located in Winona, Texas. As a result of political pressures, and
those of the local community, the Company has sustained high legal fees and
extraordinary costs to attempt maintaining the Winona facility. In August
1996, the Company decided to suspend the Winona facility operations as a result
of the adverse impact on the business base caused by inaccurate public
statements and other actions of persons opposed to the facility. The
litigation strategy being pursued by persons
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opposed to the facility includes numerous and duplicative lawsuits filed in
several jurisdictions. The Company believes the number of suits, as well as
the discovery and motion practices used in each, is designed to overwhelm the
financial resources of the Winona facility. These operations primarily served
the needs of hazardous waste generators in the Gulf Coast and West Coast
regions of the country. Management closed the Winona facility March 17, 1997
and will comply with all substantive environmental regulations for site
closure.
The Robstown and Beatty facilities may dispose of only solid wastes, but
both facilities also have the ability to treat and stabilize waste prior to
disposal and operate transfer and staging facilities for delivery of
containerized waste for off-site disposals. Stabilization involves the mixing
of sludges and certain wet wastes with cement, lime or other solidifying and
stabilizing agents to prevent leaching under acidic conditions. These
facilities are sited, designed, constructed, operated and monitored to provide
long-term containment of the waste in accordance with regulatory requirements.
The Company also maintains two closed landfills in Sheffield, Illinois. See
"Closed Facilities" for more detailed information about these facilities.
The following sections describe the Company's active hazardous waste disposal
facilities.
Beatty, Nevada Facility. The Company's Beatty, Nevada hazardous waste
landfill site is located on 80 acres of land 11 miles southeast of Beatty,
Nevada in the Amargosa Desert, approximately 100 miles northwest of Las Vegas
and 8 miles northeast of Death Valley and the California border. The Company
leases the site from the State of Nevada pursuant to a 1977 lease which
provided for an initial 20-year term, with a 10-year option for renewal. The
Company recently renewed the lease for 10 years. The waste site is operated
under license from the State of Nevada. The State of Nevada charges waste fees
which are deposited in state maintained trust funds for closure, perpetual care
and maintenance. The Company does not control these two state funds, but the
Company understands from State of Nevada correspondence that these funds
contained approximately $11.2 million and $1.8 million, respectively, as of
December 31, 1996.
The facility has approximately 1.4 million cubic yards of remaining
capacity, and is currently positioned to compete much more aggressively in an
overall depressed market than it has been in a number of years. Reduced state
fees have been negotiated with state regulatory staff, but not yet approved by
the governor. State regulatory staff have reviewed and approved revised
closure cost estimates that result in a reduction in future closure costs.
Closure of the former low level radioactive waste disposal site will allow the
company to transfer custody of the occupied portion to the State while
transferring the unused portion of the site to the hazardous waste facility,
thereby extending the life of the facility. In 1996, 1995, and 1994, 71,000,
131,000, and 202,000 cubic yards of waste, respectively, were disposed of at
the facility. The hazardous waste site was opened in 1970 and operates under
authority from the Nevada Department of Conservation and Natural Resources and
the Environmental Protection Agency's ("EPA") Region IX. It is also subject to
regulations of the U.S. Department of Transportation ("DOT") relating to
methods of handling, packaging and transporting chemical waste. Disposal
operations at the Beatty site involve stabilization of certain wastes to meet
land disposal criteria, and the burial of chemical waste in secure landfill
cells which are engineered, constructed, operated and monitored so as to
provide for the long-term containment of the waste. During 1988, the Beatty
site received its RCRA Part B permit from the EPA and the State of Nevada. The
State has released a proposal permit renewal for public comment and final
approval is expected by mid-year 1997.
The Beatty site is one of seven landfill sites in the United States
which are authorized by the EPA under TSCA to receive and dispose of certain
types of solid polychlorinated biphenyls ("PCBs"). This authority was issued
jointly to the Company and the State of Nevada by EPA Region IX. The disposal
of PCBs accounted for approximately 31% and 22% of the Beatty site's total
volumes in 1996 and 1995, respectively. In 1995, the Company was issued a
five-year renewal permit which allows the Company to continue to dispose of
non-liquid PCBs at the Beatty site. In 1990, the Company received written
confirmation from the EPA that the Beatty site was currently authorized to
accept CERCLA clean-up waste for disposal.
Robstown, Texas Facility. The Company owns 400 acres of land near
Robstown, Texas, located 15 miles west of Corpus Christi, and operates a
hazardous waste disposal site on 240 acres of the land. The site is operated
under the regulations of, and a permit issued by, the Texas Natural Resource
Conservation Commission ("TNRCC"). In addition to TNRCC regulation, the site
is subject to EPA and DOT regulation. In 1988, the Robstown site received
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its RCRA Part B permit. A proposed permit renewal is expected to go to public
hearing by mid-year 1997. Disposal operations at the Robstown site involve the
burial of hazardous waste in secure landfill cells which are engineered,
constructed, operated, and monitored so as to provide for the long-term
containment of the waste. The landfill is currently developing a 100,000 cubic
yard landfill to dispose of non-hazardous waste which should greatly improve
profit margins by allowing disposal in less expensive cell space.
Groundwater at the Robstown site is monitored through the use of an
extensive well system. In 1978, an analysis of the non-potable aquifer
underlying the site showed the presence of chemical contamination. The Company
has no evidence that the contaminants have migrated beyond the permitted site
boundaries and continues to address corrective action plans in connection with
the permitting process. The Company is currently operating a non-commercial
deep-injection well at the facility for the disposal of contaminated
groundwater and leachate in order to comply with its groundwater cleanup
program.
The facility is currently the only operating commercial landfill in
Texas with a RCRA Part B hazardous waste disposal permit. The facility serves
a wide range of industries including refining, petrochemical, agricultural and
manufacturing. In operation since 1972, the facility has disposed of more than
865,000 cubic yards of hazardous waste and there are approximately 3 million
cubic yards of remaining capacity. In 1996, 1995, and 1994, 41,000, 47,000,
and 68,000 cubic yards of waste, respectively, were disposed of at the
facility.
Winona, Texas Facility. The Winona facility, now a closed facility, was
a 620 acre fuels blending and solvent recycling facility with two hazardous
waste deepwells and waste brokerage services. In August of 1996, the Company
made a decision to suspend further receipts of waste at the Winona facility.
This decision was made based on the adverse impact on the business base of the
Winona facility caused by inaccurate public statements and other actions of
persons opposed to the Facility. The litigation strategy being pursued by
persons opposed to the facility includes numerous and duplicative lawsuits
filed in several jurisdictions. The Company believes that the number of suits
as well as the discovery and motion practices used in each is designed to
overwhelm the financial resources of AEESC, an American Ecology wholly owned
subsidiary.
During the period of discontinued waste receipts, the Company, primarily
through its Surecycle division, has continued to broker waste materials to
other off-site disposal facilities. Based on the current regulatory and
litigation morass under which the Winona facility was forced to operate,
management concluded that it was not economically feasible for the Winona
facility to continue. Also during this period of discontinued waste receipts
AEESC is in the process of removing from inventory all waste materials which it
believes would require the continued operation of the facility's FTIR ambient
air monitoring system and the Thermal Oxidizer air emission control equipment.
It is the facility's intent to discontinue the use of this equipment as soon as
is practicable, and with the approval of the regulatory authorities.
On December 31, 1994 the Company purchased this facility from Gibraltar
Chemical. Since the acquisition, the Company has been faced with both legal
confrontations and operational difficulties. The operation costs have been
high and very difficult to control. As a result of the operation costs
exceeding revenues every month, the Winona site has never been profitable.
Management has made many efforts to preserve the site as a possible profitable
operation, using different business techniques, yet none have succeeded. As a
result of these efforts it has been determined that the site should be closed
under Federal and State regulations. The date of the closure was set at March
17, 1997 when management agreed to a plan for closing the site under RCRA
rules. As part of its business closure activities, company officials will meet
with State regulators to negotiate a mutually acceptable schedule for
environmental closure of the facility to fully satisfy substantive
environmental requirements. The estimates for the environmentally correct
closure under those environmental laws has been estimated at $1,500,000.
TRANSPORTATION SERVICES
General. As a complement to its disposal operations, the Company also
offers hazardous waste transportation services to its customers. The Company's
waste transportation operations focus on the Gulf Coast market. The Company
transports both hazardous and non-hazardous solid and liquid wastes generally
by truck or trailer from a waste site to a disposal or treatment facility, such
as a landfill or incinerator. Hazardous waste is transported by the
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Company primarily in specially-constructed vehicles designed to comply with
applicable regulations and specifications of the DOT. The Company's hazardous
waste fleet includes 45 trucks or tractors, 318 roll-off containers and 82
trailers. Liquid waste is frequently transported in bulk, but also may be
transported in drums. Heavier sludges and bulk solids are transported in
sealed roll-off boxes or bulk trailers.
The Company operates a scheduled, containerized hazardous waste
collection service in the Gulf Coast market called Surecycle(R), a division of
American Ecology Environmental Services Corporation (AEESC). Surecycle provides
small quantity generators with comprehensive waste management services that
includes waste analysis, technical advice, labeling, manifesting, collecting,
transporting, treating and disposing of hazardous wastes. An important feature
of the Surecycle(R) program is the use of intermediate bulk containers as a
replacement for drums in many applications. Surecycle also offers specialized
350 gallon waste packages or "totes". These totes allow waste generators to
accumulate up to six drums worth of material in the same floor space required
to store four drums. The totes are reusable, therefore the customer also
enjoys substantial savings in avoided drum purchase costs.
LOW-LEVEL RADIOACTIVE WASTE SERVICES
Radioactive waste is generally classified as either high-level or low-
level. High-level radioactive wastes, such as spent nuclear fuel and waste
generated during the reprocessing of spent fuel from nuclear reactors, contain
substantial quantities of long-lived radioactive isotopes and require hundreds
or thousands of years to decay to safe levels.
Low-level radioactive waste consists primarily of solid materials
containing far less radioactive contamination, generally decaying to safe
levels within several decades to approximately 500 years. The Company's LLRW
business includes the packaging, transportation, disposal, treatment, recycling
and processing of low-level waste. Low-level waste is generated by nuclear
power facilities, industry, hospitals, universities, laboratories and other
research facilities. This waste consists generally of material such as
contaminated equipment, discarded glassware, tools, gloves and protective
clothing, radio-pharmaceuticals and other hospital wastes, and laboratory waste
materials. This waste generally requires minimal shielding for the protection
of the public or employees from radiation. It is packaged in metal containers
designed to protect the public during transportation and provide additional
long-term containment of the waste once it is placed in the permanent disposal
facility.
The LLRW services market is generally composed of three segments; (i)
disposal, including both commercial and government markets, (ii) commercial
processing and volume reduction, and (iii) government services. The Company
operates in all three of these segments. The Company's LLRW disposal
activities involve the operation of a landfill site on government owned land
near Richland, Washington. The Recycle Center has LLRW commercial processing
and volume reduction services that include both fixed base processing
facilities and service capabilities as well as on site service capabilities
managed as an extension of the organization located at Oak Ridge, Tennessee.
The government services segment activities includes processing, volume
reduction and disposal, at US Department of Energy ("DOE") and US Department of
Defense ("DOD") locations. The Recycle Center is a well established commercial
service provider and intends to pursue these DOE and DOD markets.
THE COMPACT SYSTEM
The Low-Level Radioactive Waste Policy Act of 1980 and the Low-Level
Radioactive Policy Amendments of 1985 (collectively, the "Low-Level Act")
established the general framework for the management of commercial LLRW
disposal facilities. The Low-Level Act created incentives for states to form
formal regional alliances ("compacts") as ratified by the U.S. Congress, each
containing a designated landfill for use by member states. One state within
each compact is required to site and build a permitted disposal facility on a
rotating basis so that continuous disposal capacity for that compact can be
maintained.
The Low-Level Act also provides that any compact approved by Congress
may restrict the use of its disposal facility to low-level waste generated
within the member states, and may limit the export of waste from that compact
as of January 1, 1993. As a result, in 1992 the Company saw a marked increase
in LLRW volumes disposed
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because of this pending limitation of disposal space availability. Since
January 1, 1993, the State of Washington, through the Northwest Compact
(Washington, Oregon, Idaho, Montana, Utah, Wyoming, Alaska, and Hawaii), has
prohibited disposal of LLRW generated from outside the Northwest Compact at the
Company's Richland, Washington facility with the following exception. The
Northwest Compact entered into an inter-regional contract with the Rocky
Mountain Compact to accept waste generated by the Rocky Mountain Compact
(Nevada, Colorado, and New Mexico). As a result, the implementation of the
Low-Level Act has resulted in a reduction of waste receipts at the Company's
low-level waste disposal site in Richland, Washington.
DISPOSAL SERVICES
The Company operates the only licensed LLRW disposal facility within the
regional compact system. The facility is located near Richland, Washington.
This facility serves the LLRW disposal needs of the eight member states of the
Northwest Compact and the three member states of the Rocky Mountain Compact.
The Company is in the process of developing three additional LLRW disposal
facilities for the Southwest, Central, and Midwest states' compacts. The
Company has also been awarded as part of the team of US Ecology, Bechtel and
URS Consultants, a contract to begin site screening for a LLRW site for the
Midwest Compact (Ohio). The Company also maintains two closed LLRW landfills
in Sheffield, Illinois and Beatty, Nevada. (See "Closed Facilities" for more
detailed information about each of these closed facilities). The following
section describes the Company's active and proposed LLRW disposal operations.
Richland, Washington Facility. This facility is located on 100 acres,
25 miles northwest of Richland, Washington on DOE's Hanford Nuclear Reservation
("Hanford"). The State of Washington leases the land from the federal
government and the Company subleases the land from the state for a period of 99
years. In 1990, the Company exercised its option to renew its sublease for an
additional 15 years. Under the terms of the sublease, the site is to be used
for LLRW burial and related activities. The primary disposal operations at the
site are conducted under a radioactive materials license issued by the
Washington State Department of Health. An application to renew the Company's 5
year license, which terminates in May 1997, has been submitted and is expected
to be approved by the state. The Company also holds a special nuclear
materials license which permits burial of materials containing certain
radioactive elements in amounts greater than those allowed under the license
issued by the State of Washington. Special nuclear material is LLRW which
contains uranium 233, uranium 235 or plutonium.
The disposal rates charged at the Richland facility have been regulated
by the Washington Utilities and Transportation Commission (WUTC) since 1993.
Rate regulation is designed to set disposal rates sufficient to cover the costs
of operation and provide the Company with a reasonable profit margin. In May
1995 the Company filed a rate case to implement a new rate design and revenue
requirement for the years 1996 through 2001. The Company's filing, after
amendment by a settlement agreement signed by major site users, was approved by
the WUTC to establish a $5.6 million annual revenue requirement and a rate
design to collect this revenue from site availability, per container, per
shipment, volume and dose rate at the container surface charges. The approved
revenue requirement is exclusive of taxes and fees. The State of Washington
charges and collects fees for burial, site surveillance, local economic
development, rate regulation and site use from low-level generators using the
Richland facility. Revenues are also contributed by generators to fund
dedicated trust accounts, administered by the Washington State Treasurer, for
closure and long term care and maintenance of the Richland site. As of
December 31, 1996, $24.4 million was retained in the site closure account and
$24.4 million in the perpetual maintenance account.
The Richland facility is permitted to accept naturally occurring and
accelerator produced radioactive materials (NARM) waste from throughout the
nation. During 1996 approximately 12,000 cubic feet of NARM waste supplemented
company revenues collected from the disposal of over 105,000 cubic feet of low-
level waste generated from Northwest and Rocky Mountain Compact states. In
1995, the State of Washington implemented a regulation to limit NARM volume to
8,600 cubic feet annually and any single generator to no more than 1,000 cubic
feet. The Company filed litigation on this issue and executed a settlement
agreement on May 15, 1996. The agreement provides that the Washington
Department of Health promulgate revised regulations with a 100,000 cubic feet
annual cap on NARM waste disposal. Until new regulations are adopted, a court
stay has mandated that the 100,000 cubic feet limit will apply with the
provision that any unused allocation may be transferred to future years.
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Although NARM waste disposal rates are not regulated by the WUTC, a portion of
NARM revenue can be applied to reduce the Company's annual LLRW revenue
requirement.
Proposed Ward Valley, California Facility. In December 1985, the
Company was selected as the State of California's license designee to site,
develop and operate a LLRW disposal facility ("Ward Valley") in that state to
serve the Southwestern Compact (California, Arizona, North Dakota and South
Dakota). In September 1993, the California Department of Health Services
("DHS") certified its final environmental impact report, issued its Record of
Decision on the project, issued a license to the Company to construct and
operate the facility and executed a lease of the site with the Company. The
license and lease become effective and construction can only begin once the
land for the site is conveyed from the U.S. to the State of California. In
connection with the development of this LLRW facility, the Company has expended
and capitalized $45.9 million, including pre-operational interest, as of
December 31, 1996. Under its agreement with the State of California, the
Company may earn interest on the venture capital expended in developing the
Ward Valley project. As of December 31, 1996 the unrecorded interest component
is $34.8 million.
Construction and operation of the facility has been delayed in large
measure because the federal government has not yet conveyed the land for the
facility, located in California's Ward Valley, to the State of California. In
January 1993, former Secretary of the Interior, Manuel Lujan, announced the
sale of the Ward Valley site to the State of California. That sale was
enjoined, however, as a result of the lawsuits described below. Subsequently,
the new Secretary of Interior in the Clinton administration, Bruce Babbitt,
rescinded Secretary Lujan's land sale decision and decided to conduct
additional federal hearings before determining whether to convey the land. In
August 1993, Secretary Babbitt requested that California Governor Pete Wilson
hold an adjudicatory hearing on behalf of the U.S. Department of the Interior
to provide information that might be relevant to the Secretary's decision on
the land transfer, and in September 1993, the Governor agreed to hold such a
hearing. In November 1993, Secretary Babbitt sent a letter to Governor Wilson
that he was postponing further action on his proposed hearing in order to await
the final outcome of two state court litigations that had been filed against
the project in October 1993. In 1994, Secretary Babbitt asked the National
Academy of Sciences ("NAS") to conduct an independent review of certain
geological issues related to the suitability of the Ward Valley site. The NAS
convened a panel in 1994, conducted hearings on the project in June and
September 1994. The NAS panel issued a May 1995 report which concluded that
the project would pose no significant threat to groundwater quality and no
credible threat to the quality of water in the Colorado River which is about
twenty miles and a mountain range away. Subsequently, Secretary Babbitt
announced his intention to transfer the land, subject to several specific
conditions to California DHS. Interior and DHS negotiated transfer conditions
through the summer and fall of 1995. In the fall of 1995, when it became
apparent that Interior would not accept the State's good faith assurances,
these negotiations were put on hold and the State of California petitioned
Congress for statutory transfer of the land. Accordingly, legislation was
introduced and attached to the Omnibus Budget Reconciliation Act of 1995. This
measure was vetoed by the President, in part because of its provisions
regarding the Ward Valley land transfer. Since then, new Ward Valley land
transfer legislation has been introduced in both the House and Senate. Efforts
to advance legislation were resisted by California's Senators and were
unsuccessful in 1996. Efforts at legislative resolution of this matter will
continue in 1997.
In February 1996, John Garamendi, Deputy Secretary of the Department of
Interior (DOI), announced that the DOI would not make a decision on California's
pending application for the purchase of the Ward Valley site until after
additional on-site testing is conducted. Mr. Garamendi also stated that the
results of this testing as well as several other issues would be presented in a
supplement to the project's Environmental Impact Statement, and that Interior's
decision on the sale probably would not be made for another year. The testing
at issue is that which the National Academy of Sciences recommended in its May
1995 report could be performed during facility construction. The Academy
stated that the land transfer should not be delayed to conduct these tests, and
the State of California has already stated that the recommended tests would be
conducted after the land is transferred. Mr. Garamendi's decision is therefore
widely regarded as politically motivated. Throughout 1996, the Department of
Interior has done little to advance either site testing or development of the
SEIS.
Two lawsuits challenging the 1993 decisions by DHS to issue a license
and a lease to the Company for the construction and operation of the Ward
Valley disposal site were filed in the California Superior Court for the
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County of Los Angeles (the "License Litigation") in October 1993. The
plaintiffs in the license litigation alleged that the DHS violated various
procedural and substantive requirements of the California Radiation Control Law
and the California Environmental Quality Act in reaching its license decision
and sought to have the facility's license invalidated. In June 1994, the judge
trial court ruled in favor of the DHS and the Company on all issues with the
exception of one. The trial court concluded that the Wilshire report should be
considered by the DHS in a "pre-approval setting", and remanded the case to the
DHS for reconsideration. In August 1995, the California Appeals court ruled in
favor of DHS on all counts, overturning the trial court's determination
regarding the Wilshire report. In January 1996, the California Supreme Court
refused to entertain project opponents' further appeals. Therefore, all legal
challenges to the license and the EIR at the state level have been successfully
resolved.
In January 1993, a lawsuit had been filed against the Secretary of the
Interior, Manuel Lujan, in federal district court for the Northern District of
California to enjoin the intended sale of the land for the Ward Valley site to
the State of California. The suit was filed on the grounds that the Secretary
could not sell the land until he had designated critical habitat for the desert
tortoise, a threatened species under the Federal Endangered Species Act, and
that the 1990 U.S. Fish and Wildlife Service's ("FWS") biologic opinion, which
concluded that the project would not jeopardize the continued existence of the
desert tortoise, impermissibly failed to analyze the project's potential
radiological impacts on the desert tortoise. In February 1994, the U.S.
Department of Interior designated approximately 6,400,000 acres in the states
of California, Nevada, Utah and Arizona as critical habitat for the desert
tortoise. The designation includes the proposed Ward Valley site. Based on
these developments, the lawsuit was dismissed without prejudice. Inclusion of
the Ward Valley as critical habitat requires the Bureau of Land Management, the
EPA and the FWS to consider and weigh several factors, including whether the
project would result in the destruction or adverse modification of critical
habitat. In August 1995, the U.S. Fish & Wildlife Service issued an updated
Biological Opinion which reaffirmed an opinion of "No Jeopardy" to the desert
tortoise, and further included that the project would not result in the
destruction or adverse modification of desert tortoise critical habitat.
A second lawsuit was also filed in 1993 against the Secretary of
Interior which alleged violations of the National Environmental Policy Act by
Secretary Lujan in his decision to transfer the land to the State of
California. Based on Secretary Babbitt's decisions later in 1993 to rescind
the land transfer and supplement the project's Final Environmental Impact
Statement, this action was stayed by agreement of the parties, but technically
is still pending in federal district court and may be amended. The Company is
not a defendant in this matter.
In October 1995, the San Bernardino County Board of Supervisors passed
an emergency ordinance which prohibited the disposal in San Bernardino County
of LLRW not generated within its borders, and which imposed facility location
and design standards on any LLRW disposal facility established in the County
which, if valid, would have had the practical effect of prohibiting the
establishment of the Ward Valley facility as licensed by DHS. Several parties,
including US Ecology, brought suit in U.S. District Court for the Central
District of California to have the ordinance invalidated. In February 1996,
the County rescinded the Ordinance and the litigation has been stayed by
agreement of the parties. Technical discussions regarding the Ward Valley
project are continuing between the County and DHS. Recently, the County passed
a resolution and offered draft legislation which would invalidate the federal
LLRW Protection Act. The implications of this draft legislation have
far-reaching national impacts and it is unlikely that it will succeed current
federal law.
