UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
 _______________________________
 
 FORM
10-Q
  _______________________________
 
 
 
 QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the Quarterly Period Ended:  June 30,
      2008
              
              
              Commission
      File Number:  0-11688AMERICAN
      ECOLOGY CORPORATION(Exact
      Name of Registrant as Specified in Its Charter)Delaware
              
              
              95-3889638(State
      of Incorporation)
              
              
              (I.R.S.
      Employer Identification Number)Lakepointe
      Centre I,
                300
      E. Mallard, Suite 300
                Boise,
      Idaho
              
              
              83706(Address
      of Principal Executive Offices)
              
              
              (Zip
      Code)(208)
      331-8400(Registrant’s
      Telephone Number, Including Area Code)
 
 Indicate
by 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 (the
“Exchange Act”) 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         
Noo
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer o
                Accelerated
      filer  xNon-accelerated
      filer o (Do not check if smaller reporting
    company)
                Smaller Reporting
      Company o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  Yeso         
Nox
 The
number of shares of the registrant’s common stock, $0.01 par value, outstanding
as of July 31, 2008 was 18,251,740.
 
  
 
 
  AMERICAN
ECOLOGY CORPORATION
 
 TABLE
OF CONTENTS
 
 PART
      I.
              
              FINANCIAL
      INFORMATIONItem
      1.
              
              Financial
      Statements (Unaudited)Consolidated
      Balance Sheets as of June 30, 2008 and December 31, 2007
              
              1Consolidated
      Statements of Operations for the three and six months ended
                June
      30, 2008 and 2007
              
              2Consolidated
      Statements of Cash Flows for the six months ended June 30, 2008 and
      2007
              
              3Notes
      to Consolidated Financial Statements
              
              4Item
      2.
              
              Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
              
              11Item
      3.
              
              Quantitative and Qualitative
      Disclosures About Market Risk
              
              18Item
      4.
              
              Controls and
      Procedures
              
              19PART
      II.
              
              OTHER
      INFORMATIONCautionary
      Statement
              
              20Item
      1.
              
              Legal
      Proceedings
              
              20Item
      1A.
              
              Risk
      Factors
              
              20Item
      2.
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              20Item
      3.
              
              Defaults
      Upon Senior Securities
              
              20Item
      4.
              
              Submission
      of Matters to a Vote of Security Holders
              
              21Item
      5.
              
              Other
      Information
              
              21Item
      6.
              
              Exhibits
              
              22SIGNATURE
              
              23
 
 
 
 
 PART
I. FINANCIAL INFORMATION
 
 Item
1.     Financial Statements
 AMERICAN
ECOLOGY CORPORATION
 CONSOLIDATED
BALANCE SHEETS
 (in
thousands, except per share data)
 
 June
      30,2008
                
                
                December
      31,(unaudited)
                
                
                2007AssetsCurrent
      Assets:Cash
      and cash equivalents
                
                $
                18,517
                
                
                $
                12,563Short-term
      investments
                
                
                -
                
                
                
                2,209Receivables,
      net
                
                
                31,684
                
                
                
                29,422Prepaid
      expenses and other current assets
                
                
                2,999
                
                
                
                3,034Income
      tax receivable
                
                
                -
                
                
                
                994Deferred
      income taxes
                
                
                1,058
                
                
                
                667Total
      current assets
                
                
                54,258
                
                
                
                48,889Property
      and equipment, net
                
                
                67,294
                
                
                
                63,306Restricted
      cash
                
                
                4,846
                
                
                
                4,881Total
      assets
                
                $
                126,398
                
                
                $
                117,076Liabilities
      and Stockholders’ EquityCurrent
      Liabilities:Accounts
      payable
                
                $
                7,743
                
                
                $
                4,861Deferred
      revenue
                
                
                5,389
                
                
                
                4,491Accrued
      liabilities
                
                
                3,781
                
                
                
                6,267Accrued
      salaries and benefits
                
                
                2,316
                
                
                
                2,613Income
      tax payable
                
                
                38
                
                
                
                -Current
      portion of closure and post-closure obligations
                
                
                1,646
                
                
                
                803Current
      portion of capital lease obligations
                
                
                10
                
                
                
                8Total
      current liabilities
                
                
                20,923
                
                
                
                19,043Long-term
      closure and post-closure obligations
                
                
                13,598
                
                
                
                14,331Long-term
      capital lease obligations
                
                
                26
                
                
                
                27Deferred
      income taxes
                
                
                1,792
                
                
                
                577Total
      liabilities
                
                
                36,339
                
                
                
                33,978Contingencies
      and commitmentsStockholders’
      EquityCommon
      stock $0.01 par value, 50,000 authorized; 18,252 and18,246
      shares issued and outstanding, respectively
                
                
                183
                
                
                
                182Additional
      paid-in capital
                
                
                59,273
                
                
                
                58,816Retained
      earnings
                
                
                30,603
                
                
                
                24,100Total
      stockholders’ equity
                
                
                90,059
                
                
                
                83,098Total
      liabilities and stockholders’ equity
                
                $
                126,398
                
                
                $
                117,076
  See Notes
to Consolidated Financial Statements.




1
 
 AMERICAN
ECOLOGY CORPORATION
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (in
thousands, except per share data)
 (unaudited)
 
  Three
      Months Ended
                
                
                Six
      Months EndedJune
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenue
                
                $
                