Additional legal challenges and political delays could postpone
the opening of the facility to between 1997 and 1999 or beyond. Assuming the
land is transferred and all challenges and appeals to the land transfer and the
facility license decision are favorably resolved, the Company expects that the
construction and start-up of the facility will take approximately eight to
twelve months. It is not possible to assess the ultimate length of the delay
at this time, nor can there be any assurance that the land will be transferred.
If the land is not transferred or the facility is not established for any
reason, the Company may proceed with legal action to protect its rights.
Because the reasons for not transferring the land or otherwise preventing the
establishment of the facility are not known, the ultimate outcome of any such
legal action is uncertain, and there is no assurance that the company will
recover monetary damages or restitution of its past expenditures. The Company
expects to incur expenses of approximately $120,000 per month, excluding
interest, until construction begins. These expenses are not currently
reimbursable from the Southwestern Compact or any other party.
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As a result of the continued inaction by the Department of Interior, the
California Department of Health Services brought suit against the Department in
early 1997 seeking immediate land transfer citing Secretary Lujan's Record of
Decision in 1993. This suit claims the Department of Interior has acted in bad
faith and abused its discretionary authority to transfer the land for political
purposes. US Ecology also filed a separate suit for breach of contract against
the Department of Interior seeking mandamus and injunctive relief with
remuneration for moneys expended on project development to date.
If the California LLRW facility cannot be established and if the Company
is unable to recoup its investment through legal recourse, the Company would
suffer a loss that would have a material adverse effect on its financial
condition.
Proposed Butte, Nebraska Facility. In June 1987, the Company was
designated to develop and operate a LLRW disposal facility ("Butte") by the
Central Interstate Low-Level Radioactive Waste Commission ("CIC"). In July of
1990, the Company submitted an application to the Nebraska Departments of
Environmental Quality and Health ("NDEQ" and "NDOH") for the necessary license.
The application has been under review and the anticipated project
completion date has been postponed several times. In 1996 the NDEQ, the lead
license review agency, removed anticipated task completion dates from its
published management plans. The last published management plan estimated the
license review would be completed, with publication of draft licensing
documents and preliminary licensing decisions, in July of 1996. The director
of the NDEQ has since estimated that stage of the licensing process would be
reached in October of 1997, however, the state has declined to provide the
Company or the CIC with a formal schedule. In August, the CIC held a special
meeting to gather testimony on a review schedule that would be reasonable and
enforceable upon the state. That meeting resulted in a January 14, 1997
deadline for completion of the review and the publication of draft documents
and preliminary decisions. The CIC schedule would have led to issuance of a
license in December 1997 and a facility operations start-up in December of
1999. In November, 1996 the state filed a federal lawsuit against the CIC
challenging its authority to enforce a schedule and, in the alternative, seeks
a determination that the schedule is unreasonable. The Company is not a party
to this lawsuit. The state has subsequently failed to meet the CIC deadline
and the CIC has taken preliminary steps that could lead to a lawsuit against
the state, alleging bad faith in processing the license application. Although
the Company is prepared to proceed through construction and into operation
under the accelerated schedule, there can be no assurance the CIC will succeed
in its efforts to enforce it. Currently, the Company anticipates license
issuance in the fourth quarter of 1999, with facility operations start-up in
2001 and an estimated total cost of $154.3 million for licensing, design and
construction. However, there can be no assurance that the license review
process will result in the issuance of a license by Nebraska authorities.
Project costs through 1996 totaled $80.3 million, substantially all of
which has been provided by the major low-level radioactive waste generators in
the CIC states (Nebraska, Kansas, Oklahoma, Arkansas and Louisiana). The
Company expects to incur expenses of approximately $600,000 per month for the
remainder of the pre-licensing phase. All these expenses are reimbursed
monthly by the CIC. Once the two year construction period commences,
expenditures are expected to be approximately $50 million, excluding interest.
Under the present contract with the CIC, this construction expense will be the
Company's responsibility. Because of delays in the completion of the license
review, the Company anticipates that currently committed pre-licensing funds
will be insufficient for the completion of this phase of its contract with the
CIC. The Company is working with the CIC to renegotiate contract amendments to
provide adequate funding for the remainder of the pre-licensing phase.
The Company's portion of the project costs through 1996, which has been
capitalized, totaled $7,146,000, and the Company anticipates no additional
investment in the project prior to construction. From 1988 to January 1, 1997
unrecorded interest was earned on the Company's contribution to the project
costs at a rate of 20 percent. Under the terms of the Company's revised
contract with the CIC, unrecorded interest computed after January 1, 1997 is
calculated at prime rate plus 3 percent. This interest rate will remain in
effect until all currently authorized pre-licensing funding is expended.
In January 1993, the directors of the NDEQ issued a Notice of Intent to
Deny the Company's license application based on their interpretation of a
regulatory requirement. The two agencies took the position that the presence
of wetlands within the proposed site boundaries, even though not in the area to
be used for waste disposal,
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precluded the issuance of a license. Subsequently, the proposed site
boundaries were reconfigured to eliminate the presence of wetlands and the two
agencies withdrew the Intent to Deny.
In August 1994, the U.S. Army Corps of Engineers determined that a small
wetland, less than one acre in size, exists on the reconfigured site. The
disposal of waste will not take place in the area determined to be a wetland by
the Corps. The State of Nebraska has taken no action against the Company's
license application as the result of the Corps' wetland determination.
However, the Company believes that, given the state's actions in the 1993
Intent to Deny, resolution of the issue is prudent in order to avoid any
potential future such actions by the state. Although the Company disagreed
with the Corps' wetland determination, it was determined to be more
expeditious, efficient and publicly acceptable to obtain permits to fill the
disputed area and create a new wetland area off-site. The necessary permits,
which are valid through January of 1998, were obtained in August 1996.
Resolution of the issue, however, has been delayed by a state regulatory
interpretation that filling the disputed area would amount to a prohibited pre-
license initiation of project construction. The Company has attempted to
resolve the issue through negotiations with the state, but negotiations at this
time have not resulted in an agreement. The Company has been authorized by the
CIC to use its best efforts, including a lawsuit if necessary, to resolve the
issue.
Competition. The Company operates the only commercial low-level waste
disposal site operating within the regional compact system in the United
States. The Company's Richland, Washington facility operates as the exclusive
LLRW disposal site for the Northwest and Rocky Mountain Compacts. The other
United States LLRW disposal facility near Barnwell, South Carolina is operated
by Chem-Nuclear, a subsidiary of WMX Technologies, Inc., and is no longer a
part of the Southwest Compact.
A disposal facility located near Clive, Utah is licensed by the State of
Utah to accept NORM and certain types of LLRW. This facility has not been
designated as a regional facility under the Low-Level Act. The Utah facility
accepts principally low-level radioactive contaminated soil from clean-up
sites.
LLRW PROCESSING AND RECYCLING SERVICES AT THE RECYCLE CENTER
The commercial processing and volume reduction segment of the LLRW
services market includes both fixed-based facilities and service capabilities
performed at the radioactive waste generator sites. The Company's processing
and volume reduction services are conducted under the auspices of its Recycle
Center in Oak Ridge, Tennessee.
The Company acquired the Recycle Center from Quadrex Corp. in September
1994. The Recycle Center is equipped to process and recycle materials which
are contaminated with low levels of radioactivity. The Recycle Center provides
services primarily to nuclear power facilities, industrial nuclear generators
and the federal government. Historically, the Recycle Center's customers have
included a substantial number of public utilities. The Recycle Center's
principal services include the following:
NUCLEAR MATERIAL MANAGEMENT CENTER
LLRW Packaging and Transportation Services. The Company packages and
transports small quantities of LLRW from laboratories, hospitals, universities
and other commercial facilities to disposal facilities. The Company may
contract with low-level waste generators to pick up waste which is shipped to
commercial LLRW sites. The waste is either shipped by the Company in its own
vehicles or is shipped by common carriers under subcontract. The Company
supplies many of these customers with equipment and material for the packaging,
labeling and transportation of the LLRW material. The packaging and
transportation market is highly competitive, and the Company does not have a
significant presence in the market.
Metal Waste Decontamination. Radioactive contaminated metals exist
primarily in the form of large components such as pumps, valves, fuel racks,
and larger items such as condensers, heat exchangers, and other large
components. The Recycle Center can decontaminate these metals through an
abrasive process, or chemical processing.
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Dry Active Waste ("DAW") Processing. DAW processing services include
volume reduction and free release programs. This waste is primarily in the
form of wood, clothing, and paper products. The Recycle Center uses its super-
compactor to reduce the volume of this waste before it is shipped for disposal.
The Recycle Center facility differentiates itself in this service by baling
waste prior to supercompaction. The combination of baling, binding and super-
compacting accomplishes superior volume reduction. The Recycle Center also
sorts and segregates waste prior to supercompaction.
Green is Clean Program. In 1989, the Recycle center initiated its free
release, or Green is Clean program. Under this program, generators place
potentially contaminated waste in yellow bags and potentially clean material in
green bags. The bags are then shipped to the Recycle Center for scanning.
Waste certified as uncontaminated is disposed of in an industrial waste
landfill. Material that cannot be certified as clean is packaged for disposal
at a radioactive waste burial facility. This packaging includes super-
compaction to facilitate significant volume reduction.
Remedial Services. The Field Services Division of the Recycle Center
offers a full range of turnkey services including site characterization,
verification, on-site volume reduction, license termination, decontamination
and decommissioning. The Recycle Center's staff has been involved in
conducting radiological decontamination projects for over 20 years. This
highly experienced staff has implemented multiple projects on time and within
budget.
LLRW Brokerage Services. The Company packages, processes and transports
small quantities of LLRW for laboratories, hospitals, universities and other
commercial facilities to disposal facilities. The Company may contract with
small volume waste generators to pick up waste which is processed for burial at
a commercial site. The waste is either shipped by the Company in its own
vehicles or is shipped by certified carriers under subcontract. The Company
supplies many of these customers with equipment and material for the packaging,
labeling and transportation of the LLRW material. The packaging and
transportation market is highly competitive, and the Company does not have a
significant presence in the market.
NUCLEAR EQUIPMENT SERVICE CENTER (NESC)
The Nuclear Equipment Service Center (NESC) provides refurbishment and
repair services for high value nuclear power plant electric motors and other
high value equipment. These services include decontamination, disassembly,
modifications, reassembly and testing to meet stringent client requirements for
safety and reliability. Additionally, the Company frequently provides field
services to nuclear power plants for removal, inspection, maintenance and
reinstallation of high value equipment.
Motors, valves, pumps and other components of nuclear power plants in
the United States require periodic maintenance which requires them to be
decontaminated before they can be refurbished. The Company can remove
contaminated winding insulation, decontaminate the motor stator and rotor, then
rebuild and test the motor with minimal outside service providers. The Company
believes that the NESC is the only major facility in the United States
providing a combination of all of these services.
Scaffolding and Lead Management Services. During maintenance periods,
nuclear utilities require the use of scaffolding and lead blankets. The
Recycle Center maintains an inventory of approximately two million pounds of
scaffolding and 350,000 pounds of lead blankets. The scaffolding and lead
blankets are decontaminated, surveyed, refurbished, painted, and then rented to
the customer.
Competition. The Company's competitors in the commercial LLRW
processing and recycling market include Scientific Ecology Group (recently
purchased by GTS Duratech), Chem-Nuclear Systems, Inc., Allied Technology
Group, Inc., Frank Hake and Associates, Inc., Alaron, Inc., and Manufacturing
Sciences Company.
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LLRW DISPOSAL OPERATIONS
The Company has operated the Richland low-level waste disposal facility
since 1965 under a sublease with the State of Washington for 100 acres located
within the Hanford Nuclear Reservation. Waste has been emplaced to date on
approximately 40 acres of the site. Under provisions of the Low-Level Waste
Policy Act of 1980 and as amended in 1985, the State of Washington has accepted
responsibility for disposal of waste generated in the Northwest Compact and has
entered into a contract agreement to provide disposal for the Rocky Mountain
Compact states. The combined 11 member states generate approximately 100,000
cubic feet of low-level radioactive waste per year which is available to be
disposed of at the Richland facility.
The Company's low-level disposal prices are regulated by the Washington
Utilities and Transportation Commission (WUTC) under a monopoly finding. A
rate design and disposal revenue requirement for the years 1996 through 2001
was approved by the WUTC in 1995 which establishes a $5.6 million annual
revenue requirement and authorizes the Company to recover its cost and profit
through site availability, per container, per shipment, volume and dose at the
container surface charges. These unit prices are adjusted annually to account
for inflation.
The Richland facility is also authorized to accept and dispose of
Naturally Occurring and Accelerator Produced Radioactive Materials (NARM) waste
under its Radioactive Material license issued by the State of Washington. NARM
disposal rates are outside the scope of rate regulation by the WUTC, but under
the 1995 Settlement Agreement a portion of the NARM receipts collected by the
Company is credited to the annual LLRW revenue requirement. During 1996 the
Company disposed of approximately 105,000 cubic feet of LLRW and 12,000 cubic
feet of NARM waste.
On July 29, 1996 the Company submitted to the Washington Department of
Health a revised site stabilization and closure plan for the Richland
facility. This amended the closure plan submitted in December 1994. On March
29, 1996 the Company also submitted to the Washington Department of Ecology
(WDOE) a work plan for a comprehensive investigation of the Richland site to
assess the presence of hazardous waste constituents in the vadose zone beneath
the trenches and to confirm the performance of the disposal trenches within the
facility with respect to the protection of the groundwater from small amounts
of hazardous material associated with some LLRW. The plan received preliminary
approval by WDOE and funding for the investigation is expected to be provided
from the dedicated Site Closure Account after authorization by the Legislature.
The Company has completed the installation of two new monitoring wells
consistent with this plan. The formal investigation is scheduled to commence
in late summer 1997. The Closure Plan and Comprehensive Investigation have
been incorporated into a state environmental impact review. The State EIR
efforts commenced in early 1997 and will be completed in 1998.
CLOSED FACILITIES
The Company's closed hazardous waste and LLRW disposal facilities are
described below.
Sheffield, Illinois Facility. The Company previously operated two
hazardous waste disposal sites at Sheffield, Illinois. The sites are located
on property owned by the Company on 45 acres adjacent to a closed state-owned
LLRW site also previously operated by the Company. One hazardous waste site
was opened in 1974 and ceased accepting hazardous waste in 1983. A second
closed hazardous waste disposal site occupied less than five acres, and
accepted hazardous waste pursuant to Illinois authorization from 1968 through
1974. The two sites were operated and are maintained under federal and state
environmental regulations.
The Company also maintains a 20-acre LLRW disposal facility three miles
southwest of Sheffield, Illinois located on land owned by the State of
Illinois. The Company has closed the facility, which last received low-level
waste in 1978, and is maintaining the site pursuant to a 1988 Agreed Order
settling long-standing litigation between the Company and the State of
Illinois.
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In 1984, the Company submitted for approval a closure and post-closure
plan for the hazardous waste disposal sites to the Illinois EPA and to the U.S.
EPA. The regulatory agencies have approved the Company's detailed program for
implementation and operation of comprehensive corrective action, but have not
approved the Company's closure and post-closure plan. The Company believes
that its closure and post-closure plan fully satisfies the health and safety
needs of the public and all regulatory requirements. The Company amended its
closure plan in 1996 to reflect up-to-date activities at the site. Review of
the plan by the Illinois EPA and the U.S. EPA is currently in progress.
In 1982, hazardous waste was detected in site-monitoring wells at one of
the two Sheffield facilities and as a result, the Illinois EPA requested that
the Company conduct an investigation of the site. The Company completed,
pursuant to a 1985 Consent Order, a Remedial Investigation and Feasibility
Study of the Sheffield facility. Pursuant to that order, a final Corrective
Measures Implementation Plan was issued by the U.S. EPA in October 1990 and the
Company is in the process of implementing this plan. The Company completed its
source isolation programs in 1994. The Company is currently renegotiating the
terms of the Corrective Measures Implementation Plan for groundwater monitoring
and extraction programs. A pilot air sparging system has been approved by the
U.S. EPA.
RCRA regulations also require the Company to carry environmental
impairment insurance against sudden and accidental occurrences, as well as
against non-sudden occurrences such as subsurface migration. See "Insurance".
These coverages are not available for the Sheffield, Illinois site due to its
1984 inclusion on the RCRA National Priorities List. Even though the site was
removed from the list as a result of the consent agreement between the Company
and U.S. EPA, and the site has not received waste for 20 years, the site does
not qualify for environmental impairment insurance.
Maxey Flats, Kentucky Facility. Between 1963 and 1978, the Company
operated the Maxey Flats, Kentucky LLRW site, a facility that was owned,
licensed and maintained by the Commonwealth of Kentucky (the "Commonwealth").
In 1978, the Commonwealth entered into an agreement with the Company to
permanently close the facility and the Commonwealth agreed, in part, to assume
any and all liabilities related to the facility and to exercise responsibility
for perpetual care and maintenance of the facility. The Commonwealth later
filed a lawsuit against the Company seeking to have that agreement declared
invalid. The Company then filed an action against the Commonwealth seeking
cost recovery and contribution and to enforce its rights under the agreement.
After several federal court decisions in favor of the Company on the issues, in
July 1994, the Commonwealth and the Company settled all pending litigation
regarding the Maxey flats facility. The Company and the Commonwealth also
agreed to cooperate in the resolution of any third party indemnification claims
against the Company from potentially responsible parties involved with the
facility. The Company estimates that the maximum amount of the Company's share
of these third party claims is less than $400,000, and the Company has
recognized this liability in its 1996 financial statements.
LLRW Portion of Beatty, Nevada Facility. In December 1992, the Governor
of Nevada, citing the federal Low-Level Act as authority, issued an executive
order for the Company's Beatty, Nevada LLRW disposal site to cease accepting
LLRW for disposal. In January 1993, the Company filed a lawsuit challenging
that order. In September 1993, the Company and the State of Nevada executed a
settlement agreement disposing of all pending litigation between the parties.
The settlement resulted in the dismissal of three lawsuits. Two of the
lawsuits had been filed by the Company challenging the authority of the Nevada
Environmental Commission to establish two new fees on disposal of waste at the
Beatty facility. The other suit dismissed was filed by Nevada seeking to
obtain a declaration from the court that it had the right to terminate the
lease agreement with the Company for the Beatty facility. The Company also
dismissed its claims against Nevada for damages associated with the Governor's
executive order closing the LLRW facility. Pursuant to the settlement
agreement, the parties also agreed that until December 31, 1996, regulatory,
statutory and lease fees for hazardous waste disposal would not exceed $40.20
per ton in the aggregate, though subject to decrease in certain events. The
settlement agreement also provides for the permanent closure of the Company's
LLRW disposal facility at Beatty, Nevada. The State of Nevada agreed to
accelerate the licensing process of the unused disposal acreage from the LLRW
site for use in the Company's hazardous waste disposal operations at Beatty.
The EPA has published a proposed permit for the unused land and the Health
Division has formally released it for other use. Release of this land will
roughly double the site's hazardous waste capacity. As a result of the above
order and settlement agreement, the Beatty facility accepted no LLRW for
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disposal after January 1, 1993. The State of Nevada maintains a perpetual care
and maintenance trust fund for the Beatty, Nevada LLRW and hazardous waste
facilities which is funded by the Company. Recently, analysis results by USGS
indicating small amounts of tritium and carbon-14 at this facility have been
cited by opponents of Ward Valley as evidence that the Ward Valley site is not
suitable. The USGS in their recent review of the Beatty data determined that
"extrapolation of results from Beatty to Ward Valley are too tenuous to have
much scientific value". These trace amounts are the result of operations or
practices that occurred in the early 1970's. This issue was thoroughly
reviewed by the State of Nevada and the USNRC in 1976. Actions were
implemented by the Company to correct and upgrade disposal practices. Both
California DHS and USGS have stated that past disposal practices, not site
characteristics, contributed to the results at Beatty. Furthermore, the results
are not indicative of likely Ward Valley performance.
The USGS data are noteworthy from a research perspective, but have no
health and safety or regulatory significance. USGS has stated, however, that
the agency will propose and perform additional studies near Beatty. See
"Business - Hazardous Waste Services - Stabilization and Disposal Services -
Beatty, Nevada Facility".
REGULATION
The environmental services industry is subject to extensive regulation
by federal, state and local authorities. In particular, the regulatory process
requires the Company to obtain and retain numerous governmental permits or
other authorizations to conduct various aspects of its operations, any of which
may be subject to revocation, modification or denial. Adverse decisions by
governmental authorities on permit applications submitted by the Company may
result in premature closure of facilities or restriction of operations, which
could have a material adverse effect on the Company's results of operation.
Because of the heightened public awareness of environmental issues,
companies in the environmental service business, including the Company, may in
the normal course of their business be expected periodically to become subject
to judicial and administrative proceedings. The Company may also be subject to
actions brought by private parties or special interest groups in connection
with the permitting or licensing of its operations, alleging violations of such
permits, licenses or environmental laws and regulations.
The Company's business is heavily dependent upon environmental laws and
regulations which effectively require wastes to be managed in facilities of the
type owned and operated by the Company. The Company makes a continuing effort
to anticipate regulatory, political and legal developments that might affect
its operations, but is not always able to do so. Federal, state and local
governments have from time to time proposed or adopted other types of laws or
regulations which significantly affect the environmental services industry.
These have included laws and regulations to ban or restrict the interstate
shipment of hazardous wastes, impose higher taxes on out-of-state hazardous
waste shipments than in-state shipments and to reclassify certain categories of
hazardous wastes as non-hazardous. In particular, the federal government
currently is considering several fundamental changes to laws and regulations
that define which wastes are hazardous, that establish treatment standards for
certain wastes that could lead to their reclassification as non- hazardous, and
that revise the nature and extent of responsible parties' obligations to
remediate contaminated property. While the outcome of these deliberations
cannot be predicted, it is possible that some of the changes under
consideration could facilitate exemptions from hazardous waste requirements for
significant volumes of waste and alter the types of treatment and disposal that
will be required. If such changes are implemented, the overall impact on the
Company's business is likely to be unfavorable. The Company cannot predict the
extent to which any legislation or regulation that may be enacted or enforced
in the future may affect its operations.
Hazardous Waste Regulations. The Company is required to obtain federal,
state, local and foreign governmental permits for its hazardous waste
treatment, storage and disposal facilities. Such permits are difficult to
obtain, and in most instances extensive geological studies, tests and public
hearings are required before permits may be issued. In particular, the
Company's operations are subject to RCRA (as discussed below), the Safe
Drinking Water Act (which regulates deep well injection), TSCA (pursuant to
which the EPA has promulgated regulations concerning the disposal of PCBs), the
Clean Water Act (which regulates the discharge of pollutants into surface
waters and sewers by municipal, industrial and other sources) and the Clean Air
Act (which regulates emissions into
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the air of certain potentially harmful substances). In its transportation
operations, the Company is subject to the jurisdiction of the Interstate
Commerce Commission and is regulated by the DOT and by state regulatory
agencies. Employee safety and health standards under the Occupational Safety
and Health Act ("OSHA") are also applicable to the Company's operations.
RCRA. Pursuant to RCRA, the EPA has established and administers a
comprehensive, "cradle-to-grave" system for the management of a wide range of
solid and "hazardous" wastes. States that have adopted hazardous waste
management programs with standards at least as stringent as those promulgated
by the EPA may be authorized by the EPA to administer their programs in lieu of
the EPA.
Under RCRA and federal transportation laws, all generators of hazardous
wastes are required to label shipments in accordance with detailed regulations
and prepare a detailed manifest identifying the material and stating its
destination before shipment off site. A transporter must deliver the hazardous
wastes in accordance with the manifest and generally only to a treatment,
storage or disposal facility having a RCRA permit or interim status under RCRA.
Every facility that treats or disposes of hazardous wastes must obtain a RCRA
permit from the EPA or an authorized state and must comply with certain
operating standards. The RCRA permitting process involves applying for interim
status and also for a final permit. The Company believes that each of its
facilities is in substantial compliance with the applicable requirements
promulgated pursuant to RCRA.
It is possible that the EPA may consider a number of fundamental changes
to its regulations under RCRA that could facilitate exemptions from hazardous
waste management requirements, including policies and regulations that could
implement the following changes: redefine the criteria for determining whether
wastes are hazardous; prescribe treatment levels which, if achieved, could
render wastes non-hazardous; encourage further recycling and waste
minimization; reduce treatment requirements for certain wastes to encourage
alternatives to incineration; establish new operating standards for combustion
technologies; and indirectly encourage on-site remediation. Because many of
these initiatives are in various stages of development and implementation, the
Company cannot predict the final outcome of EPA decisions or the extent of
their impact on the Company's business.
Superfund. Superfund provides for immediate response and removal
actions coordinated by the EPA to releases of hazardous substances into the
environment, and authorizes the federal government either to clean up
facilities at which hazardous substances have created actual or potential
environmental hazards or to order persons responsible for the situation to do
so. Moreover, Superfund grants a right of recovery to private parties who
incur costs in response to the release or threatened release of hazardous
substances. Superfund has been interpreted as creating strict, joint and
several liability for costs of removal and remediation, other necessary
response costs and damages for injury to natural resources. Liability extends
to owners and operators of waste disposal facilities (and waste transportation
vehicles) from which a release occurs, persons who owned or operated such
facilities at the time the hazardous substances were disposed, persons who
arranged for disposal or treatment of a hazardous substance at or
transportation of a hazardous substance to such a facility, and waste
transporters who selected such facilities for treatment or disposal of
hazardous substances.
It is possible that the U.S. Congress could revise the Superfund statute
in the future. In addition to possible changes in the statute's funding
mechanisms and provisions for allocating cleanup responsibility, it is possible
that Congress could fundamentally alter the statute's provisions governing the
selection of appropriate site cleanup remedies, conclude not to continue
Superfund's current reliance on stringent technology standards issued under
other statutes to govern removal and treatment of remediation wastes or could
adopt new approaches such as national or site-specific risk based standards.
These and other potential policy changes could significantly affect the
stringency and extent of site remediation, the types of remediation techniques
that will be employed, and the degree to which permitted hazardous waste
management facilities will be used for remediation wastes.
LLRW Regulations. The LLRW services of the Company are also subject to
extensive governmental regulation. Various phases of the Company's LLRW
services are regulated by various state agencies, the Nuclear Regulatory
Commission ("NRC") and the DOT. Regulations applicable to the Company's
operations include those dealing with packaging, handling, labeling and routing
of radioactive materials, and prescribe detailed safety and equipment
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standards and requirements for training, quality control and insurance, among
other matters. Employee safety and health standards under OSHA are also
applicable to the Company's operations.
Financial Assurance and Site Maintenance. The Company operates its
hazardous waste disposal sites under RCRA permits. The LLRW sites are operated
under licenses from state and, in some cases, federal agencies. When one of
these facilities reach capacity, or lease or license termination dates, the
facility must be closed and maintained for a period of time prescribed by law
or by license. In the case of the RCRA-permitted hazardous sites, federal
regulation requires that operators demonstrate the financial capability to
close sites on an immediate, unscheduled (worst-case) basis. The estimated
costs of such a closure are set forth in the operator's RCRA closure and post-
closure plan.
Financial assurance requirements for closure/post-closure plans may
generally be satisfied by various means, including insurance, letters of
credit, surety bonds, trust funds, a financial net worth test and/or a
corporate guarantee. The Company is currently satisfying such requirements
through a combination of certain of the various allowable methods. Cash and
investment securities totaling $16.4 million and $13.8 million at December 31,
1996 and 1995, respectively, have been pledged as collateral for the Company's
closure and post-closure obligations, performance of a Remedial Investigation
and Feasibility Study and performance of corrective action at the closed
Sheffield, Illinois facility, compliance with the TNRCC requirements related to
the Company's non-commercial use deepwell at its Robstown, Texas facility,
closure costs for the Beatty, Nevada LLRW site, closure costs for the Recycle
Center, closure costs for the Winona, Texas facility, test borings at the
proposed LLRW sites in Nebraska and California, settlement with generators of
waste at the Richland, Washington LLRW facility and other general performance
bonds. The amounts pledged by the Company generally equal the present value of
its estimated future closure and post-closure obligations.
INSURANCE
The nature of the Company's business exposes it to risk of accidental
release of harmful substances into the environment resulting in contamination,
the remediation cost of which could be substantial. The Company currently has
liability insurance coverage for non-nuclear related occurrences under
environmental impairment liability, primary casualty and excess liability
policies. Pursuant to RCRA, the Company is required to maintain environmental
impairment liability insurance coverage with specified minimum limits for
sudden and non-sudden accidental occurrences. The Company is in compliance
with required limits and coverage with the exception of the Sheffield, Illinois
site where such insurance is unavailable. See "Closed Facilities". The
Company covers radioactive risk through nuclear liability insurance policies
written to cover the operations of its facilities, suppliers and transporters.
In 1987, the Company organized and funded a wholly-owned subsidiary,
American Liability and Excess Insurance Company ("ALEX") to reinsure financial
assurance insurance for the Company's closure and post-closure responsibilities
at certain of its sites, and to provide a source of insurance for the Company
in the event that traditional third party insurance becomes unavailable. ALEX
is currently reinsuring financial assurance for closure and post-closure of the
Company's facilities, and underwriting a performance bond for one of the
Company's subsidiaries. Traditional third party insurance is utilized for
other lines of coverage. ALEX has funded cash reserves representing the
approximate present value of the closure or post-closure obligation being
insured. As of January 1, 1997, the ALEX investment portfolio was
approximately $7.5 million.
CUSTOMERS
Revenues resulting from the cost reimbursement contract with the Central
Interstate Low-Level Radioactive Waste Commission were approximately $5,711,000
in 1996, or 11% of the Company's consolidated revenues. No other single
customer accounted for 10% of the Company's consolidated revenues for 1996.
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PERSONNEL
The Company had a total of 309 employees as of March 14, 1997. The
Company has collective bargaining agreements which cover 10 employees at its
Richland, Washington facility, 2 employees at its Winona, Texas facility, and
58 employees at its Oak Ridge, Tennessee facility. The Company believes that
its relationship with its employees is good.
In November 1996, the Company changed to a new 401(k) and Retirement
Plan Administrator. After soliciting bids from various providers, AEC selected
Manulife as the new primary trustee and Pihl, Gutierrez, Garretson & Roberts
(PGG&R) as the new plan administrators. Manulife allows AEC's 401(k) and
Retirement Plan participants greater benefit flexibility. PGG&R is dedicated
to providing AEC employees with excellent service in processing timely
statements, distributions, and loans.
Employee benefits have also been enhanced as of January 1997. AEC
selected Idaho Employers Council (IEC) to administer the medical/dental plan.
Scriptcard was chosen as our new pharmaceutical provider. Also, the Company
chose Benefit America to administer a new "cafeteria" flexible benefit program
that allows employees to set aside medical and dependent care funds on a pre-
tax basis. The Company allowed Colonial Life and Accident Insurance to provide
several supplemental programs such as cancer, intensive care and
hospitalization coverage. The Company chose Northwestern Life (Reliastar) to
offer supplemental spouse/dependent life insurance and continue with their
existing services. The Company selected Business Psychology Associates to
provide an employee assistance program that allows employees and his/her family
enrolled in the medical/dental plan, to attend three counseling sessions per
incident at no cost to the employee.
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ITEM 2. PROPERTIES
The Company believes that its property and equipment are well-
maintained, in good operating condition and adequate for the Company's present
needs. The Company's headquarters are located in Boise, Idaho in leased office
space. The Company also leases sales and administrative offices in Washington,
California, Nebraska, Illinois, Nevada, Texas, and Kentucky.
The following table sets forth certain information regarding the
principal operating, treatment, processing or disposal facilities owned or
leased by the Company.
LOCATION FUNCTION ACREAGE OWN/LEASE
-------- -------- ------- ---------
Beatty, Nevada Hazardous Waste Disposal Facility 80 acres Lease
Houston, Texas Westheimer Office 33,800 sq. ft. Lease(1)
Houston, Texas Katy Freeway Office 11,000 sq. ft. Lease
Oak Ridge, Tennessee LLRW Processing Facility 16 acres Own
Pasadena, Texas Transportation Facility 3 acres Own
Richland, Washington LLRW Disposal Facility 100 acres Lease
Robstown, Texas Transportation Facility 1 acre Own
Robstown, Texas Hazardous Waste Disposal Facility 400 acres Own
Winona, Texas Closed facility March 17, 1997 620 acres Own
The Company leases transfer facilities in El Paso and Laredo, Texas for
the transfer of wastes collected from Maquiladora plants in Mexico and a
facility in Dallas, Texas to support its Surecycle(R) operations.
- --------------------
(1) This office space was vacated in about March 1996. Please refer to Item 3.
Legal Proceedings for discussion regarding the Westheimer lease from
Houston Office 88.
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ITEM 3. LEGAL PROCEEDINGS
The Company's business inherently involves risks of unintended or
unpermitted discharge of materials into the environment. In the ordinary
course of conducting its business activities, the Company becomes involved in
judicial and administrative proceedings involving governmental authorities at
the federal, state and local levels. In the majority of the situations where
regulatory enforcement proceedings are commenced by governmental authorities,
the matters involved relate to alleged technical violations of licenses or
permits pursuant to which the Company operates, or, of laws or regulations to
which its operations are subject, or, are the result of different
interpretations of the applicable requirements.
In addition to the litigation described below, the Company and certain of
its subsidiaries are involved in other civil litigation and administrative
matters, including permit application proceedings in connection with the
established operation, closure and post-closure activities of certain sites.
Management has not established reserves for the matters discussed below,
other than for certain anticipated legal fees, based on management's estimates
of the outcome. During the course of legal proceedings, management's estimates
with respect to such matters may change. While the outcome of any particular
action or administrative proceeding cannot be predicted with certainty,
management is unable to conclude that the ultimate outcome, if unfavorable, of
the litigation and other matters described below, will not have a material
adverse effect on the operations or financial condition of the Company.
US Ecology, Inc. v. Barbara Wagner, Benton County Assessor, Board of Tax
Appeals, State of Washington, Docket Nos. 92-63--92-65 and 95-43--95-45. In
1992, the Benton County (Washington) assessor issued property tax assessments
on improvements owned by the Company and located on the Company's leasehold at
the US Department of Energy's Hanford Reservation. The retroactive property
tax increases totaled $1.7 million for the years 1989, 1990 and 1991. Prior to
1989, annual taxes had been about $5,400. The company sued Benton County, the
Assessor and Treasurer to enjoin them from collecting the increased taxes. An
injunction was granted by the Benton County Superior Court, but was reversed by
the Washington Court of Appeals which ruled that the Company had not exhausted
available administrative remedies. Accordingly, the Company prosecuted its
appeal to the Washington Board of Tax Appeals and a hearing was held in
November 1995. The Company has recently been assessed an additional $1.9
million in taxes for 1992, 1993 and 1994. On July 1, 1996, the Board of Tax
Appeals issued an Interim Decision that the Company's concession right to
operate a low-level radioactive waste disposal site at the Hanford Reservation
is subject to property tax, but that the hearing will be re- opened to allow
the parties to submit additional evidence regarding the fair market value of
the concession right. The Company believes that Washington law does not
provide for taxation of "concession rights" and that, in any event, since its
permits and licenses may not be freely transferred, the market value thereof is
minimal. The Company intends to continue to contest the matter.
Boston Edison Company v. US Ecology, Inc., U.S. District Court for
Massachusetts, Civil Action No. 95-12173. In October 1995, Boston Edison filed
a complaint against USE, a subsidiary of the Company, in the U.S. District
Court of Massachusetts alleging claims related to USE's alleged refusal to
indemnify Boston Edison for various costs arising out of the shipping and
burial of waste materials at the Maxey Flats Nuclear Disposal Site. USE had
entered into a series of contracts with Boston Edison to provide radioactive
waste disposal services at this site. Boston Edison alleges that USE breached
the contracts because USE failed to indemnify Boston Edison for its costs.
Boston Edison also alleges that USE committed an unfair and deceptive trade
practice in the State of Massachusetts because of its failure to indemnify
Boston Edison as required by these contracts. Finally, Boston Edison seeks a
declaratory judgment that would set forth the contractual rights and
liabilities of the parties. Boston Edison claims $600,000 in past and future
costs for the alleged breach of the contracts. It also seeks to treble damages
under the Massachusetts Deceptive Trade Practices Act. USE has successfully
moved the case from Massachusetts to federal court in Kentucky. The Company
believes USE has contractual defenses to the indemnity claims and intends to
contest this matter. Additionally, USE has counterclaimed against Boston
Edison seeking contribution for its response costs at Maxey Flats. It is not
possible at this time to predict whether the outcome of this matter will be
favorable or unfavorable.
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Ally Capital Corporation v. American Ecology Recycle Center, Inc., et
al, U.S. District Court, Southern District of Texas, Houston Division, Civil
Action No. H-96-3117. This complaint is for breach of an equipment lease
resulting from AERC's, the Company's subsidiary, failure to make monthly lease
payments on leased equipment. The equipment is essential to the continued
operations of the Oak Ridge facility. By December 1996, the unpaid payments
exceeded $255,000. The remaining balance on the equipment lease, including the
$255,000, is approximately $618,000. Plaintiff has filed a motion for summary
judgment seeking the entire lease balance of $667,680, per diem interest,
attorneys fees and possession of the equipment. The parties are near
settlement in the matter.
Houston Office 88, Inc. v. American Ecology Corporation v. Altra Energy
Technologies, L.L.C. , District Court of Harris County, Texas, Case No.
96-47050. Plaintiffs filed this case in September 1996 seeking more than $4.1
million in rent, interest, costs and attorneys fees, alleging breach of the
office lease agreement by the Company for vacating its former corporate
headquarters in Houston, Texas. The Company has filed a counterclaim against
Plaintiff based on its wrongful refusal to allow the Company's leasing agent to
show the premises to potential sublessees. Also, the Company has filed a
third-party claim against sublessee, Altra Energy Technologies, L.L.C., for
failure to consummate a sublease agreement between Altra and the Company. The
Company intends to vigorously contest the case, but will remain open to a
favorable settlement in advance of trial scheduled for December 8, 1997.
In the Matter of the Applications of American Ecology Environmental
Services Corp., Permit Nos. AQ-9429, HW-50368, WDW-186, and WDW-229 (SOAH
Docket 582-95-1618). This matter is a contested proceeding before the Texas
State Office of Administrative Hearings wherein AEESC, a wholly owned
subsidiary of the Company, is seeking to renew operation permits for its
hazardous waste treatment, storage, and disposal facility in Winona, Texas. A
locally (Winona, Texas) based organization known as "Mothers Organized to Stop
Environmental Sins" ("MOSES") has appeared in the matter seeking to have the
permits revoked. As a result of the activities of MOSES and certain
individuals, AEESC has determined it cannot continue operation of the facility.
Virgie Adams, et al v. American Ecology Environmental Services Corporation,
et al, Cause No. 236-165224-6, Tarrant County, Texas District Court. On August
30, 1996, Plaintiffs amended their August 6 complaint naming over 677
additional plaintiffs and 87 defendants, including the Company, several of its
subsidiaries and customers of its Winona, Texas facility. The Plaintiffs are
seeking damages, punitive damages and pre- and post-judgment interest based on
claims of negligence, negligence as a matter of law, fraudulent concealment,
assault and battery, intentional infliction of emotional distress, res ipsa
loquiter and intentional tort. Plaintiffs allege the Company "...failed to
handle, treat, store, blend, inject, and otherwise dispose of extremely
hazardous and highly toxic substances in a manner...constitut(ing)...compliance
with basic health, safety and environmental standards." The case is in the
early stages of discovery. The Company believes it has conducted its
operations in accordance with applicable laws and regulations, that the lawsuit
is without merit and intends to vigorously defend the action.
American Ecology Environmental Services Corp., et al v. Mildred Krueger, et
al, U. S. District Court for the Northern District of Texas, Dallas Division,
Civil Action No. 3-96-CV-2670-D. The Company and two of its subsidiaries,
AEESC and USE, filed suit in the U.S. District Court for the Northern District
of Texas against the Defendants seeking an award of actual and punitive damages
proven at trial and treble damages, costs and attorneys fees as allowed under
the federal racketeering statutes and for appropriate injunctive relief
including an order compelling Defendants to cease their improper activities,
retract their defamatory statements and to refrain from similar improper
activities. The Complaint alleges that the Defendants: violated the RICO
statute, defamed AEESC, USE and the Company through various publications and
statements; tortuously interfered with existing contractual rights and
prospective business relations of AEESC, USE and the Company; disparaged the
businesses of AEESC, USE and AEC; engaged in a civil conspiracy for improper
purposes to cause the closure of AEESC's Winona, Texas facility; and abused
both the administrative and judicial processes within Texas. The case is based
on the past and continuing activities of Phyllis Glazer and a non- profit
corporation (M.O.S.E.S.) organized by Glazer, her husband and mother, all of
whom are defendants. The action alleges that Defendants fraudulently sought to
deprive Plaintiffs of their property by spreading misleading and defamatory
statements about Plaintiffs and their business operations, and that the
Defendants have conspired among themselves to force the closure of the Winona
facility for their own pecuniary gain by engaging in a pattern of maliciously
disseminating clearly false and
21
defamatory statements concerning the Plaintiffs' businesses and by repeatedly
abusing judicial proceedings solely for the purpose of damaging the reputation
and financial health of Plaintiffs. Defendants have answered the complaint
denying liability and counter-claiming for damages for abuse of process in
attempting to deny Plaintiffs' right of free speech. MOSES claims actual and
punitive damages in excess of $1 million based on alleged reputational damage,
reduced income (in the form of reduced contributions) and costs of legal
representation. Notwithstanding the decision to close the Winona facility, the
Company intends to vigorously prosecute this case to its conclusion.
Phyllis Glazer and M.O.S.E.S. v. Gibraltar Chemical Resources, Inc., et al,
U.S. District Court Eastern District, Texas, Case No. 6:94-CV-708. This
lawsuit, which is a citizen suit brought under the federal Reserve Conservation
and Recovery Act and the Clean Air Act, alleges that the Winona facility
violated certain permits and regulations, and contributed to the handling,
storage, treatment, transportation and disposal of solid and hazardous waste in
a manner that presents an imminent and substantial endangerment to health and
the environment. The Plaintiffs have requested that the facility be shut down
and unspecified civil penalties imposed on the Company. The Company has been
granted a partial summary judgment, but the core claims remain subject to
indemnity provisions.
James D. Moncrief, et al v. Gibraltar Chemical Resources, Inc., et al,
District Court of Smith County, Texas, Civil Action No. 92-1942-C. Marian
Steich, et al v. Gibraltar Chemical Resources, Inc., et al, District Court of
Smith County, Texas, Civil Action No. 93-054309. Michael Williams, et al v.
Gibraltar Chemical Resources, Inc., et al, District Court of Smith County,
Texas, Civil Action No. 93-2304-C. Tangee E. Daniels, et al v. Atrium Doors
and Windows, Inc., et al, District Court of Dallas County, Texas, Civil Action
No. 95-091459-L. Each of the above- identified cases, together with the Glazer
and Adams cases discussed above, involve AEESC, a subsidiary of the Company,
Winona, Texas facility. As discussed elsewhere herein, AEESC has decided to
close that facility permanently. Each of these cases seeks unspecified damages
for various causes of action, including trespass, nuisance, negligence, gross
negligence, and in some cases, fraudulent concealment and fraud. The
Plaintiffs claim that they suffered personal injuries and property devaluation
as a result of alleged releases of toxic or harmful chemical substances into
the environment from the facility. The Moncrief case was tried to a jury in
October 1996. The jury awarded damages in the amount of $18,000 on the
Plaintiffs' nuisance claim only. Plaintiffs have stated they intend to appeal
the verdict and have requested a new trial. All the other cases are in various
stages of pre-trial discovery. In the Moncrief, Steich, Williams and Daniels
cases, AEESC is relying upon its predecessor parent corporation's insurance
coverage for defense and indemnity purposes. With respect to each of the
cases, the Company believes it has conducted its operations in accordance with
applicable laws and regulations, that each of the lawsuits is without merit and
intends to vigorously defend each.
ENVIRONMENTAL MATTERS:
In the Matter of American Ecology Environmental Services Corporation, SOAH
Docket No. 582-97-0261. In this matter, the Texas Natural Resources
Conservation Commission ("TNRCC"), alleges violations of certain provisions of
the Winona Facility's air and surface facilities hazardous waste permits and
relevant statutory provisions. The Complaint proposes an administrative
penalty assessment of $71,700. An answer has been filed with the TNRCC and
settlement discussions are ongoing. The Company will continue to contest this
matter if settlement discussions prove unfruitful.
In re American Ecology Environmental Services Corporation, USEPA Region 6.
On March 7, 1997, Company representatives attended a meeting with the USEPA
regarding compliance by AEESC with notification requirements of the intention
to import waste from a foreign based waste generator. The meeting allowed the
Company an opportunity to explain its position regarding the matter and to
provide additional relevant information. The alleged violations involve
reporting requirements only, not release of pollutants from the facility. EPA
anticipates filing an enforcement action against the Company seeking a penalty
of approximately $67,500. The Company is currently investigating whether
proper information was reported to the EPA.
In the Matter of American Ecology Recycle Center, Inc., U.S. Environmental
Protection Agency, Region 4, Docket No. 96-13-R. Administrative Complaint
issued by the USEPA Region 4, Atlanta, alleges AERC, a
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subsidiary of the Company, failed to make a hazardous waste determination as
the generator of hazardous waste, and stored the same for greater than 90 days
without a permit. The Complaint seeks civil penalties in the amount of
$96,000, disposal of the "wastes" at a permitted facility, and the immediate
clean-up of the area in which the materials have been stored. The materials
were routinely used in the AERC Chemline Cleaning Process Unit, which was
destroyed by a July 1994 fire at the Oakridge facility. AERC is in settlement
discussions with the EPA to resolve the matter without a hearing and has
submitted a Resolution Plan to the EPA requesting permission to allow
processing of the Chemline Residues in the Facility Waste Water Treatment Unit.
The Treatment Unit is currently being rebuilt from the fire, and is anticipated
to be on-line in April 1997.
In re Ramp Industries, Inc. Site (Colorado), U.S. Environmental Protection
Agency, Denver, Region VIII. USE responded to a CERCLA 104(e) Information
Request in March 1996 sent by USEPA to numerous Potentially Responsible
Parties. Thus far, USE has not been named as a responsible party at the CERCLA
site, and there has not been any further action with respect to the site.
Hazardous substances may have been sent by USE to the site from the Company's
former operations warehouse in Pleasanton, California. No determination as to
ultimate liability can be made at this time and no formal action has been
initiated beyond the information requests.
United States Environmental Protection Agency v. US Ecology, Inc., RCRA No.
V-W-025-92. In 1992, the USEPA initiated an administrative enforcement action
against USE, a subsidiary of the Company, alleging that USE had failed to
comply with certain regulatory requirements to provide financial assurance for
closure and post-closure costs as well as liability insurance relating to its
hazardous waste management of its facility in Sheffield, Illinois. The EPA is
seeking a penalty of approximately $1 million and ordering compliance. USE
ceased operations at the facility in 1983, which has been undergoing closure
and corrective action pursuant to regulatory requirements and a RCRA Consent
Order since that time. Because the Sheffield facility had not been an interim
status facility under the RCRA regulations since November 1985, the Company
responded that the interim status regulatory requirements for financial
assurance and liability insurance do not apply and objected to the penalty as
entirely unwarranted. The administrative law judge ruled that the Sheffield
facility is subject to the RCRA regulatory requirements for financial assurance
and liability insurance. The Company has appealed that decision to the
Environmental Appeals Board and is negotiating a reduction of the penalty with
the EPA and alternatively seeking to apply the penalty to construction of a
supplemental environmental project elsewhere.
In the Matter of U.S. Department of Energy, US Ecology, Inc., RCRA Docket
No. WA7 89000 8967. EPA issued Hazardous and Solid Waste Amendments to a Final
RCRA Permit No. WA7 89000 8967, issued August 29, 1994 to the U.S. Department
of Energy for the Hanford Federal Reservation, which purports to impose
obligations on various parties, including, potentially, USE. USE has sought
review of permit condition III.B., identifying certain disposal units operated
by USE as Solid Waste Management Units subject to investigation and corrective
action. USE also sought review of all other conditions of the HSWA portion of
the permit, including definition "g" to the extent that it defines "facility"
or "site" to include leased lands, and including Attachments A-F, to the extent
that they set forth the requirements that would be applicable to the USE site.
After negotiations with the EPA, the appeal was dismissed at the joint request
of USE and the EPA, without prejudice to either party's right to reinstate the
appeal if settlement is not achieved. USE has submitted an Investigatory Plan
to Washington Department of Ecology for the investigation of hazardous
constituents. The Plan is pending. It is not possible at this time to predict
the outcome of this matter.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR AMERICAN ECOLOGY CORPORATION COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
American Ecology Corporation common stock is currently listed on the
NASDAQ National Market System under the symbol ECOL. As of March 1, 1997,
there were approximately 7,600 record holders of common stock. The high and
low sales prices for the common stock on the NASDAQ and the dividends paid per
common share for each quarter in the last two years are shown below:
1996 1995 Dividends Per Share
---- ---- -------------------
PERIOD High Low High Low 1996 1995
---- --- ---- --- ---- ----
1st Quarter 3-1/2 1-7/8 7-1/4 5-3/4 $ -- $ .025
2nd Quarter 2-1/2 7/8 7 3-1/2 -- --
3rd Quarter 1-9/16 7/8 7 3 -- --
4th Quarter 1-5/16 15/16 4-3/4 2-7/8 -- --
The Company's amended credit facility with its bank lender prohibits
cash dividends on common stock.
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ITEM 6. SELECTED FINANCIAL DATA
AMERICAN ECOLOGY CORPORATION
This summary should be read in conjunction with the consolidated financial
statements and related notes.
(Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Revenues $ 49,972 $ 67,895 $ 71,891 $ 60,312 $ 70,940
% Increase (decrease) in revenues from prior year (26.4)% (5.6)% 19.2% (15.0)% 27.1%
Net income (loss) (1) $ (11,407) $ (48,903) $ 3,850 $ 4,744 $ 12,556
Net income (loss) per share $ (1.50) $ (6.26) $ .49 $ .60 $ 1.51
Shares used to compute income (loss) per share (000's) 7,896 7,822 7,851 8,097 8,568
Working capital (deficit) $ (16,693) $ (16,115) $ 1,563 $ 4,771 $ 14,078
Total assets $ 99,027 $ 114,125 $ 155,439 $ 108,122 $ 104,166
Long-term debt, net of current portion $ 36,202 $ 28,357 $ 33,493 $ -- $ --
Shareholders' equity $ 13,604 $ 22,024 $ 67,045 $ 63,564 $ 54,730
Long-term debt to total capitalization as a percentage 72.7% 56.3% 33.3% --% --%
Current ratio (current assets divided by current liabilities) 0.4:1 0.6:1 1.0:1 1.2:1 1.7:1
Return on average equity (64.0)% (109.8)% 5.9% 8.0% 26.4%
Dividends declared per common share $ -- $ .025 $ .10 $ -- $ --
Capital spending, including capital expenditures and site
development costs $ 7,343 $ 8,445 $ 8,035 $ 12,558 $ 9,582
Depletion, depreciation and amortization expense $ 5,383 $ 7,319 $ 6,279 $ 4,356 $ 4,173
(1) 1996 expenses include $7,451 in impairment losses on long-lived assets for
the Winona facility and 1995 includes $33,048 in impairment losses on long-
lived assets for the Recycle Center, WPI Waste Processors and the Winona
facility. See Note 4 to the Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CAPITAL RESOURCES AND LIQUIDITY
The Company has incurred recurring losses from operations, had a working
capital deficit of $16,693,000 and $16,115,000 as of December 31, 1996 and
December 31, 1995, and continues into a second year experiencing difficulty
paying its on-going obligations as they become due. The Company cannot be
certain about its ability to improve short-term operating results. The
Company's financial statements as of December 31, 1996, contain adjustments to
the asset carrying amounts for the Winona facility for asset liquidation and
the accounting for the impairment of the Winona facility. Management's actions
and plans to address these issues are as follows:
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Credit Agreement
A Third Amended and Restated Credit Agreement was executed on December
31, 1996, but dated effective October 31, 1996 between the Company and its bank
lender, Texas Commerce Bank. This credit agreement extends the maturity of the
Credit Agreement to December 31, 2000, and modifies certain other terms. A
description of the Credit Agreement as so amended is set forth in Note 7 to the
Consolidated Financial Statements. As of December 31, 1996, the Company had
available borrowings of $6.9 million under its Credit Agreement, by the terms
of the agreement, all available borrowings have been exhausted.
Equity Investments
Effective October 31, 1996 the Company completed a definitive agreement
for $3,000,000 in Series E, Redeemable Convertible Preferred Stock. Two of the
Company's directors and shareholders agreed to purchase the 300,000 non-voting
preferred shares with a stated value and liquidation preference of $10.00 per
share, with a right to receive dividends in common shares of the Company at
11.25% per annum. This was an equity condition prescribed by the Third Amended
and Restated Credit Agreement. In order to meet the second equity condition
and give all common shareholders an ability to participate in increased equity,
the Company will use its best efforts to register a Rights Offering on or
before June 1, 1997. A description of the preferred stock and Rights Offering
is set forth in Note 8 to the Consolidated Financial Statements.
National Stock Market Exchange
On March 24, 1997 the Company announced it has appealed a ruling by the
NASDAQ Stock Market, Inc., the exchange on which the Company's common stock is
traded, that the Company needed prior approval of its shareholders before
issuing its Series E preferred Stock to directors of the Company in
November 1996.
The Series E preferred Stock was issued to the directors as a central
part of the debt restructuring agreement reached with the Company's lender,
Texas Commerce Bank, also in 1996.
The NASDAQ ruling provided that the Company's stock would be de-listed
from the NASDAQ National Market effective March 21, 1997. Under NASDAQ rules,
the Company's appeal will stay, or prevent, delisting from the national market
until the appeal is heard and decided.
The Company believes that the NASDAQ ruling was erroneous and has
appealed to a committee of the NASDAQ Board of Governors in accordance with
NASDAQ rules and has requested an oral hearing in the matter.
Additionally, as previously planned, the Company intends to submit the
Series E issuance to a vote of its shareholders at its May 22, 1997 annual
shareholders meeting to be held in Boise, Idaho.
Strategic Plan
The Company has adopted a strategic plan focusing on its low-level
radioactive waste disposal and processing operations and its hazardous waste
disposal and processing operations as separate operations. The Company is
continuing to improve as reorganized under those respective operating
divisions. The reorganization was to facilitate potential strategic alliances
with other companies that may provide additional sources of capital and open
greater opportunities.
Senior Management Changes
The Company has continued to make substantial senior management changes.
These include installation of a new Chief Operating Officer for US Ecology, a
new General Counsel, and new managers to head both Chemical and the LLRW and
hazardous waste operations.
Measures to Reduce Costs
Management has been implementing a very aggressive plan since 1995,
where the Company has sized up its position to the surrounding market, where
customer potentials have been measured, where managing the Company can be
improved and as a result, unprofitable divisions have been either eliminated or
reorganized to be efficient and effective. The reorganized divisions have been
dissected and analyzed to measure break-even points, maximum revenues from
customers, and optimum operating levels to maximize profitability. These
variables of operation for the Company have been adjusted and measured to fit
the changing times of the environmental industry. As discussed in Item 1.
Business, the waste generators are generating less waste now due to both
Federal and State constricting the areas in the regulations where generators
were relaxed about disposal practices. These environmental proceedings and
regulations have forced all of the environmental companies to evaluate their
part in the industry. The outcome in many areas is difficult to forecast, but
the management of the Company and the strategic plans include the flexibility
to adapt to these industry changes.
The plan has required personnel reductions, and some individuals have
also been reassigned to other projects. The most significant cost reducing
measure recently taken was the closure of the Winona facility. There is a
significant impact to both the income for 1996 as well as a reduction to equity
for the accounting of this site closure. The plan provides for the writedown
of property, plant, and equipment for $4.4 million, a writedown of permits for
$2.4 million and closure of the site by proper application of both Federal and
State environmental regulations determined to be $1.5 million. The total cost
for closing the Winona facility is estimated to be $7.4 million. It is
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26
estimated that the future cost savings by closing this site will be about $3.5
million per year. Since the acquisition of this site, December 31, 1994, this
facility has incurred operating losses of $11.4 million and $8.5 million for
the years ended December 31, 1996 and December 31, 1995.
In carrying out the disposal of the Winona facility, the Company will
complete all of its legal obligations for the site closure and post closure.
The Company will make every effort to clean the site and the equipment to
maximize the proceeds from the sale of these assets. There can be no assurance
that the sale of the assets will result in a favorable outcome, and there may
still be a need for the Company to supply additional funding for the Winona
site through the closure and post closure periods.
The Company continues to evaluate the viability of certain other
operations, and their current potential to perform at an acceptable level of
profitability.
In the plan, capital expenditures were limited in 1996 to the
development of the Ward Valley Project, certain regulatory obligations, and
required operational repairs. Again, in 1997, capital expenditures will be
limited in the same way, with the addition of the new cell constructed at TECO
in Robstown, Texas for non-hazardous industrial waste.
The Company believes its plan will improve both cost structure and
operating results. However, considering the Company's recent losses and
insufficient cash flow from operations, there can be no assurance that this
plan will resolve the Company's liquidity problem in a timely fashion. The
Company intends to raise additional capital through a Rights Offering to its
shareholders on or before June 1, 1997. There can be no assurance, however,
that any such rights offering will provide sufficient capital to support
operations. In any event, the Company may experience increasing cash flow
problems that could cause the Company to materially reduce the current level of
its operating activities.
For the year ended December 31, 1996, the Company raised $3,000,000 in
cash from the sale of Series E Redeemable Convertible Preferred Stock,
generated cash from operations of $5,170,000, spent $1,677,000 for capital
expenditures excluding site development costs, invested $2,107,000 in site
development costs for the Ward Valley facility and incurred capitalized
interest of $3,558,000 related to the Ward Valley and Butte facilities.
Future Considerations
As a result of the changes to its management and operations in 1996, and
the implementation of the business plan, the Company believes that the future
operating results of its existing businesses will improve, although no
assurances can be given that such improvements will occur.
The Company has completed negotiations for the insurance claims relating
to the July 1994 fire at the Recycle Center in Oak Ridge, Tennessee. In May
1996, the Company received $1,811,000 as the final portion of the claim, which
is being used to replace property and equipment damaged in the fire.
In April 1996, the Company received a letter from the State of Tennessee
Department of Environment and Conservation division of Radiological Health.
This letter specified that they had accepted the Company's plan to dispose of
the legacy waste on site at the Oak Ridge, Tennessee facility by December 31,
1997. The Company signed a contract February 24, 1997 with another disposal
company that is licensed to accept this waste. This arrangement will provide
for a considerable cost savings to dispose of the legacy waste, however, it is
still estimated that this cost will be $6.2 million.
In addition, the Company expects to receive federal income tax refunds
of approximately $740,000 during the third quarter of 1997.
A Rights Offering will be made on or before June 1, 1997. This offering
will offer each shareholder the opportunity to buy an additional share of stock
for each one owned at one dollar. This will make available, by full
subscription, the possibility to raise an additional $8,000,000 of capital.
26
27
The Company is exploring as many avenues as possible to increase its
market share. It was just awarded a contract with the Midwest Compact in Ohio
which has potential to grow to an attractive size.
The Company offered an unsolicited proposal in the second quarter of
1995 to the Department of Energy ("DOE") to dispose of large volumes of LLRW
from the DOE's Hanford site into the Company's Richland, Washington, facility
which is located on the Hanford Reservation. Although the Company believed and
still believes the economics of its proposal should be very attractive to the
DOE, the DOE rejected the Company's proposal. The Company will continue to
pursue this opportunity.
RESULTS OF OPERATIONS - 1996 VS. 1995
The Company reported a net loss of $11,407,000 for the year ended
December 31, 1996 compared to net loss of $48,903,000 for 1995. The 1996
results included pre-tax charges totaling $7,563,000 for unusual events and non-
recurring adjustments of which $7,451,000 related to the Winona facility.
During 1996 the Company began clean-up work at the Winona facility and expended
approximately $750,000 for this effort. Exclusive of material unusual events
and non-recurring accounting adjustments in both periods, the Company had a
pre-tax loss of $3,329,000 in 1995 compared to a pre-tax loss of $4,042,000
in 1996.
Approximately $14,015,000 of the adjusted loss from operations for 1996, as
compared to $35,959,000 for 1995, is attributable to the operating results of
the Recycle Center and Winona facility that were acquired in September and
December 1994, respectively. These losses have been offset by the profitability
of the other site facilities. The Winona facility incurred major losses since
the acquisition, therefore, management recorded an impairment loss in
accordance with FASB 121. The Company will follow both Federal and State
environmental regulations for the closure of the Winona facility.
The following table sets forth items in the Statements of Operations for
the three years ended December 31, 1996, as a percentage of revenue:
Percentage of Revenues for the
Year Ended December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
Revenues 100.0% 100.0% 100.0%
Operating costs 92.2 104.8 75.4
-------- -------- --------
Gross profit (loss) 7.8 (4.8) 24.6
Selling, general and administrative expenses 23.4 24.2 17.2
Impairment losses on long-lived assets 14.9 48.7 --
-------- -------- --------
Income (loss) from operations (30.5) (77.6) 7.4
Other (income) expense, net 4.6 2.4 (0.4)
Interest expense 0.0 0.0 0.0
-------- -------- --------
Income (loss) before income taxes (25.9) (80.0) 7.8
Income tax expense (benefit) (3.0) (8.0) 2.5
-------- -------- --------
Preferred stock dividends 0.9 0.1 --
-------- -------- --------
Net income (loss) to common shareholders (23.8)% (72.1)% 5.3%
======== ======== ========
Revenues
Revenues for 1996 were $49,972,000, a 26% decrease from 1995 revenues of
$67,895,000.
In 1996, there were two operating divisions; chemical and LLRW. The
chemical division revenues were $23,734,000 in 1996 compared to $41,272,000 in
1995. A major reason for this decrease is a result of Winona
27
28
facility revenues decreasing 47% compared to 1995, and Winona being in a state
of suspended operations from August 1996. Even though there was a loss in
revenue, the result is a savings by not incurring the high operation costs that
have always prevented operating with a profit at the Winona site. The Winona
site was purchased from Gibraltar Chemical on December 31, 1994 and has never
had a profitable month. The Beatty, Nevada site is the other major factor in
the decrease in revenues, which tumbled by 57% from 1995 as a result of the
high Nevada State disposal and burial fees. Management has negotiated a lower
fee schedule for 1997, and every attempt is being made to win back customers
who found lower priced disposal in California and Arizona.
The LLRW division revenues were $26,238,000 in 1996, compared to
$26,623,000 for 1995. The Company has completed several milestones for the
CIC, in both 1995 and 1996. When the Butte, Nebraska facility is licensed, the
facility development and associated revenues will resume. Revenues from the
CIC were $5.7 million, $8.1 million, and $9.8 million in 1996, 1995, and 1994,
respectively.
LLRW disposal revenues decreased 8% in 1994 due principally to the
implementation of the Federal Low-Level Radioactive Waste Policy Amendments Act
of 1985 (the "Low-Level Act") on January 1, 1993. The Low-Level Act together
with state regulatory initiatives resulted in the inactivity of the Beatty,
Nevada LLRW facility and the regulatory restrictions placed on the Richland,
Washington facility and caused unusually large volumes of waste receipts at the
end of 1992 which were not buried and recognized as revenues until the first
quarter of 1993. Exclusive of the carryover effect of volumes received in
1992, 1994 disposal revenues increased by approximately 37% compared to 1993
due to penetration of the NORM waste disposal market. In 1994, the Company
entered the LLRW on-site remediation business generating approximately
$1,900,000 of revenues by providing technical and remedial services for several
projects in various regions of the country. Additionally, the acquisition of
the Recycle Center in September 1994, contributed approximately $2,800,000 in
treatment, processing, and recycling revenues.
While the revenues have declined in both 1996 and 1995, the Company has
been following closely its plan to clean up the non-profitable businesses and
focus on new strategic alliances with other companies that will increase both
revenues and profitability in the future. The last two years have resulted in
decreases in revenue, but every effort is now being focused on winning new
customers, and regaining the confidence of current and previous customers.
Operating Costs
Operating costs in fiscal 1996 decreased $25,053,000, or 35%, as
compared to 1995. A decrease in 1996 operating costs was the result of not
having the additional $23,637,000 of costs in 1995 associated with the late
year acquisitions of the Recycle Center and the Winona facility in September
and December 1994, respectively. Even though revenues had decreased 26% from
1996 to 1995, there is a larger drop in the actual operating expenses of 35%
for the same period. Aside from the large decreases in operating costs for
Beatty and Winona facilities, there was marked improvement from the site
manager's making conscious decisions for the Company. These decisions were
considering how they could best manage their site location and be accountable
for the activities there. Prior to 1996, this was not as much a site manager
responsibility as it was the overlooked responsibility from the corporate
office. This was the reason that current management took on the task for the
new operations plan, thus improving overall operations.
Both variable and fixed operating costs were reduced in both 1996 and
1995 from 1994. The fixed costs in 1996 were $4,543,000, a decrease of
$1,409,000 from 1995 at $5,952,000. Variable costs decreased dramatically
also. In 1996, variable costs were $20,701,000 compared to $34,656,000 in
1995. Variable costs were trimmed in every area possible. The managers of
each site analyzed and corrected items such as idle vehicle and equipment
rental, use of disposal supplies, lab equipment and supplies, parts,
consulting, and subcontracted costs including transportation. As a percentage
of revenues, operating costs were 92%, 105%, and 75% for 1996, 1995, and 1994,
respectively.
28
29
The following table sets forth unusual events and non-recurring
accounting adjustments which affected operating costs for 1996, 1995, and 1994,
respectively.
Increase (Decrease) in Operating Costs
(in thousands)
--------------
1996 1995 1994
--------- --------- ---------
Deferred site maintenance accrual adjustments due to changes
in current cost estimates $ -- $ -- $ (3,202)
Settlements of environmental insurance claims on closed sites -- -- (505)
Deferred site maintenance accrual reversal, settlement with
the Commonwealth of Kentucky, and estimated PRP
settlements all regarding remedial liability and indemnity
for the closed Maxey Flats site -- -- (518)
Writedowns of certain permitting costs and airspace cost 135 76 413
Deferred site maintenance accrual adjustment due to change
in the discount rate used to compute present value -- 1,396 --
Writedowns of design fees/facility costs due to abandonments -- 320 --
Cell development cost amortization adjustment due to
changes in cell utilization -- 204 --
Settlement of variances from collective bargaining agreement -
Recycle Center -- 447 --
Remedial investigation costs - Beatty, Nevada site -- 491 --
--------- --------- ---------
Total unusual events and non-recurring adjustments
included in operating costs $ 135 $ 2,934 $ (3,812)
========= ========= =========
Exclusive of these unusual events and non-recurring adjustments,
operating costs for 1996, 1995, and 1994 would have been $46,211,000,
$68,195,000, and $57,993,000, or 92%, 81% and 84% of revenues, respectively.
In 1995, exclusive of these unusual events and non-recurring adjustments, the
operating costs as a percentage of revenues for the Recycle Center and the
Winona facility were 126% and 124%, respectively, and all other locations
combined were 89%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for 1996 were
$11,682,000 compared to $16,411,000 for 1995. Included in SG&A for the 1996
period are charges for several unusual events and non-recurring accounting
adjustments which increased SG&A by $372,000. In 1995 the $16,411,000 of SG&A
included $5,006,000 of unusual and non-recurring expenses. On a site by site
study many of the SG&A costs remained too high for the decrease of revenues.
In 1996, the Beatty facility revenues were only 43% of 1995 revenues, while
SG&A costs remained at 66% of 1995 SG&A costs. The other sites' percentage of
SG&A is not as high as the Beatty facility, but they are all too high in
proportion to the decrease of revenues. Exclusive of these charges, SG&A was
$12,054,000 in 1996 compared to $11,405,000 in 1995, an increase of $649,000
over 1995. The corporate SG&A was reduced considerably from $13,710,000 in
1995 to $7,712,000 in 1996. Both years include SG&A legal costs, however, the
legal fees were reduced considerably in 1996. Included in SG&A costs for 1996
are $1,559,000 of corporate legal costs.
29
30
Investment Income
Net investment income is comprised of interest income earned on various
debt securities, certificates of deposit and other interest bearing deposits,
and dividend income and capital gains and losses earned on the Company's
preferred stock portfolio. This portfolio is principally the Company's captive
insurance investments reinsuring the present value of certain long-term closure
and post closure liabilities. The amount of investment income in 1996
decreased $200,000 from 1995 due principally to a lower weighted average of
outstanding investments in 1996 as compared to 1995, and in December 1996, the
Company terminated the trustee of the Company's captive insurance investment
portfolio, and appointed a new trustee, Merrill Lynch Trust Company of America.
This change of trustees was an immediate cost of approximately $80,000 but will
provide savings in fees of about $220,000 per year in the future.
Interest Expense
Interest expense is the total interest expense incurred by the Company
on outstanding indebtedness less capitalized amounts. In 1996, 1995, and 1994,
the Company incurred $3,558,000, $3,281,000, and $968,000, respectively, in
interest cost, all of which was capitalized for the development of the
Company's LLRW facilities in California in accordance with Statement of
Financial Accounting Standards No. 34, Capitalization of Interest Cost.
Substantially all of the interest cost incurred for 1996, 1995, and 1994
related to borrowings under the Company's credit agreement with its bank
lender.
Income Taxes
The Company's effective income tax (benefit) rates were (12)%, (10)%,
and 32%, for the fiscal years 1996, 1995, and 1994, respectively. The
effective benefit rate of (12)% in 1996 does not reflect any recognition of
future tax benefits on timing differences or net operating loss carryforwards.
Financial Assurance and Site Maintenance
The Company operates its hazardous waste disposal sites under RCRA of
1976 ("RCRA") permits. The LLRW sites are operated under licenses from state
and, in some cases, federal agencies. When these facilities reach capacity, or
lease or license termination dates, as the case may be, they must be closed and
maintained for a period of time prescribed by law or by license. In the case
of the RCRA-permitted hazardous sites, federal regulation requires that
operators demonstrate the financial capability to close sites on an immediate,
unscheduled (worst-case) basis. The estimated costs of such a closure are set
forth in the operator's RCRA closure/post-closure plan.
To secure closure/post-closure obligations of its hazardous waste
disposal sites under federal and state regulations, the Company has provided
letters of credit, certificates of insurance, and corporate guarantees as
financial assurance. Cash and investment securities totaling $16,394,000 and
$13,770,000 at December 31, 1996 and 1995, respectively, have been pledged as
collateral for the Company's closure/post-closure obligations, performance of a
Remedial Investigation and Feasibility Study ("RI/FS") and performance of
corrective action at the closed Sheffield, Illinois chemical waste facility,
compliance with the TNRCC requirements related to a deepwell at the Company's
Robstown, Texas hazardous disposal site, closure costs for the Beatty, Nevada
LLRW site, closure costs for the Recycle Center, closure costs for the Winona
facility, test borings at the proposed LLRW sites in Nebraska and California,
settlement with generators of waste at the Richland, Washington facility and
performance bonds.
The RI/FS for the Sheffield facility was completed and approved by the
EPA in 1990. The Company is in the remedial phase of the Sheffield program as
set forth in the EPA's corrective measures implementation plan. During 1996,
the Company spent approximately $138,000 on remediation at the closed Sheffield
hazardous disposal site.
The nature of the hazardous material handled by the Company and its
subsidiaries could give rise to substantial damages if spills, accidents or
migration of hazardous material occurs. The occurrence of such events could
have a material adverse effect upon the Company's liquidity and operating
results.
30
31
Corporate Development Considerations
See "Business - Low-Level Radioactive Waste Services - Disposal Services
- - Proposed Ward Valley, California Facility" and "Proposed Butte, Nebraska
Facility" for a description of the Company's facilities, and the impact of
such facilities and other future considerations on the Company's consolidated
financial condition and results of operations.
31
32
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
American Ecology Corporation
We have audited the accompanying consolidated balance sheet of American Ecology
Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Ecology Corporation
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and writedowns of assets and had a working capital
deficiency of $16.7 million as of December 31, 1996. During 1996, the Company
obtained capital contributions from certain directors and restructured its
Credit Agreement with the Bank; however, the Company continues to have limited
cash resources available and has substantial obligations that are due in the
future. Under the terms of the Credit Agreement, the bank may accelerate the
maturity of the debt in the event of violation of any covenant or of any
occurrence of a default of the Credit Agreement. If the Company is unable to
remain in compliance with the terms of the Credit Agreement or obtain waivers
in the event of a default and the bank accelerates maturity of the Credit
Agreement, the Company does not have adequate financial resources to extinguish
the loan and the Company's operations may be negatively impacted. The Company
is involved in various significant permitting efforts, claims, lawsuits and
other administrative matters which are uncertain at this time. The foregoing
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding those matters also are described in
Note 1. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern, or
adjustments, if any, that may be necessary as a result of the outcome of the
matters discussed above.
Balukoff, Lindstrom & Co., P.A.
Boise, Idaho
March 17, 1997
32
33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Ecology Corporation
We have audited the accompanying consolidated balance sheet of
American Ecology Corporation (a Delaware Corporation) and subsidiaries as of
December 31, 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express on opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Ecology Corporation
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the two years in the period ended December 31, 1995,in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and writedowns of assets. At December 31, 1995, the
Company had a working capital deficiency of $16.1 million. During 1995, the
Company obtained capital contributions from certain of its directors and others
and restructured its Credit Agreement with the Bank; however, the Company
continues to have limited cash resources available and has substantial
obligations that are due in the future. Under the terms of the Credit
Agreement, the bank may accelerate the maturity of the debt in the event of
violation of any covenant of the Credit Agreement or if a material adverse
event is deemed by the bank to have occurred. If the Company is unable to
remain in compliance with the terms of the Credit Agreement or obtain waivers
in the event of a default and the bank accelerates maturity of the Credit
Agreement, the Company does not have adequate financial resources to extinguish
the loan and the Company's operations may be negatively impacted. As Discussed
in note 13 to the consolidted financial statements, the Company is involved
in various significant permitting efforts, claims, lawsuits and other
administrative matters which are uncertain at this time. The foregoing
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regard these matters also are described in
Note 1. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern, or
adjustments, if any, that may be necessary as a result of the outcome of the
matters discussed above.
ARTHUR ANDERSEN LLP
Houston, Texas
April 11, 1996
33
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
As of December 31,
----------------------
1996 1995
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 185 $ 229
Investment securities 410 523
Receivables, net of allowance for doubtful
accounts of $1,155 and $1,322, respectively 10,396 16,938
Income taxes receivable 740 5,339
Insurance claim receivable -- 2,538
Prepayments and other 949 1,675
--------- ---------
Total current assets 12,680 27,242
Cash and investment securities, pledged 16,394 13,770
Property and equipment, net 14,255 21,764
Deferred site development costs 53,030 47,364
Intangible assets relating to acquired businesses, net 462 486
Other assets 2,206 3,499
--------- ---------
Total Assets $ 99,027 $ 114,125
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loan $ -- $ 6,416
Current portion of long term debt 503 780
Accounts payable 10,470 13,376
Accrued liabilities 16,876 21,022
Deferred site maintenance, current portion 1,524 1,763
--------- ---------
Total current liabilities 29,373 43,357
Long term debt, excluding current portion 36,202 28,357
Deferred site maintenance, excluding current portion 19,848 20,387
Commitments and contingencies (Note 13)
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, none issued -- --
Series D cumulative convertible preferred stock, $.01 par value,
105,264 authorized, 105,264 shares issued and outstanding 1 1
Series E redeemable convertible preferred stock, $10.00 par value,
300,000 authorized, 300,000 and 0 shares issued and outstanding 3,000 --
Common stock, $.01 par value, 20,000,000 authorized, 8,010,017
and 7,825,628 shares issued and outstanding, respectively 80 78
Additional paid-in capital 46,971 46,762
Unrealized gain (loss) on securities available-for-sale (477) (718)
Retained earnings (deficit) (35,971) (24,099)
--------- ---------
Total shareholders' equity 13,604 22,024
--------- ---------
Total Liabilities and Shareholders' Equity $ 99,027 $ 114,125
========= =========
The accompanying notes are an integral part of these financial statements.
33
35
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
Revenues $ 49,972 $ 67,895 $ 71,891
Operating costs 46,076 71,129 54,181
-------- -------- --------
Gross profit (loss) 3,896 (3,234) 17,710
Selling, general and administrative expenses 11,682 16,411 12,362
Impairment loss on long-lived assets 7,451 33,048 --
-------- -------- --------
Income (loss) from operations (15,237) (52,693) 5,348
Investment income (932) (582) (287)
(Gain) or loss on sale of assets (55) 1,386 --
Other expense (1,326) 821 --
Interest expense -- -- --
-------- -------- --------
Income (loss) before income taxes (12,924) (54,318) 5,635
Income tax expense (benefit) (1,517) (5,415) 1,785
-------- -------- --------
Net income or (loss) (11,407) (48,903) 3,850
Preferred stock dividends 465 88 --
-------- -------- --------
Net income (loss) available to common shareholders $(11,872) $(48,991) $ 3,850
======== ======== ========
Net income (loss) per share, primary $ (1.50) $ (6.26) $ .49
======== ======== ========
Dividends paid per common share $ -- $ .025 $ .10
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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36
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ 000'S)
Year Ended December 31,
-----------------------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $(11,407) $(48,903) $ 3,850
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Impairment loss on long-lived assets 7,451 33,048 --
Depletion, depreciation and amortization 5,383 7,319 6,279
Deferred income taxes -- 816 3,044
(Gain) loss on sale of assets (58) 1,386 (65)
Debt restructure fees 265 -- --
Realized loss on sales of securities available-for-sale -- 101 --
Changes in assets and liabilities, excluding effects of acquisitions:
Receivables 6,542 12,655 (4,534)
Income taxes receivable 4,599 (5,339) --
Proceeds from insurance claim 2,538 -- --
Investment securities classified as trading (582) (354) 472
Other assets (850) (1,016) (411)
Deferred site maintenance (778) (40) (7,041)
Other liabilities (7,933) 2,923 (3,394)
-------- -------- --------
Total adjustments 16,577 51,499 (5,650)
-------- -------- --------
Net cash provided by (used in) operating activities 5,170 2,596 (1,800)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, excluding site development costs (1,677) (2,320) (3,714)
Site development costs, including capitalized interest (3,982) (6,125) (4,321)
Payments for businesses acquired -- -- (27,871)
Proceeds from sales of assets 31 1,080 299
Net proceeds from sales of investment securities (1,993) 214 --
Transfers to (from) cash and investment securities, pledged 384 (241) 885
-------- -------- --------
Net cash used in investing activities (7,237) (7,392) (34,722)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuances and indebtedness 29,008 26,640 56,555
Payments of indebtedness (29,985) (26,430) (23,739)
Proceeds from common stock issued -- 98 301
Proceeds from preferred stock issued, net 3,000 4,759 --
Liquidation of shareholders' rights -- (78) --
Payment of cash dividends -- (195) (780)
-------- -------- --------
Net cash provided by (used in) financing activities 2,023 4,794 32,337
-------- -------- --------
Decrease in cash and cash equivalents (44) (2) (4,185)
Cash and cash equivalents at beginning of year 229 231 4,416
-------- -------- --------
Cash and cash equivalents at end of year $ 185 $ 229 $ 231
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ -- $ -- $ --
Income taxes $ -- $ -- $ 123
The accompanying notes are an integral part of these financial statements.
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37
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ IN 000'S)
8.375% 11.25%
SERIES D SERIES E UNREALIZED
CUMULATIVE REDEEMABLE GAIN (LOSS)
CONVERTIBLE CONVERTIBLE ADDITIONAL SECURITIES RETAINED
PREFERRED PREFERRED COMMON PAID-IN AVAILABLE- EARNINGS
STOCK STOCK STOCK CAPITAL FOR-SALE (DEFICIT)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 $ -- $ -- $ 78 $ 41,469 $ -- $ 22,017
Net income -- -- -- -- -- 3,850
Common stock issuances -- -- -- 301 -- --
Income tax benefit of stock
options exercised -- -- -- 67 -- --
Dividends - common stock -- -- -- -- -- (780)
Unrealized gain on securities
available-for-sale -- -- -- -- 43 --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 $ -- $ -- $ 78 $ 41,837 $ 43 $ 25,087
Net loss -- -- -- -- -- (48,903)
Preferred stock issuances 1 -- -- 4,898 -- --
Common stock issuances -- -- -- 98 -- --
Income tax benefit of
stock options exercised -- -- -- 7 -- --
Liquidation of shareholders'
rights -- -- -- (78) -- --
Dividends - common stock -- -- -- -- -- (195)
Dividends - preferred stock -- -- -- -- -- (88)
Unrealized loss on securities
available-for-sale -- -- -- -- (761) --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 $ 1 $ -- $ 78 $ 46,762 $ (718) $ (24,099)
Net loss -- -- -- -- -- (11,407)
Preferred stock issuances -- 3,000 -- -- -- --
Common stock issuances -- -- 2 209 -- --
Income tax benefit of
stock options exercised -- -- -- -- -- --
Liquidation of shareholders'
rights -- -- -- -- -- --
Dividends - common stock -- -- -- -- -- --
Dividends - preferred stock -- -- -- -- -- (465)
Unrealized gain (loss) on
securities available-
for-sale -- -- -- -- 241 --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 $ 1 $ 3,000 $ 80 $ 46,971 $ (477) $ (35,971)
========== ========== ========== ========== ========== ==========
Note: Convertible Preferred Stock is not shown above because no shares have
been issued.
The accompanying notes are an integral part of these financial statements.
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AMERICAN ECOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
American Ecology Corporation (a Delaware Corporation) and its
subsidiaries ("the Company") provide processing, packaging, transportation,
remediation and disposal services for generators of hazardous waste and low-
level radioactive waste. The Company services the needs of hazardous waste
generators nationally, but larger market shares in the Gulf and West Coast
regions of the country at its hazardous waste landfill disposal sites in
Robstown, Texas and Beatty, Nevada and until August 1996, a commercial deepwell
disposal facility in Winona, Texas. The Company services the needs of low-
level radioactive waste (LLRW) generators in the Northwest region and Rocky
Mountain Compact at its rate regulated LLRW facility located near Richland,
Washington and provides LLRW processing and recycling services to LLRW waste
generators in the Mid-West and East Coast regions of the country at its Oak
Ridge, Tennessee facility.
Business Conditions. The Company has incurred significant losses from
operations during the last two years, 1996 and 1995, had a working capital
deficit of $16.7 million as of December 31, 1996. Furthermore, as a result of
the above conditions and other circumstances discussed in Note 4, the Company
recorded a $7.4 million impairment loss on long-lived assets of the Winona
facility during 1996. The estimated unaudited results for the first quarter of
1997 is a net loss of approximately $1.8 million.
Although the Company obtained capital contributions of approximately
$3.0 million from certain of its directors and others, restructured its bank
credit agreement extending its maturity to December 2000, and received certain
new waivers for financial and other covenants in the Credit Agreement, from the
bank, for 1996 the Company continues to have very limited cash resources
available and is currently experiencing difficulty paying its on-going
obligations as they become due. As discussed in Note 7, available borrowings
under the Credit Agreement were approximately $6.9 million as of December 31,
1996. Under the terms of the Credit Agreement, the bank may accelerate the
maturity of the debt in the event of violation of any financial covenant of the
Credit Agreement or if a material adverse event is deemed by the bank to have
occurred. If the Company is unable to remain in compliance with the terms of
the Credit Agreement or obtain waivers in the event of a default and the bank
accelerates maturity of the Credit Agreement, the Company does not have
adequate financial resources to extinguish the loan and the Company's
operations may be negatively impacted.
Management has taken aggressive steps to improve the Company's financial
status. Last year the Company implemented a business plan and a long-term
strategy to substantially reduce operating expenses and enhance revenues from
low-level radioactive waste disposal and processing. Actions taken to date
include reductions in personnel, decentralization of responsibilities, and
analysis of operations to improve operating efficiency and reduce operating
costs within each operating division. Furthermore, the Company has limited
future capital expenditures. The Company anticipates raising additional
financing through either a stock rights offering on or before June 1, 1997 or
sale of assets. There can be no assurance, however, that any such financing
arrangement or asset sales will be consummated. In the event the Company does
not meet its business plan objectives or the Company is unable to obtain
alternative financing, there can be no assurance that the Company will be able
to meet its obligations as they become due or obtain further forbearance from
the bank.
As discussed in Note 13 to the consolidated financial statements, the
Company is involved in various significant permitting efforts, claims, lawsuits
and other administrative matters which are uncertain at this time.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern, or
adjustments, if any, that may be necessary as a result of the outcome of the
matters discussed above.
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Principles of Consolidation. The accompanying financial statements
present the consolidated accounts of American Ecology Corporation and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition. Generally, revenues are recognized as services are
performed and as waste materials are buried or processed.
Cash Equivalents. Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less, which are readily
convertible into cash.
Investments in Debt and Equity Securities. The Company adopted
Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for
Certain Investments in Debt and Equity Securities", effective January 1, 1994.
Debt and equity securities that the Company has the intent and ability to hold
to maturity are classified as "securities held-to-maturity" and reported at
amortized cost. Debt and equity securities that are held for current resale
are classified as "trading securities" and reported at fair value with
unrealized holding gains and losses included in earnings. Debt and equity
securities not classified as either "securities held-to-maturity" or "trading
securities" are classified as "securities available-for-sale" and reported at
estimated fair value with net unrealized holding gains and losses reported as a
component of shareholders' equity. The adoption of SFAS 115 did not have a
material effect on the Company's financial position or results of operations.
The Company uses the specific identification method to determine the cost basis
used in computing realized gains or losses.
Property and Equipment. Property and equipment are recorded at cost and
depreciated on straight-line and declining balance methods over estimated useful
lives. Land is comprised of land owned at the processing and disposal sites.
Land owned at disposal sites is depleted over the estimated useful life of the
disposal site on a straight-line basis. Cell development costs represent waste
disposal site preparation costs which are capitalized and charged to operating
costs as disposal space is utilized. Cell development costs include direct
costs related to site preparation, including legal, engineering, construction,
and the direct cost of company personnel dedicated for these purposes. The
estimated useful lives of buildings and improvements is fifteen to thirty- one
years. The estimated useful lives of vehicles, decontamination, processing and
other equipment is three to ten years. See Note 3 for major categories of
property and equipment. Expenditures for major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged to expense
as incurred. During 1996, 1995, and 1994, maintenance and repairs expense was
$982,000, $1,224,000, and $750,000, respectively.
Deferred Site Development Costs. The Company has been selected to
locate, develop and operate the low-level radioactive waste ("LLRW") facilities
for the Southwestern Compact ("Ward Valley facility") and the Central
Interstate Compact ("Butte facility").
The license application for the Southwestern Compact was approved by the
California Department of Health Services ("DHS") in September 1993. All costs
related to the development of the Ward Valley facility have been paid and
capitalized by the Company. As of December 31, 1996, the Company had deferred
$45,884,000 (46% of total assets) of pre-operational facility development costs
of which $6,753,000 was capitalized interest. These deferred costs relating to
the development of the Ward Valley facility are expected to be recovered during
the facility's first 30 years of operating from future waste disposal revenues
based upon disposal fees approved by the DHS in accordance with existing state
rate-base regulations. The disposal fee approval process is expected to
include an independent prudency review of all the pre-operational costs
incurred by the Company prior to their inclusion in the rate-base. The Company
expects all of the costs which it has deferred for this facility, plus
additional unrecognized project interest costs to be included as a component of
the rate-base; however, there can be no assurance that all of the costs will be
approved by the DHS.
Allowable costs incurred by the Company for the development of the Butte
facility are reimbursed under a contract with the Central Interstate LLRW
Compact Commission ("CIC") and are recognized as revenues. Such revenues
totaled $5,711,000, $8,100,000, and $9,800,000 in 1996, 1995, and 1994,
respectively. Substantially all funding to develop the Butte facility is being
provided by the major generators of waste in the CIC. As of December 31, 1996
the Company has contributed and deferred approximately $7,146,000 (7% of total
assets), of
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which $1,054,000 was capitalized interest, toward the development of the Butte
facility and no additional capital investment is expected to be required from
the Company prior to the granting of the license. The Company expects all
costs which it has deferred for this facility, plus additional unrecognized
project interest costs, to be included as a component of the rate-base. The
agreed contract interest cost reimbursement as part of the rate-base may yield
an additional $15 million in revenue, however, there can be no assurance that
all of these amounts will be approved. In addition, the CIC has the option to
terminate the contract, upon ten (10) days written notice, in the event it has
expended the additional $31.1 million provided under the last contract
amendment, and the State of Nebraska's licensing decision has not been made,
and the major generators in the compact region have either ceased funding the
project or thereafter notified the CIC, pursuant to amendment No. 5 of its
contract with the CIC, that the major generators intend to cease funding of the
project. As of December 31, 1996, approximately $25.2 million had been
expended under the last contract amendment. If the CIC elects to terminate the
contract, then the Company has no further claim or right to reimbursement of
its contributions or accrued interest unless the CIC and the Company agree to
go forward with the facility, in which event the Company retains its rights to
recover its contribution together with any accrued interest.
The construction and operation of the Ward Valley and Butte facilities
are currently being delayed by various political and environmental opposition
toward the development of the sites and by various legal proceedings as further
discussed under "Business - Low-Level Radioactive Waste Services - Disposal
Services - Proposed Ward Valley, California Facility" and "-Proposed Butte,
Nebraska Facility". At this time, it is not possible to assess the length of
these delays or when, or if, the Butte facility license will be granted, and
when, or if, the land for the Ward Valley facility will be obtained. Although
the timing and outcome of the proceedings referred to above are not presently
determinable, the Company continues to actively urge the conveyance of the land
from the federal government to the State of California so that construction may
begin, and to actively pursue licensing of the Butte facility. The Company
believes that the Butte facility license will be granted, operations of both
facilities will commence and that the deferred site development costs for both
facilities will be realized. In the event the Butte facility license is not
granted, operations of either facility do not commence or the Company is unable
to recoup its investments through legal recourse, the Company would suffer
losses that would have a material adverse effect on its financial position and
results of operations.
In 1994, the Company began to capitalize interest in accordance with
Statement of Financial Accounting Standards No. 34, Capitalization of Interest
Cost, on the site development projects while facilities being developed are
undergoing activities to ready them for their intended use. Interest
capitalized was $3,558,000 in 1996, $3,281,000 in 1995 and $968,000 in 1994.
Intangible Assets. Intangible assets relating to acquired businesses
consist primarily of the cost of purchased businesses in excess of fair value
of net assets acquired ("goodwill"). Intangible assets are being amortized on
the straight-line method over periods not exceeding 40 years with the majority
being amortized over 25 years. The accumulated amortization of intangible
assets amounted to $288,000, $314,000 and $962,000 at December 31, 1996, 1995,
and 1994, respectively. Amortization of intangible assets was $24,000,
$742,000, and $520,000, in 1996, 1995, and 1994, respectively. On an ongoing
basis, the Company measures realizability of intangible assets. In the event
that facts and circumstances indicate intangible or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
was required, the estimated future undiscounted cash flows associated with the
assets would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value was necessary.
Permitting Costs. Permitting costs, which are primarily comprised of
outside engineering and legal expenses, are capitalized and amortized over the
life of the applicable permits. At December 31, 1996 and 1995, there were
$1,360,000 and $2,057,000, respectively, of such unamortized costs included in
other assets in the accompanying consolidated balance sheets.
The Company operates its various sites under the regulations of, and
permits issued by various state and federal agencies. Several of the Company's
existing sites are currently seeking permit renewals and/or expansion permits.
There is no assurance of the outcome of any permitting efforts. The permitting
process is subject to regulatory approval, time delays, local opposition and
potential stricter governmental regulation. Substantial losses which
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41
would have a material adverse effect on the Company's consolidated financial
position, could be incurred by the company in the near term in the event a
permit is not granted, if facility construction programs are delayed or
changed, or if projects are otherwise abandoned. The Company reviews the
status of permitting projects on a periodic basis to assess realizability of
related asset values. As of December 31, 1996, management believes that assets
which could currently be affected by permitting efforts are recoverable at
their recorded values.
Deferred Site Maintenance. Deferred site maintenance includes the
accruals associated with obligations for closure and post-closure of the
Company's operating and closed disposal sites and for corrective actions and
remediation. The portion of these obligations expected to be spent within the
following twelve month period is classified as deferred site maintenance,
current portion in the accompanying consolidated balance sheets. The Company
generally provides accruals for the estimated costs of closures and post-
closure monitoring and maintenance as permitted airspace of such sites is
consumed. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the costs can be reasonably estimated. The
Company performs routine periodic reviews of closed operating sites and revises
accruals for estimated post-closure, remediation or other costs related to
these locations as deemed necessary. The Company's recorded liabilities are
based on best estimates of current costs and are updated periodically to
include the effects of existing technology, presently enacted laws and
regulations, inflation and other economic factors. The Company estimates its
future cost requirements for closure and post-closure monitoring and
maintenance for operating chemical disposal sites based on RCRA and the
respective site permits. RCRA requires that companies provide financial
assurance for the closure and post-closure care and maintenance of their
chemical sites for at least thirty years following closure. Where both the
amount of a particular environmental liability and the timing of the payments
are reliably determinable, the cost is discounted to present value at a
discount rate of 2.5%, net of inflation. See the discussion of Operating Costs
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations for information concerning certain adjustments recorded
in 1996, 1995, and 1994.
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42
Net Income (Loss) Per Share. The calculation of net income (loss) per
common and common equivalent share is in accordance with the treasury stock
method for 1996, 1995, and 1994.
(000's except per share amounts)
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
Net income (loss) $(11,407) $(48,903) $ 3,850
Adjustments to net income (loss):
Preferred stock dividends 465 88 --
-------- -------- --------
Adjusted net income (loss) available to
common shareholders $(11,872) $(48,991) $ 3,850
Weighted average shares outstanding-
Common shares outstanding at year end 8,010 7,826 7,819
Effect of using weighted average common and
common equivalent shares outstanding (114) (4) (6)
Effect of shares issuable under stock option
plans based on the treasury stock method -- -- 38
-------- -------- --------
Shares used in computing
earnings (loss) per share 7,896 7,822 7,851
-------- -------- --------
Net income (loss) per common and common
equivalent share, primary $ (1.50) $ (6.26) $ .49
======== ======== ========
There was no difference between the primary and fully diluted earnings
per share calculations in 1996, 1995, and 1994.
New Accounting Principles. In October 1995, Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" was
issued. This statement establishes a fair value based method of accounting for
stock-based compensation plans. The Company currently accounts for its stock-
based compensation plans under Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees".
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments". This statement requires disclosure of fair market value
information for financial instruments. The book values of investment
securities, excluding investments in common and preferred stocks, receivables,
accounts payable and financial instruments included in other assets and accrued
liabilities approximate their fair values principally because of the short-term
nature of these instruments. Investments in common and preferred stocks are
stated at fair market values. The quoted market price was used to determine
the fair market value of the investment in common stock and estimated market
values were used to determine the fair market value of the investments in
preferred stocks. The carrying value of long-term debt approximates fair value
principally because of the variable interest rate terms set forth in the bank
credit facility agreement. See Note 2.
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Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires the company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and affect the reported amounts of revenues and
expenses during the reporting period. The significant estimates used by the
company in the accompanying consolidated financial statements primarily relate
recoverability of deferred site development costs, waste processing and burial,
deferred site maintenance, and commitments and contingencies as discussed in
Notes 5, 6 and 13, respectively. Actual results could materially differ from
the Company's estimates.
Major Customers. Revenues resulting from the cost reimbursement
contract with the Central Interstate Low-Level Radioactive Waste Commission
were approximately $5,711,000 in 1996, or 11% of the Company's consolidated
revenues. No other single customer accounted for 10% of the Company's
consolidated revenues for 1996.
Reclassification. Only minor reclassifications have been made to prior
year financial statements to conform to the fiscal 1996 presentation.
NOTE 2. CASH AND INVESTMENT SECURITIES
Cash and investment securities at December 31, 1996 and 1995, were as
follows (in thousands):
1996 1995
-------- --------
Cash and cash equivalents $ 788 $ 1,246
Trading securities 7,576 6,993
Securities held-to-maturity 7,383 5,760
Securities available-for-sale 1,242 523
-------- --------
$ 16,989 $ 14,522
======== ========
Investments in trading securities consist principally of preferred
stocks, which are held by a captive insurance company wholly-owned by the
Company. The change in net unrealized holding gains on trading securities was
$115,000 in 1996 and $114,000 in 1995 each of which has been included in
earnings. Investments in securities available-for-sale consist of common stock
of Perma-Fix, Inc. (see Note 12) which has an original cost value of
$1,719,000, fair value of $1,242,000 and a gross unrealized holding loss of
$477,000 at December 31, 1996. The change in net unrealized holding loss on
securities available-for-sale was $477,000 which has been included as a
separate component of shareholders' equity during the period. In 1996,
investment securities were purchased and held, there was no gain or loss
realized, interest earned on holding these investment securities was $222,000.
In 1995, proceeds of $214,000 received on sales of securities available-for-
sale during 1995 resulted in realized losses of $101,000. Investments in
securities held-to-maturity mature over various dates during 1996 and are
reported at their amortized cost basis, which approximates fair value at
December 31, 1995. Investments in securities held-to-maturity at December 31,
1996 and 1995, consisted of the following (in thousands) all of which mature
during 1997:
1996 1995
------ ------
U.S. Government securities $7,156 $5,547
Certificates of deposit 69 138
Money market accounts and other 158 75
------ ------
$7,383 $5,760
====== ======
Certain cash accounts and substantially all investments in securities
held-to-maturity and trading securities totaling $16,394,000, and $13,770,000
at December 31, 1996 and 1995, respectively, have been classified as non-
current assets as cash and investment securities, pledged. The pledged cash
and investment securities represent collateral for the Company's closure/post
closure obligations, performance of a Remedial Investigation and Feasibility
Study ("RI/FS") and performance of corrective action at the closed Sheffield,
Illinois facility, compliance
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with Texas Natural Resource Conservation Commission ("TNRCC") requirements
related to the Company's non-commercial use deepwell at the company's Robstown,
Texas, facility, closure costs for the Beatty, Nevada LLRW site, test borings
at the proposed LLRW facilities in Nebraska and California, settlement with
generators of waste at the Richland, Washington facility, and various
performance bonds. Also, a portion of the pledged cash and investment
securities at December 31, 1996 is pledged as collateral for closure costs
relating to the two facilities acquired in 1994 (see Note 12). The amounts
pledged by the Company generally equal the present value of its estimated
future closure and post-closure obligations.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995, was as follows (in
thousands):
1996 1995
-------- --------
Land $ 1,819 $ 1,484
Cell development costs 10,540 10,452
Buildings and improvements 6,425 7,673
Decontamination and processing equipment 2,155 2,131
Vehicles and other equipment 17,944 22,112
-------- --------
38,883 43,852
Less: Accumulated depletion, depreciation and amortization (24,628) (22,088)
-------- --------
$ 14,255 $ 21,764
======== ========
NOTE 4. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", which is
intended to establish more consistent accounting standards for measuring the
recoverability of long-lived assets. The Company adopted this statement during
1995 in conjunction with recording a substantial writedown of goodwill and
certain property and equipment. There was an impairment of long-lived assets in
1996 atthe Winona, Texas facility and the Company determined operations should
be discontinued. The Winona facility has had on-going losses, and with periodic
reviews the adjustments to correct the short-comings have not proven profitable,
therefore, the decision was made to close this site location.
1996 1995
------- -------
Writedown of the carrying amount of goodwill resulting from
the acquisition of the Recycle Center (Note 12) $ -- $22,165
Writedown of the carrying amount of goodwill resulting from
the acquisition of Waste Processor Industries, Inc. -- 5,744
Writedown of the plant assets carrying value, 7,451 --
permits and estimated site closure cost
Writedown of the carrying amount of goodwill resulting from
the acquisition of the Winona facility (Note 12) -- 3,458
Writedown of property and equipment at the Winona facility (Note 12) -- 1,681
------- -------
Total impairment losses $ 7,451 $33,048
======= =======
The circumstances leading to the impairment losses include an
accumulation of costs significantly in excess of the amount of acquisition
costs originally expected for the Recycle Center and to a lesser degree, the
Winona
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facility in 1995, but increased in 1996. Contributing factors include a
current period operating and cash flow loss, a recent history of operating
losses, and the Company's inability to achieve the operating results
anticipated prior to the respective acquisitions. Changes in the marketplace
and competitive situations in certain service lines, particularly at the
Recycle Center and the Winona facility, have contributed to the Company's
inability to achieve anticipated operating results.
The Winona facility was a 620 acre fuels blending and solvent recycling
facility with two hazardous waste deepwells and waste brokerage services. In
August of 1996, the Company made a decision to suspend further receipts of
waste at the Winona facility. This decision was made based on the adverse
impact on the business base of the Winona facility caused by inaccurate public
statements and other actions of persons opposed to the Facility. The
litigation strategy being pursued by persons opposed to the Facility includes
numerous and duplicative lawsuits filed in several jurisdictions. The Company
believes that the number of suits as well as the discovery and motion practices
used in each is designed to overwhelm the financial resources of AEESC, an
American Ecology wholly owned subsidiary. Based on the current regulatory and
litigation morass under which the Winona facility was forced to operate,
management concluded that it was not economically feasible for the Winona
facility to continue. Also, during the period of suspended waste receipts
AEESC was in the process of removing from inventory all waste materials which
it believes would require the continued operation of the facility's FTIR
ambient air monitoring system as well as the Thermal Oxidizer air emission
control equipment. It is the facility's intent to discontinue the use of this
equipment as soon as regulatory permission is received.
The Winona facility operation costs have been high and very difficult to
control. As a result of the operation costs exceeding revenues every month,
the Winona site has never been profitable. Management has made many efforts to
preserve the site as a possible profitable operation, using different business
techniques, yet none have succeeded. As a result of these efforts it has been
determined that the site should be closed under Federal and State regulations.
At March 17, 1997 management agreed to a plan for closing the site under RCRA
rules, and other substantive environmental regulations. The estimates for the
environmentally correct closure under those environmental laws has been
estimated at $1,500,000.
The results of operations for the Winona Facility since acquisition
December 31, 1994:
1996 1995
-------- --------
Revenues $ 6,834 $ 11,587
Net loss before impairment (4,040) (3,349)
Net loss before income taxes $(11,491) $ (8,488)
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and 1995 were as follows (in
thousands):
1996 1995
------- -------
Waste processing and burial $ 6,240 $ 7,008
State disposal fees and taxes 2,359 1,994
Regulated rate settlements 1,643 2,123
Compensation costs 1,010 1,778
Deferred revenue 674 1,064
Other 4,950 7,055
------- -------
$16,876 $21,022
======= =======
The Company has recorded a liability of $6,240,000 for the waste
processing and burial of waste now on-site at the Recycle Center. The
liability is based on management estimates of anticipated waste treatment
methods, associated volume reductions and burial fees. The Company has signed
agreements for the disposal of this waste. This waste will be disposed of at
two locationS licensed for such disposal services. Should estimated volume
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46
reductions or proposed disposal methods not be attainable, the costs for
processing and burial could increase materially in the near term.
NOTE 6. DEFERRED SITE MAINTENANCE
Deferred site maintenance accruals at December 31, 1996 and 1995 were as
follows (in thousands):
1996 1995
-------- --------
Accrued costs associated with open facilities $ 10,714 $ 10,568
Accrued costs associated with closed facilities 10,658 11,582
-------- --------
Sub-total 21,372 22,150
Less: current portion (1,524) (1,763)
-------- --------
Deferred site maintenance, excluding current portion $ 19,848 $ 20,387
======== ========
Accrued costs associated with open facilities principally relate to
closure and post-closure for the permitted and developed portion of the
Robstown, Texas facility, groundwater contamination remediation at the Robstown
and Winona, Texas facilities, and to capping of active cells at the chemical
waste disposal facilities in Robstown, Texas and Beatty, Nevada and the LLRW
facility in Richland, Washington. The Company is in process of re-permitting
the Robstown facility to include development of an additional portion of the
site. The Company's current estimate of the Robstown site's closure and post-
closure costs of $5,419,000 includes the closure and post closure costs for the
portions of the site now open and either filled or in use at this time. The
estimated additional cell capping costs to be expensed over the remaining
developed cell space at the Company's disposal facilities was approximately
$2,500,000 at December 31, 1996.
The Company is in the process of addressing corrective action plans at
the Robstown, Texas site. A 1978 analysis showed the presence of chemical
contamination in the shallow, non-potable aquifer underlying the site. The
Company operates a deep-injection well for the disposal of contaminated
groundwater and leachate generated at the facility. The Company has recorded
an accrual ($1,826,000 balance at December 31, 1996) for the estimated costs of
the groundwater remediation program based upon a compliance plan agreed to with
the state's regulatory authority in 1992. Based on the results obtained from
the compliance monitoring plan, the contamination levels in the surficial water
bearing zone are decreasing. The plume is still contained within the property
boundaries of the Robstown facility. The Company is proposing a modification
plan which will enhance environmental protection and substantially mitigate
future groundwater remediation costs. This plan is currently being analyzed by
the regulating agency.
Even though the Winona facility is closed, it has on-site, underground
chemical contamination for which the facility developed a corrective action
plan that is still ongoing. Groundwater is recovered and disposed of in the
facility's deep-injection well. The current estimated cost of the remediation
of $815,000 is included in the Company's deferred site maintenance accruals at
December 31, 1996.
The State of Nevada and the State of Washington have collected money for
the costs of closure and post-closure care and maintenance of the respective
Beatty, Nevada and Richland, Washington sites. The Company currently submits
waste volume-based fees to state maintained funds. Such fees are periodically
negotiated with, or established by, the states and are based upon engineering
cost estimates provided by the Company and approved by the state.
Accrued costs associated with closed facilities relate to remediation,
closure and post-closure of the Sheffield, Illinois chemical facility and
maintenance of the Sheffield LLRW facility.
The Company is in the process of remediating the closed chemical waste
disposal facility in Sheffield, Illinois under a final corrective measures
implementation plan issued by the U.S. EPA in 1990 pursuant to the Remedial
Investigation and Feasibility Study completed by the Company. The Company has
submitted for approval a
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closure/post-closure plan for the site to the Illinois EPA and to the U.S. EPA.
The plan has not been approved by the agencies pending further implementation
of the RI/FS. The estimated term of the closure plan combined with the
required thirty years post-closure monitoring is forty years. As of December
31, 1996, the Company had accrued $10,173,000 for estimated plan costs. This
estimate is based on the current plan and the estimate may vary materially
based on the provisions of the approved plan. Additionally, the Company is
maintaining until 1998 a closed LLRW disposal facility adjacent to the closed
chemical waste disposal facility pursuant to a May 25, 1988 Agreed Order with
the State of Illinois. The estimated costs of the remediation and closure
program, maintenance and post-closure monitoring of the LLRW facility with the
expected timing of future payments at December 31, 1996 were as follows (in
thousands):
1997 $ 435
1998 62
-----------
Total estimated costs 497
Discount amount at 2.5% (12)
-----------
Amount accrued, net of discount $ 485
===========
The Company's estimates of future deferred site maintenance costs are
subject to change in the near term in the event amendments are made to current
laws and regulations governing the Company's operations or if more stringent
implementation thereof is required, or if additional information regarding
required remediation activities is obtained. Such changes could have a
material adverse effect on the Company's consolidated results of operations and
financial position in the near term and require substantial capital
expenditures.
NOTE 7. REVOLVING CREDIT LOAN AND LONG TERM DEBT
Long term debt at December 31, 1996 and 1995 consisted of the following
(in thousands):
1996 1995
-------- --------
Secured bank credit facility $ 36,116 $ 28,079
Acquisition note payable -- 550
Capital lease obligations and other 589 508
-------- --------
36,705 29,137
Less: Current maturities (503) (780)
-------- --------
Long term debt $ 36,202 $ 28,357
======== ========
Aggregate maturities of long-term debt and the future minimum payments
under capital leases are as follows (in thousands):
Year Ended
December 31,
------------
1997 $ 503
1998 86
1999 5,000
2000 30,613
----------
Total $ 36,202
==========
On October 31, 1996 the Company renegotiated its prior bank debt under
the terms of a Third Amended and Restated Credit Agreement ("Credit
Agreement").
The new term loans, subject to satisfaction of certain conditions,
extend the maturity of the Company's existing bank debt to December 31, 2000
(the maturity date). Interest on this debt will accrue at a rate of 7% through
1998. Thereafter, interest is to be paid quarterly at the rate of 10% or
prime, whichever is greater. Principal repayments will commence on December
31, 1999 with $5,000,000 due on that date and quarterly payments of $250,000
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thereafter. The total debt balance remaining at the maturity date will be due
and payable on that date. The secured debt now consists solely of a Term Loan
and a Revolving Credit Loan. Subject to the terms and conditions of the Credit
Agreement, the Company's bank agrees to lend the Company an advancing term
loan, in a series of advances, up to a maximum of $38,000,000. The Revolving
Credit loan portion of this loan is represented by a single revolving
promissory note in the original principal sum of $5,000,000 (the "Revolving
Credit Note"). No further advances of any Revolving Credit Loans shall occur
after the Maturity Date.
Under the terms of the Credit Agreement the Company increased long-term
debt by $1,684,000. Included in the total long-term debt balance is the debt
restructuring fees of $265,000.
As of December 31, 1996, the outstanding balances of the Term Loan and
the Revolving Credit loan were $32,004,576 and $3,931,180, respectively. The
Company also had incurred $180,071 in accrued interest and fees at that date.
In exchange for extending the terms, the bank received warrants,
exercisable only upon maturity or the occurrence of a monetary default, to
purchase up to 10% of the Company's then outstanding shares for $1.50 per
share. However, the Company can eliminate these warrants by the payment on
maturity of additional interest equal to the difference between the interest
accrued through 1998 and interest for the same period at the rate of the
greater of 10% or prime. The bank eliminated its existing conversion feature
on the Fee Capitalization portion of the outstanding debt. In addition to the
changes in economic terms, the Company's financial covenants were restructured
to match the Company's current situation and financial plan. The bank has also
agreed to allow the Company to use capital freed up by its debt restructuring
as a working capital. The terms of the bank loan prohibit dividend payments on
the Company's common stock until the bank debt is fully retired.
As part of the new arrangements regarding the secured credit facility
with its bank, the Company obtained $3,000,000 in new equity from two of its
directors and shareholders, Rotchford Barker and Edward Heil, who in exchange
for this amount agreed to purchase 300,000 shares of new Class E Redeemable
Convertible Preferred Stock. The new Preferred Stock is nonvoting, has a
stated value and preference in liquidation of $10 per share, and has the right
to receive dividends, payable solely in common shares of the Company, at the
rate of 11.25% per annum.
As a condition to the extension of these terms, and in addition to the
$3,000,000 in equity already raised, the Company is required to use its best
efforts to raise an additional $2,000,000 in equity on or before June 30, 1997.
In order to meet this second equity condition and to give all common
shareholders the ability to participate in the Company's increased equity base,
the Company will use its best efforts to register on or before June 1, 1997 a
rights offering to holders of the Company's common stock. In the rights
offering, which will be made only by means of a prospectus, the Company would
offer each common shareholder, as of a record date expected to be on or about
the second business day before the registration statement for the rights
offering is declared effective by the Securities and Exchange Commission (SEC),
the right to purchase for $1 one share of newly issued common stock for each
share of common stock held on such record date. The rights would expire unless
exercised within 30 days after the offer commences. As of December 31, 1996,
the Company had 8,010,017 shares of common stock outstanding.
On February 7, 1996 the Company entered into an agreement (First
Amendment to Second Amended and Restated Credit Agreement) with its bank for
the issuance of a note, the Advance Note, in the amount of $4,000,000. This
note, issued to provide the Company working capital funds, was paid in full
before its maturity, June 30, 1996.
The acquisition note payable matured on December 31, 1995 and
represented a note payable to Mobley Environmental Services, Inc. ("Mobley").
This non-interest bearing note was incurred as part of the Company's
acquisition of Gibraltar Chemical Resources, Inc. ("Gibraltar") on December 31,
1994. The note has not been paid by the Company because of the offsetting
costs that the Company paid on behalf of Gibraltar combined with the Tolling
Agreement removed the Company's obligation for settlement of this note payable.
At December 31, 1996 the Company had issued letters of credit with an
outstanding face value of $4,675,848, including $1,872,000 issued under the
bank credit facility, of which the most significant relate to site operating
permits for the Company's sites. The issued letters of credit are secured by
cash and investment securities. The
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Company is required to pay fees ranging from 1/2 of one percent to one percent
on letters of credit drawn. The letters of credit expire no more than one year
after December 31, 1998.
NOTE 8. PREFERRED STOCK
Effective October 31, 1996, and executed on November 13, 1996, was the
Certificate of Designation, Preferences and Rights of Series E Redeemable
Convertible Preferred Stock. The Board of Directors duly authorized and
adopted, by all necessary action on the part of the Company, the resolution
creating this Series E of 300,000 shares of preferred stock. The Company sold
all 300,000 shares of this 11.25% Series E Redeemable Convertible Preferred
Stock, $10 par value with a $10 per share liquidation preference, principally
to two members of the Board of Directors of the Company. The Company received
cash proceeds of $3,000,000 for the issuance of these 300,000 preferred shares.
By redemption, each share shall be redeemed by the Company on the first
business day following the issuance of Common Stock in a Rights Offering (which
Rights Offering the Company believes will occur on or before June 1, 1997), to
the extent that the purchase price of the Common Stock sold in the Rights
Offering plus the stated amount of the Series E Preferred outstanding on the
redemption date is in excess of $5,000,000. If less than all of the Series E
Preferred Stock outstanding is redeemed, the Series E Preferred Stock to be
redeemed shall be determined pursuant to the agreement for the initial purchase
of the Series E Preferred Stock. Any Rights Offering shall be an offer, to all
holders of record of the Company's Common Stock on or about the second business
day preceding the date the registration of the Rights Offering is declared
effective by the SEC, to purchase one share of Common Stock held on the record
date at a purchase price of $1 per share, payable within 30 days after the
Rights Offering.
By conversion, if there is a Rights Offering and less than 5,000,000
shares of Common Stock are sold, one share of Series E Preferred Stock shall be
converted into 10 shares of fully paid and nonassessable Common Stock for each
10 shares or portion thereof of Common Stock less than 5,000,000 sold in the
Rights Offering. Such conversion shall occur on the first business day
following the expiration of the Rights Offering.
Each share of this 11.25% Series E Preferred Stock includes 10 warrants
to purchase Common Stock for an exercise price of $1.50 per share. There shall
be no voting rights or powers attached to this 11.25% Series E Preferred Stock.
In September 1995, the Board of Directors of the Company authorized
105,264 shares of preferred stock designated as 8 3/8% Series D Cumulative
Convertible Preferred Stock ("8 3/8% Preferred Stock") and authorized the
issuance of 105,264 of such shares and warrants to purchase 1,052,640 shares of
the Company's common stock. During September through December 1995, the
Company sold 105,264 of 8 3/8% Preferred Stock with warrants in a private
offering to a group comprised principally of members of the company's directors
("the Investing Group") and received cash proceeds of $4,759,000 which is net
of offering expenses of $101,000 and $140,000 in settlement of liabilities to
two members of the Investing Group. Each 8 3/8% Preferred Stock share is
convertible at any time at the option of the holder into 8.636 shares of the
Company's common stock, equivalent to a conversion price of $5.50 on the $47.50
total per share offering price. Dividends on the 8 3/8% Preferred Stock are
cumulative from the date of issuance and payable quarterly commencing on
October 15, 1995. Accrued unpaid dividends totaled $514,000 and $88,000 at
December 31, 1996 and 1995, respectively. The 8 3/8% Preferred Stock shares
are not redeemable and the liquidation preference is $47.50 per share plus
unpaid dividends. Each share of the 8 3/8% Preferred Stock issued includes ten
warrants to purchase shares of the Company's common stock. Each warrant
entitles the holder to purchase on share of common stock for an exercise price
of $4.75. The $4.75 warrants are exercisable at any time and expire September
12, 1999. No value was assigned to the warrants in the accompanying
consolidated financial statements as the value is deemed to be de minimis.
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NOTE 9. INCOME TAXES
Effective January 1, 1993, the Company prospectively adopted Financial
Accounting Standards No. 109, Accounting for Income Taxes ("Statement 109").
The effect of the adoption was not material to the Company's financial position
or results of operations.
The components of the income tax provision (benefit) were as follows (in
thousands):
Year Ended December 31,
1996 1995 1994
------- ------- -------
Current - Federal $(1,552) $(6,061) $(1,184)
- State 35 (170) (75)
------- ------- -------
(1,517) (6,231) (1,259)
------- ------- -------
Deferred - Federal -- 816 3,044
------- ------- -------
$(1,517) $(5,415) $ 1,785
======= ======= =======
The following is a reconciliation between the effective income tax
(benefit) rate and the applicable statutory federal income tax (benefit) rate:
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Income tax (benefit) - statutory rate (34.0)% (34.0)% 34.0%
State income taxes, net of federal tax benefit -- (.3) (.1)
Dividend income excluded from taxable income -- (.1) (2.2)
Non-deductible goodwill amortization -- 5.3 1.6
Valuation allowance for deferred tax assets 14.9 18.0 --
Tax refund 5.7 -- --
Other, net 1.4 1.1 (1.6)
-------- -------- --------
Total effective tax (benefit) rate (12.0)% (10.0)% 31.7%
======== ======== ========
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The tax effects of temporary differences between income for financial
reporting and taxes that gave rise to significant portions of the deferred tax
assets and liabilities and their changes during the year were as follows (in
thousands):
January 1, Deferred December 31,
1996 Provision 1996
-------- -------- --------
Deferred tax assets:
Environmental compliance and
other site related costs,
principally due to accruals for
financial reporting purposes $ 8,212 $ 95 $ 8,307
Depreciation and amortization 6,396 1,969 8,365
Net operating loss carryforward 2,701 4,444 7,145
Other 2,101 (1,210) 891
-------- -------- --------
Total gross deferred tax assets 19,410 5,298 24,708
Less valuation allowance (14,709) (5,679) (20,388)
-------- -------- --------
Net deferred tax assets 4,701 (381) 4,320
-------- -------- --------
Deferred tax liabilities:
Site development costs (2,633) 591 (2,042)
Insurance claim (1,000) 1,000 --
Other (1,068) (1,210) (2,278)
-------- -------- --------
Total gross deferred tax liabilities (4,701) 381 (4,320)
-------- -------- --------
Net deferred tax assets $ 0 $ 0 $ 0
======== ======== ========
The Company has established a valuation allowance for certain deferred
tax assets due to realization uncertainties inherent with the long-term nature
of deferred site maintenance costs, uncertainties regarding future operating
results and for limitations on utilization of acquired net operating loss
carryforwards 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. The net operating loss carryforward of
approximately $21,015,000 at December 31, 1995, begins to expire in the year
2007 and utilization of $5,222,000 of this carryforward is limited pursuant to
the net operating loss limitation rules of Internal Revenue Code Section 382.
NOTE 10. EMPLOYEE'S BENEFIT PLANS
Retirement Plan. The Company's defined contribution retirement plan
(the Plan) was amended effective December 31, 1995. The amendment changes
provided for employees not earning a benefit or having new eligibility to
participate, and no company contributions are being made. Prior to December
31, 1995, the Plan covered all full-time employees of American Ecology and its
subsidiaries (the Company) hired in a job category which would result in 1,000
hours of service during any consecutive 12-month period and who had attained
the age of 21. The Company made basic contributions equal to 5% of
compensation below the prior year's FICA wage base plus a contribution equal to
10% of compensation above the prior year's FICA wage base, and a past service
contribution as defines.
Effective November 20, 1996, the Company merged the Retirement Plan with
the 401(k) Plan into a single plan to be known as the American Ecology
Corporation 401(k) Savings Plan.
Effective February 10, 1997 the basic contributions as described above
were reinstated for the bargaining unit in Oak Ridge, TN, in accordance with the
agreement between Local No. 3-983 of the Oil, Chemical and Atomic Workers
International Union and the Company's subsidiaries, Nuclear Materials Management
Center and Nuclear Equipment Service Center. The plan was reconstructed as
equal to the company's previous retirement plan.
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401(k) Plan. The Company maintains a 401(k) plan for employees who
voluntarily contribute a portion of their compensation, thereby deferring
income for federal income tax purposes. Effective November 20, 1996 the 401(k)
plan was merged with the Retirement Plan to form a single plan called The
American Ecology Corporation 401(k) Savings Plan.
The 401(k) Savings Plan was amended and reinstated in its entirety. The
Plan covers substantially all of the Company's employees after one full year of
employment. Participants may contribute a minimum of 0% up to the IRS limits.
The Company's contribution matches 55% of participant contributions up to 6% of
deferred compensation or a maximum of 3.3% of an employees qualified earnings.
The Company's contribution was changed to cash instead of AEC stock, from
September 1996.
The Company's total contribution for both the retirement plan and 401(k)
plan was $829,000 and $946,000 for 1995 and 1994, respectively. The Company
contribution for the 401(k) plan was $268,907 for 1996. The Company has no
post-retirement or post-employment benefit plan.
NOTE 11. STOCK OPTION PLANS
The Company presently maintains four stock option plans affording
employees and outside directors of the Company the right to purchase shares of
its common stock. The exercise price, term and other conditions applicable to
each option granted under the Company's plans are generally determined by the
Compensation Committee of the Board of Directors at the time of the grant of
each option and may vary with each option granted. No option may be granted at
a price less than the fair market value of the shares when the option is
granted, and no options may have a term longer than ten years.
The Company accounts for these plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees". Under this opinion, the Company has
recorded no compensation cost for 1996, 1995, and 1994. Had compensation cost
for the plans been determined consistent with FASB Statement No. 123,
"Accounting for Stock-Based Compensation", the Company's 1996 net loss would
not have been increased by any material amounts on a pro forma basis. Pro forma
increases in net loss in 1995 are also not considered material. The weighted
average remaining life of the options is seven years at December 31, 1996.
1996 1995 1994
-------------- -------------- --------------
Under option:
Options outstanding, beginning of year 1,186,600 691,950 611,450
Granted -- 706,000 125,000
Exercised -- (6,800) (35,000)
Canceled (644,000) (204,550) (9,500)
-------------- -------------- --------------
Options outstanding, end of year 542,600 1,186,600 691,950
============== ============== ==============
Price range per share of outstanding options $ 4.00- $ 4.00- $ 2.79-
$ 14.75 $ 14.75 $ 14.75
============== ============== ==============
Price range per share of options exercised $ -- $ -- $ 8.00-
$ -- $ 2.79 $ 8.58
============== ============== ==============
Price range per share of options canceled $ 4.62- $ 6.38- $ 10.13-
$ 14.25 $ 14.75 $ 11.00
============== ============== ==============
Options exercisable at end of year 417,070 721,340 521,660
============== ============== ==============
Options available for future grant at end of year 383,900 383,900 710,900
============== ============== ==============
NOTE 12. ACQUISITIONS
On September 19, 1994, the Company acquired the assets of Quadrex
Recycle Center, ("Recycle Center"), a business segment of Quadrex Corporation
("Quadrex") that provides recycling, decontamination, volume reduction of
radioactive waste and related equipment rental services to government,
commercial and nuclear power industries. The purchase consideration was
comprised of payments by the Company for assumed liabilities and working
capital for the Recycle Center through the closing date, additional unpaid
liabilities assumed as of the closing date, and direct acquisition costs, all
of which total approximately $28,000,000. The purchase method of accounting
was
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used for this asset acquisition, therefore, the Recycle Center's results of
operations are consolidated with the Company's since September 19, 1994. The
excess of acquisition cost over fair value of net tangible assets of the
Recycle center of approximately $22,165,000 was written down during 1995 as
discussed in Note 4. The acquisition cost was reduced by the estimated fair
value of 545,000 common shares of Perma-Fix, Inc. ("Perma-Fix") which Quadrex
transferred to the company effective September 30, 1994.
On December 31, 1994, the Company acquired Gibraltar Chemical Resources,
Inc. ("the Winona facility"), a wholly-owned subsidiary of Mobley. The Winona
facility provides fuels blending, solvent recycling, and deepwell injection
services to the hazardous and industrial waste disposal markets with a fixed
base facility in Winona, Texas and collections and technical operations in El
Paso, Texas and Laredo, Texas. The total acquisition cost of $10,628,000
included cash, a $550,000 note payable to Mobley, assumed liabilities, and
direct acquisition costs. The excess of cost over fair market of net assets of
the Winona facility of approximately $3,458,000 was written down during 1995 as
discussed in Note 4. Since the acquisition, the Company has been faced with
both legal confrontations and operational difficulties. The operation costs
have been high and very difficult to control. As a result of the operation
costs exceeding revenues every month, the Winona site has never been
profitable. Management has made many efforts to preserve the site as a
possible profitable operation, using different business techniques, yet none
have succeeded. As a result of these efforts it has been determined that the
site should be closed under Federal and State regulations. The date of the
closure was set at March 17, 1997 when management agreed to a plan for closing
the site under RCRA rules, and other substantive environmental regulations.
The estimates for the environmentally correct closure under those environmental
laws have been estimated at $1,500,000.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company's business inherently involves risks of unintended or
unpermitted discharge of materials into the environment. In the ordinary
course of conducting its business activities, the Company becomes involved in
judicial and administrative proceedings involving governmental authorities at
the federal, state and local levels. In the majority of the situations where
regulatory enforcement proceedings are commenced by governmental authorities,
the matters involved relate to alleged technical violations of licenses or
permits pursuant to which the Company operates, or, of laws or regulations to
which its operations are subject, or, are the result of different
interpretations of the applicable requirements.
In addition to the litigation described below, the Company and certain of
its subsidiaries are involved in other civil litigation and administrative
matters, including permit application proceedings in connection with the
established operation, closure and post-closure activities of certain sites.
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Management has not established reserves for the matters discussed below,
other than for certain anticipated legal fees, based on management's estimates
of the outcome. During the course of legal proceedings, management's estimates
with respect to such matters may change. While the outcome of any particular
action or administrative proceeding cannot be predicted with certainty,
management is unable to conclude that the ultimate outcome, if unfavorable, of
the litigation and other matters described below, will not have a material
adverse effect on the operations or financial condition of the Company.
Paul Stephenson, et al v. American Ecology Recycle Center, Inc., US District
Court, Eastern District, Tennessee, Civil Action No. 94-CV-650. The Company's
subsidiary, AERC, purchased the assets of Quadrex Environmental Company's
Recycle Center in Oak Ridge, Tennessee on September 19, 1994. In November 1994,
AERC was named as a defendant in what has become a class action lawsuit by
former employees of Quadrex who are claiming unpaid medical benefits and for
payment into an underfunded pension plan. The purchase agreement between AERC
and Quadrex excluded and provided for indemnification by Quadrex of such claims,
but Quadrex subsequently filed for protection under Chapter 11 of the Bankruptcy
Act and adopted a liquidating reorganization plan under which unsecured
creditors will likely receive no payment. In November 1996, approximately $1.2
million of insurance proceeds payable as a result of a fire at the recycle
center in July 1994 were paid into the federal district court to be held pending
the outcome of the litigation. The Plaintiffs' claims, as currently understood,
are substantially less than the amount held by the court. A determination of the
likelihood of an unfavorable outcome or an estimate of the amount or range of
potential loss, if the outcome is unfavorable, cannot be made at this time.
Management intends to continue to defend this matter.
US Ecology, Inc. v. Barbara Wagner, Benton County Assessor, Board of Tax
Appeals, State of Washington, Docket Nos. 92-63--92-65 and 95-43--95-45. In
1992, the Benton County (Washington) assessor issued property tax assessments
on improvements owned by the Company and located on the Company's leasehold at
the US Department of Energy's Hanford Reservation. The retroactive property
tax increases totaled $1.7 million for the years 1989, 1990 and 1991. Prior to
1989, annual taxes had been about $5,400. The company sued Benton County, the
Assessor and Treasurer to enjoin them from collecting the increased taxes. An
injunction was granted by the Benton County Superior Court, but was reversed by
the Washington Court of Appeals which ruled that the Company had not exhausted
available administrative remedies. Accordingly, the Company prosecuted its
appeal to the Washington Board of Tax Appeals and a hearing was held in
November 1995. The Company has recently been assessed an additional $1.9
million in taxes for 1992, 1993 and 1994. On July 1, 1996, the Board of Tax
Appeals issued an Interim Decision that the Company's concession right to
operate a low-level radioactive waste disposal site at the Hanford Reservation
is subject to property tax, but that the hearing will be re- opened to allow
the parties to submit additional evidence regarding the fair market value of
the concession right. The Company believes that Washington law does not
provide for taxation of "concession rights" and that, in any event, since its
permits and licenses may not be freely transferred, the market value thereof is
minimal. The Company intends to continue to contest the matter.
Boston Edison Company v. US Ecology, Inc., U.S. District Court for
Massachusetts, Civil Action No. 95-12173. In October 1995, Boston Edison filed
a complaint against USE, a subsidiary of the Company, in the U.S. District
Court of Massachusetts alleging claims related to USE's alleged refusal to
indemnify Boston Edison for various costs arising out of the shipping and
burial of waste materials at the Maxey Flats Nuclear Disposal Site. USE had
entered into a series of contracts with Boston Edison to provide radioactive
waste disposal services at this site. Boston Edison alleges that USE breached
the contracts because USE failed to indemnify Boston Edison for its costs.
Boston Edison also alleges that USE committed an unfair and deceptive trade
practice in the State of Massachusetts because of its failure to indemnify
Boston Edison as required by these contracts. Finally, Boston Edison seeks a
declaratory judgment that would set forth the contractual rights and
liabilities of the parties. Boston Edison claims $600,000 in past and future
costs for the alleged breach of the contracts. It also seeks to treble damages
under the Massachusetts Deceptive Trade Practices Act. USE has successfully
moved the case from Massachusetts to federal court in Kentucky. The Company
believes USE has contractual defenses to the indemnity claims and intends to
contest this matter. Additionally, USE has counterclaimed against Boston
Edison seeking contribution for its response costs at Maxey Flats. It is not
possible at this time to predict whether the outcome of this matter will be
favorable or unfavorable.
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Ally Capital Corporation v. American Ecology Recycle Center, Inc., et al,
U.S. District Court, Southern District of Texas, Houston Division, Civil Action
No. H-96-3117. This complaint is for breach of an equipment lease resulting
from AERC's, the Company's subsidiary, failure to make monthly lease payments on
leased equipment. The equipment is essential to the continued operations of the
Oak Ridge facility. By December 1996, the unpaid payments exceeded $255,000.
The remaining balance on the equipment lease, including the $255,000, is
approximately $618,000. Plaintiff has filed a motion for summary judgment
seeking the entire lease balance of $667,680, per diem interest, attorneys fees
and possession of the equipment. The parties are near settlement in the matter.
Houston Office 88, Inc. v. American Ecology Corporation v. Altra Energy
Technologies, L.L.C., District Court of Harris County, Texas, Case No.
96-47050. Plaintiffs filed this case in September 1996 seeking more than $4.1
million in rent, interest, costs and attorneys fees, alleging breach of the
office lease agreement by the Company for vacating its former corporate
headquarters in Houston, Texas. The Company has filed a counterclaim against
Plaintiff based on its wrongful refusal to allow the Company's leasing agent to
show the premises to potential sublessees. Also, the Company has filed a
third-party claim against sublessee, Altra Energy Technologies, L.L.C., for
failure to consummate a sublease agreement between Altra and the Company. The
Company intends to vigorously contest the case, but will remain open to a
favorable settlement in advance of trial scheduled for December 8, 1997.
In the Matter of the Applications of American Ecology Environmental
Services Corp., Permit Nos. AQ-9429, HW-50368, WDW-186, and WDW-229 (SOAH
Docket 582-95-1618). This matter is a contested proceeding before the Texas
State Office of Administrative Hearings wherein AEESC, a wholly owned
subsidiary of the Company, is seeking to renew operation permits for its
hazardous waste treatment, storage, and disposal facility in Winona, Texas. A
locally (Winona, Texas) based organization known as "Mothers Organized to Stop
Environmental Sins" ("MOSES") has appeared in the matter seeking to have the
permits revoked. As a result of the activities of MOSES and certain
individuals, AEESC has determined it cannot continue operation of the facility.
Virgie Adams, et al v. American Ecology Environmental Services Corporation,
et al, Cause No. 236-165224-6, Tarrant County, Texas District Court. On August
30, 1996, Plaintiffs amended their August 6 complaint naming over 677
additional plaintiffs and 87 defendants, including the Company, several of its
subsidiaries and customers of its Winona, Texas facility. The Plaintiffs are
seeking damages, punitive damages and pre- and post-judgment interest based on
claims of negligence, negligence as a matter of law, fraudulent concealment,
assault and battery, intentional infliction of emotional distress, res ipsa
loquiter and intentional tort. Plaintiffs allege the Company "...failed to
handle, treat, store, blend, inject, and otherwise dispose of extremely
hazardous and highly toxic substances in a manner...constitut(ing)...compliance
with basic health, safety and environmental standards." The case is in the
early stages of discovery. The Company believes it has conducted its
operations in accordance with applicable laws and regulations, that the lawsuit
is without merit and intends to vigorously defend the action.
American Ecology Environmental Services Corp., et al v. Mildred Krueger, et
al, U. S. District Court for the Northern District of Texas, Dallas Division,
Civil Action No. 3-96-CV-2670-D. The Company and two of its subsidiaries,
AEESC and USE, filed suit in the U.S. District Court for the Northern District
of Texas against the Defendants seeking an award of actual and punitive damages
proven at trial and treble damages, costs and attorneys fees as allowed under
the federal racketeering statutes and for appropriate injunctive relief
including an order compelling Defendants to cease their improper activities,
retract their defamatory statements and to refrain from similar improper
activities. The Complaint alleges that the Defendants: violated the RICO
statute, defamed AEESC, USE and the Company through various publications and
statements; tortuously interfered with existing contractual rights and
prospective business relations of AEESC, USE and the Company; disparaged the
businesses of AEESC, USE and AEC; engaged in a civil conspiracy for improper
purposes to cause the closure of AEESC's Winona, Texas facility; and abused
both the administrative and judicial processes within Texas. The case is based
on the past and continuing activities of Phyllis Glazer and a non-profit
corporation (M.O.S.E.S.) organized by Glazer, her husband and mother, all of
whom are defendants. The action alleges that Defendants fraudulently sought to
deprive Plaintiffs of their property by spreading misleading and defamatory
statements about Plaintiffs and their business operations, and that the
Defendants have conspired among themselves to force the closure of the Winona
facility for their own pecuniary gain by engaging in a pattern of maliciously
disseminating clearly false and
54
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defamatory statements concerning the Plaintiffs' businesses and by repeatedly
abusing judicial proceedings solely for the purpose of damaging the reputation
and financial health of Plaintiffs. Defendants have answered the complaint
denying liability and counter-claiming for damages for abuse of process in
attempting to deny Plaintiffs' right of free speech. MOSES claims actual and
punitive damages in excess of $1 million based on alleged reputational damage,
reduced income (in the form of reduced contributions) and costs of legal
representation. Notwithstanding the decision to close the Winona facility, the
Company intends to vigorously prosecute this case to its conclusion.
Phyllis Glazer and M.O.S.E.S. v. Gibraltar Chemical Resources, Inc., et al,
U.S. District Court Eastern District, Texas, Case No. 6:94-CV-708. This
lawsuit, which is a citizen suit brought under the federal Reserve Conservation
and Recovery Act and the Clean Air Act, alleges that the Winona facility
violated certain permits and regulations, and contributed to the handling,
storage, treatment, transportation and disposal of solid and hazardous waste in
a manner that presents an imminent and substantial endangerment to health and
the environment. The Plaintiffs have requested that the facility be shut down
and unspecified civil penalties imposed on the Company. The Company has been
granted a partial summary judgment, but the core claims remain subject to
indemnity provisions.
In April 1995, management learned that one of its subsidiaries had not
always complied with the transit time limitations allowed for hazardous waste
being transferred from generators to final disposal sites. These requirements
are under the regulatory supervision of the TNRCC and the Company promptly
reported the situation to the TNRCC. As a result of an internal review of this
matter, the Company determined that there was a substantial number of instances
where the transit time limitations were exceeded over approximately eight
months from June 1994 through February 1995. As a direct result of this
circumstance, the Company has reorganized the operations of the subsidiary,
including the replacement of a number of personnel, and the adoption of
stronger internal systems for monitoring the movement of boxes and
transportation vehicles. At this time, the Company does not know whether the
TNRCC will ultimately assess any fines against the Company for exceeding
transit time limitations. While the Company believes the steps that it has
taken are appropriate and responsible, it is possible that the TNRCC may seek
to impose a fine on the Company in connection with the matter. The Company is
not in a position to assess the amount of such a fine. However, a fine of
sufficient magnitude could have a material adverse effect upon the consolidated
financial position of the Company.
James D. Moncrief, et al v. Gibraltar Chemical Resources, Inc., et al,
District Court of Smith County, Texas, Civil Action No. 92-1942-C. Marian
Steich, et al v. Gibraltar Chemical Resources, Inc., et al, District Court of
Smith County, Texas, Civil Action No. 93-054309. Michael Williams, et al v.
Gibraltar Chemical Resources, Inc., et al, District Court of Smith County,
Texas, Civil Action No. 93-2304-C. Tangee E. Daniels, et al v. Atrium Doors
and Windows, Inc., et al, District Court of Dallas County, Texas, Civil Action
No. 95-091459-L. Each of the above- identified cases, together with the Glazer
and Adams cases discussed above, involve AEESC, a subsidiary of the Company,
Winona, Texas facility. As discussed elsewhere herein, AEESC has decided to
close that facility permanently. Each of these cases seeks unspecified damages
for various causes of action, including trespass, nuisance, negligence, gross
negligence, and in some cases, fraudulent concealment and fraud. The
Plaintiffs claim that they suffered personal injuries and property devaluation
as a result of alleged releases of toxic or harmful chemical substances into
the environment from the facility. The Moncrief case was tried to a jury in
October 1996. The jury awarded damages in the amount of $18,000 on the
Plaintiffs' nuisance claim only. Plaintiffs have stated they intend to appeal
the verdict and have requested a new trial. All the other cases are in various
stages of pre-trial discovery. In the Moncrief, Steich, Williams and Daniels
cases, AEESC is relying upon its predecessor parent corporation's insurance
coverage for defense and indemnity purposes. With respect to each of the
cases, the Company believes it has conducted its operations in accordance with
applicable laws and regulations, that each of the lawsuits is without merit and
intends to vigorously defend each.
ENVIRONMENTAL MATTERS:
In the Matter of American Ecology Environmental Services Corporation, SOAH
Docket No. 582-97-0261. In this matter, the Texas Natural Resources
Conservation Commission ("TNRCC"), alleges violations of certain provisions of
the Winona Facility's air and surface facilities hazardous waste permits and
relevant statutory provisions. The Complaint proposes an administrative
penalty assessment of $71,700. An answer has been filed with the TNRCC and
settlement discussions are ongoing. The Company will continue to contest this
matter if settlement discussions prove unfruitful.
In re American Ecology Environmental Services Corporation, USEPA Region 6.
On March 7, 1997, Company representatives attended a meeting with the USEPA
regarding compliance by AEESC with notification requirements of the intention
to import waste from a foreign based waste generator. The meeting allowed the
Company an opportunity to explain its position regarding the matter and to
provide additional relevant information. The alleged violations involve
reporting requirements only, not release of pollutants from the facility. EPA
anticipates filing an enforcement action against the Company seeking a penalty
of approximately $67,500. The Company is currently investigating whether
proper information was reported to the EPA.
In the Matter of American Ecology Recycle Center, Inc., U.S. Environmental
Protection Agency, Region 4, Docket No. 96-13-R. Administrative Complaint
issued by the USEPA Region 4, Atlanta, alleges AERC, a
55
57
subsidiary of the Company, failed to make a hazardous waste determination as
the generator of hazardous waste, and stored the same for greater than 90 days
without a permit. The Complaint seeks civil penalties in the amount of
$96,000, disposal of the "wastes" at a permitted facility, and the immediate
clean-up of the area in which the materials have been stored. The materials
were routinely used in the AERC Chemline Cleaning Process Unit, which was
destroyed by a July 1994 fire at the Oakridge facility. AERC is in settlement
discussions with the EPA to resolve the matter without a hearing and has
submitted a Resolution Plan to the EPA requesting permission to allow
processing of the Chemline Residues in the Facility Waste Water Treatment Unit.
The Treatment Unit is currently being rebuilt from the fire, and is anticipated
to be on-line in April 1997.
In re Ramp Industries, Inc. Site (Colorado), U.S. Environmental Protection
Agency, Denver, Region VIII. USE responded to a CERCLA 104(e) Information
Request in March 1996 sent by USEPA to numerous Potentially Responsible
Parties. Thus far, USE has not been named as a responsible party at the CERCLA
site, and there has not been any further action with respect to the site.
Hazardous substances may have been sent by USE to the site from the Company's
former operations warehouse in Pleasanton, California. No determination as to
ultimate liability can be made at this time and no formal action has been
initiated beyond the information requests.
United States Environmental Protection Agency v. US Ecology, Inc., RCRA No.
V-W-025-92. In 1992, the USEPA initiated an administrative enforcement action
against USE, a subsidiary of the Company, alleging that USE had failed to
comply with certain regulatory requirements to provide financial assurance for
closure and post-closure costs as well as liability insurance relating to its
hazardous waste management of its facility in Sheffield, Illinois. The EPA is
seeking a penalty of approximately $1 million and ordering compliance. USE
ceased operations at the facility in 1983, which has been undergoing closure
and corrective action pursuant to regulatory requirements and a RCRA Consent
Order since that time. Because the Sheffield facility had not been an interim
status facility under the RCRA regulations since November 1985, the Company
responded that the interim status regulatory requirements for financial
assurance and liability insurance do not apply and objected to the penalty as
entirely unwarranted. The administrative law judge ruled that the Sheffield
facility is subject to the RCRA regulatory requirements for financial assurance
and liability insurance. The Company has appealed that decision to the
Environmental Appeals Board and is negotiating a reduction of the penalty with
the EPA and alternatively seeking to apply the penalty to construction of a
supplemental environmental project elsewhere.
In the Matter of U.S. Department of Energy, US Ecology, Inc., RCRA Docket
No. WA7 89000 8967. EPA issued Hazardous and Solid Waste Amendments to a Final
RCRA Permit No. WA7 89000 8967, issued August 29, 1994 to the U.S. Department
of Energy for the Hanford Federal Reservation, which purports to impose
obligations on various parties, including, potentially, USE. USE has sought
review of permit condition III.B., identifying certain disposal units operated
by USE as Solid Waste Management Units subject to investigation and corrective
action. USE also sought review of all other conditions of the HSWA portion of
the permit, including definition "g" to the extent that it defines "facility"
or "site" to include leased lands, and including Attachments A-F, to the extent
that they set forth the requirements that would be applicable to the USE site.
After negotiations with the EPA, the appeal was dismissed at the joint request
of USE and the EPA, without prejudice to either party's right to reinstate the
appeal if settlement is not achieved. USE has submitted an Investigatory Plan
to Washington Department of Ecology for the investigation of hazardous
constituents. The Plan is pending. It is not possible at this time to predict
the outcome of this matter.
NOTE 14. SHAREHOLDER RIGHTS PLAN
During December 1993, the Company adopted a Shareholder Rights Plan (the
"Plan"). Pursuant to the Plan each outstanding share of the Company's Common
Stock on December 17, 1993, received one Right as a dividend that becomes
exercisable upon certain triggering events. On March 29, 1995, the Company
terminated the Plan and authorized the redemption of all outstanding Rights
issued under the Plan. The redemption price was $.01 per Right, totaling
$78,000 and was paid on April 15, 1995 to shareholders of record on April 10,
1995.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 of Part III have been omitted from this report
because the Company will file with the Securities and Exchange Commission, no
later than 120 days after the close of its fiscal year, a definitive proxy
statement. The information required by Items 10, 11, 12 and 13 of this report,
which will appear in the definitive proxy statement, is incorporated by
reference into Part III of this report.
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58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
1. Financial statements and reports of Balukoff, Lindstrom &
Co., P.A. and Arthur Andersen LLP
Independent Auditors' Report
Reports of Independent Auditors
Consolidated Balance Sheets - December 31, 1996 and
1995
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1996, 1995 and
1994
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial statement schedules
Other schedules are omitted because they are not
required or because the information is included in
the financial statements or notes thereto
3. Exhibits
Exhibit Incorporated by Reference from
No. Description Registrant's
- ------- ----------- -------------------------------
3.1 Restated Certificate of Incorporation, as amended 1989 Form 10-K
3.2 Certificate of Amendment to Restated Certificate of Incorporation Form S-4 dated 12-24-92
dated June 4, 1992
3.3 Amended and Restated Bylaws dated February 28, 1995 1994 Form 10-K
10.1 Sublease dated February 26, 1976, between the State of Washington, Form 10 filed 3-8-84
the United States Dept. of Commerce and Economic Development, and
Nuclear Engineering Company with Amendments dated January 11, 1980,
and January 14, 1982.
10.2 Lease dated May 1, 1977 ("Nevada Lease"), between the state of Form 10 filed 3-8-84
Nevada, Dept. of Human Resources and Nuclear Engineering Company,
with Addendum thereto, dated December 7, 1982
10.3 Addendum to Nevada Lease dated March 28, 1988 1989 Form 10-K
10.4 Nevada State Health Division, Radioactive Material License issued 1989 Form 10-K
to US Ecology, Inc. dated December 29, 1989
10.5 Administrative Order by Consent between the United States 1985 Form 10-K
Environmental Protection Agency and US Ecology, Inc. ("USE") dated
September 30, 1985
10.6 State of Washington Radioactive Materials License issued to US 1986 Form 10-K
Ecology, Inc. dated January 21, 1987
10.11 Agreement between the Central Interstate Low-Level Radioactive 2nd Quarter 1988 10-Q
Waste Compact Commission and US Ecology, Inc. for the development
of a facility for the disposal of low-level radioactive waste dated
January 28, 1988 ("Central Interstate Compact Agreement")
57
59
10.12 Amendment to Central Interstate Compact Agreement dated May 1, 1990 1994 Form 10-K
10.13 Second Amendment to Central Interstate Compact Agreement dated June 1994 Form 10-K
24, 1991
10.14 Third Amendment to Central Interstate Compact Agreement dated July 1994 Form 10-K
1, 1994
10.15 Settlement agreement dated May 25, 1988 among the Illinois Form 8-K dated 6-7-88
Department of Nuclear Safety, US Ecology, Inc. and American Ecology
Corporation of a December 1978 action related to the closure, care
and maintenance of the Sheffield, Illinois LLRW disposal site
10.16 Nevada Division of Environmental Protection Permit for Hazardous 1988 Form 10-K
Waste Treatment, Storage and Disposal (Part B) issued to US
Ecology, Inc. dated June 24, 1988
10.17 Texas Water Commission Permit for Industrial Solid Waste Management 1988 Form 10-K
Site (Part B) issued to Texas Ecologists, Inc. dated December 5,
1988
10.18 Memorandum of Understanding between American Ecology Corporation 1989 Form 10-K
and the State of California dated August 15, 1988
10.19 United States Environmental Protection Agency approval to dispose 1989 Form 10-K
of non-liquid polychlorinated biphenyl (PCB) wastes at the Beatty,
Nevada chemical waste disposal facility
10.20 Employment Agreement between American Ecology Corporation and C. 1993 Form 10-K
Clifford Wright, Jr. dated April 1, 1994 * (terminated in 1995)
10.21 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
William P. McCaughey dated April 1, 1994 * (terminated in 1995)
10.22 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Stephen W. Travers dated April 1, 1994 * (terminated in 1995)
10.23 Employment Agreement between American Ecology Corporation and Harry 1993 Form 10-K
O. Nicodemus, IV dated April 1, 1994 * (terminated in 1995)
10.24 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Ronald K. Gaynor dated April 1, 1994 * (terminated in 1995)
10.26 Amended and Restated American Ecology Corporation 1992 Stock Option Proxy Statement dated 4-26-94
Plan *
10.27 Amended and Restated American Ecology Corporation 1992 Outside Proxy Statement dated 4-26-94
Director Stock Option Plan *
10.28 American Ecology Corporation 401 (k) Savings Plan * 1994 Form 10-K
10.29 American Ecology Corporation Retirement Plan * 1994 Form 10-K
10.30 Credit Agreement between American Ecology Corporation, its 1994 Form 10-K
subsidiaries and Texas Commerce Bank National Association dated
December 1, 1994 (terminated by 10.41 below)
10.31 Security Agreement dated as of December 1, 1994 by American Ecology 1994 Form 10-K
Corporation in favor of Texas Commerce Bank, National Association
(terminated by 10.43 below)
10.32 Security Agreement by subsidiaries of American Ecology Corporation 1994 Form 10-K
dated as of December 1, 1994 in favor of Texas Commerce Bank,
National Association (terminated by 10.43 below)
10.33 Lease Agreement between American Ecology Corporation and VPM 1988- Form S-4 filed 12-24-92
1, Ltd. dated October 14, 1992
58
60
10.34 Rights Agreement dated as of December 7, 1993 between American Form 8-K dated 12-7-93
Ecology Corporation and Chemical Shareholders Services Group, Inc.
as Rights Agent
10.35 Agreement and Plan of Merger by and between American Ecology Form S-4 dated 12-24-92
Corporation and Waste Processor Industries, Inc.
10.36 Settlement Agreement dated September 24, 1993 by US Ecology, Inc., 1993 Form 10-K
the State of Nevada, the Nevada State Environmental Commission, and
the Nevada Dept. of Human Resources
10.37 Settlement Agreement dated as of January 19, 1994 by and among US 1993 Form 10-K
Ecology, Inc., Staff of the Washington Utilities and Transportation
Commission, Precision Castparts Corp., Teledyne Wah Chang, Portland
General Electric Company, the Washington Public Power
Supply System and Public Service Company of Colorado.
10.38 Agreement dated January 28, 1994 between American Ecology Form 8-K dated 2-3-94
Corporation, Edward F. Heil, Edward F. Heil as trustee for Edward
F. Heil, Jr., Sandra Heil, and Karen Heil Irrevocable Trust
Agreement #2, Thomas W. McNamara and Thomas W. McNamara as a
the Jenner & Block Profit Sharing Trust No. 082.
10.39 Agreement of Purchase and Sale dated as of April 7, 1994 by and 1st Quarter 1994 Form 10-Q,
among American Ecology Corp., American Ecology Recycle Center, 3rd Quarter 1994 Form 10-Q
Inc., Quadrex Environmental Company and Quadrex Corporation, as
amended by Amendments dated June 14, 1994 and August 22, 1994.
10.40 Stock Purchase Agreement dated as of May 10, 1994 by and between 1st Quarter 1994 Form 10-Q,
American Ecology Corporation and Mobley Environmental Services, 3rd Quarter 1994 Form 10-Q
Inc., as amended by Amendment dated September 21, 1994.
10.41 Second Amended Restated Credit Agreement between American Ecology 1995 Form 10-K
Corporation , its subsidiaries and Texas Commerce Bank National
Association dated June 30, 1995
10.42 Security Agreement dated June 30, 1995 by American Ecology 1995 Form 10-K
Corporation in favor of Texas Commerce Bank National Association.
10.43 Security Agreement dated June 30, 1995 by subsidiaries of American 1995 Form 10-K
Ecology Corporation in favor of Texas Commerce Bank National
Association.
21 List of Subsidiaries 1994 Form 10-K
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Balukoff, Lindstrom & Co., P.A.
27 Financial Data Schedule
Management contract or compensatory plan.
(b) REPORTS ON FORM 8-K
The Company filed two Reports on Form 8-K during the fourth
quarter ended December 31, 1996.
16.1 Change of Auditors Letter - November 25, 1996 Form 8-K
10.44 Series E Redeemable Convertible Preferred Stock - November 27, 1996 Form 8-K
10.45 Third Amended & Restated Credit Agreement - February 18, 1997 Form 8-K
59
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN ECOLOGY CORPORATION
Dated: March 25, 1997 By: /s/ Jack K. Lemley
-------------------------------
Jack K. Lemley
Chairman of the Board, Chief
Executive Officer and President
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Jack K. Lemley Chairman of the Board, Chief March 25, 1997
- ------------------------- Executive Officer and --------------
JACK K. LEMLEY President
/s/ Robert S. Thorn Chief Accounting Officer March 25, 1997
- ------------------------- --------------
ROBERT S. THORN
/s/ Rotchford L. Barker Director March 25, 1997
- ------------------------- --------------
ROTCHFORD L. BARKER
/s/ Paul Bergson Director March 25, 1997
- ------------------------- --------------
PAUL BERGSON
/s/ Patricia M. Eckert Director March 25, 1997
- ------------------------- --------------
PATRICIA M. ECKERT
/s/ Edward F. Heil Director March 25, 1997
- ------------------------- --------------
EDWARD F. HEIL
60
62
/s/ Paul F. Schutt Director March 25, 1997
- ------------------------- --------------
PAUL F. SCHUTT
/s/ John J. Scoville Director March 25, 1997
- ------------------------- --------------
JOHN J. SCOVILLE
/s/ Keith D. Bronstein Director March 25, 1997
- ------------------------- --------------
KEITH D. BRONSTEIN
63
INDEX TO EXHIBITS
Exhibit Incorporated by Reference from
No. Description Registrant's
- ------- ----------- -------------------------------
3.1 Restated Certificate of Incorporation, as amended 1989 Form 10-K
3.2 Certificate of Amendment to Restated Certificate of Incorporation Form S-4 dated 12-24-92
dated June 4, 1992
3.3 Amended and Restated Bylaws dated February 28, 1995 1994 Form 10-K
10.1 Sublease dated February 26, 1976, between the State of Washington, Form 10 filed 3-8-84
the United States Dept. of Commerce and Economic Development, and
Nuclear Engineering Company with Amendments dated January 11, 1980,
and January 14, 1982.
10.2 Lease dated May 1, 1977 ("Nevada Lease"), between the state of Form 10 filed 3-8-84
Nevada, Dept. of Human Resources and Nuclear Engineering Company,
with Addendum thereto, dated December 7, 1982
10.3 Addendum to Nevada Lease dated March 28, 1988 1989 Form 10-K
10.4 Nevada State Health Division, Radioactive Material License issued 1989 Form 10-K
to US Ecology, Inc. dated December 29, 1989
10.5 Administrative Order by Consent between the United States 1985 Form 10-K
Environmental Protection Agency and US Ecology, Inc. ("USE") dated
September 30, 1985
10.6 State of Washington Radioactive Materials License issued to US 1986 Form 10-K
Ecology, Inc. dated January 21, 1987
10.11 Agreement between the Central Interstate Low-Level Radioactive 2nd Quarter 1988 10-Q
Waste Compact Commission and US Ecology, Inc. for the development
of a facility for the disposal of low-level radioactive waste dated
January 28, 1988 ("Central Interstate Compact Agreement")
64
10.12 Amendment to Central Interstate Compact Agreement dated May 1, 1990 1994 Form 10-K
10.13 Second Amendment to Central Interstate Compact Agreement dated June 1994 Form 10-K
24, 1991
10.14 Third Amendment to Central Interstate Compact Agreement dated July 1994 Form 10-K
1, 1994
10.15 Settlement agreement dated May 25, 1988 among the Illinois Form 8-K dated 6-7-88
Department of Nuclear Safety, US Ecology, Inc. and American Ecology
Corporation of a December 1978 action related to the closure, care
and maintenance of the Sheffield, Illinois LLRW disposal site
10.16 Nevada Division of Environmental Protection Permit for Hazardous 1988 Form 10-K
Waste Treatment, Storage and Disposal (Part B) issued to US
Ecology, Inc. dated June 24, 1988
10.17 Texas Water Commission Permit for Industrial Solid Waste Management 1988 Form 10-K
Site (Part B) issued to Texas Ecologists, Inc. dated December 5,
1988
10.18 Memorandum of Understanding between American Ecology Corporation 1989 Form 10-K
and the State of California dated August 15, 1988
10.19 United States Environmental Protection Agency approval to dispose 1989 Form 10-K
of non-liquid polychlorinated biphenyl (PCB) wastes at the Beatty,
Nevada chemical waste disposal facility
10.20 Employment Agreement between American Ecology Corporation and C. 1993 Form 10-K
Clifford Wright, Jr. dated April 1, 1994 * (terminated in 1995)
10.21 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
William P. McCaughey dated April 1, 1994 * (terminated in 1995)
10.22 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Stephen W. Travers dated April 1, 1994 * (terminated in 1995)
10.23 Employment Agreement between American Ecology Corporation and Harry 1993 Form 10-K
O. Nicodemus, IV dated April 1, 1994 * (terminated in 1995)
10.24 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Ronald K. Gaynor dated April 1, 1994 * (terminated in 1995)
10.26 Amended and Restated American Ecology Corporation 1992 Stock Option Proxy Statement dated 4-26-94
Plan *
10.27 Amended and Restated American Ecology Corporation 1992 Outside Proxy Statement dated 4-26-94
Director Stock Option Plan *
10.28 American Ecology Corporation 401 (k) Savings Plan * 1994 Form 10-K
10.29 American Ecology Corporation Retirement Plan * 1994 Form 10-K
10.30 Credit Agreement between American Ecology Corporation, its 1994 Form 10-K
subsidiaries and Texas Commerce Bank National Association dated
December 1, 1994 (terminated by 10.41 below)
10.31 Security Agreement dated as of December 1, 1994 by American Ecology 1994 Form 10-K
Corporation in favor of Texas Commerce Bank, National Association
(terminated by 10.43 below)
10.32 Security Agreement by subsidiaries of American Ecology Corporation 1994 Form 10-K
dated as of December 1, 1994 in favor of Texas Commerce Bank,
National Association (terminated by 10.43 below)
10.33 Lease Agreement between American Ecology Corporation and VPM 1988- Form S-4 filed 12-24-92
1, Ltd. dated October 14, 1992
65
10.34 Rights Agreement dated as of December 7, 1993 between American Form 8-K dated 12-7-93
Ecology Corporation and Chemical Shareholders Services Group, Inc.
as Rights Agent
10.35 Agreement and Plan of Merger by and between American Ecology Form S-4 dated 12-24-92
Corporation and Waste Processor Industries, Inc.
10.36 Settlement Agreement dated September 24, 1993 by US Ecology, Inc., 1993 Form 10-K
the State of Nevada, the Nevada State Environmental Commission, and
the Nevada Dept. of Human Resources
10.37 Settlement Agreement dated as of January 19, 1994 by and among US 1993 Form 10-K
Ecology, Inc., Staff of the Washington Utilities and Transportation
Commission, Precision Castparts Corp., Teledyne Wah Chang, Portland
General Electric Company, the Washington Public Power
Supply System and Public Service Company of Colorado.
10.38 Agreement dated January 28, 1994 between American Ecology Form 8-K dated 2-3-94
Corporation, Edward F. Heil, Edward F. Heil as trustee for Edward
F. Heil, Jr., Sandra Heil, and Karen Heil Irrevocable Trust
Agreement #2, Thomas W. McNamara and Thomas W. McNamara as a
the Jenner & Block Profit Sharing Trust No. 082.
10.39 Agreement of Purchase and Sale dated as of April 7, 1994 by and 1st Quarter 1994 Form 10-Q,
among American Ecology Corp., American Ecology Recycle Center, 3rd Quarter 1994 Form 10-Q
Inc., Quadrex Environmental Company and Quadrex Corporation, as
amended by Amendments dated June 14, 1994 and August 22, 1994.
10.40 Stock Purchase Agreement dated as of May 10, 1994 by and between 1st Quarter 1994 Form 10-Q,
American Ecology Corporation and Mobley Environmental Services, 3rd Quarter 1994 Form 10-Q
Inc., as amended by Amendment dated September 21, 1994.
10.41 Second Amended Restated Credit Agreement between American Ecology 1995 Form 10-K
Corporation , its subsidiaries and Texas Commerce Bank National
Association dated June 30, 1995
10.42 Security Agreement dated June 30, 1995 by American Ecology 1995 Form 10-K
Corporation in favor of Texas Commerce Bank National Association.
10.43 Security Agreement dated June 30, 1995 by subsidiaries of American 1995 Form 10-K
Ecology Corporation in favor of Texas Commerce Bank National
Association.
21 List of Subsidiaries 1994 Form 10-K
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Balukoff, Lindstrom & Co., P.A.
27 Financial Data Schedule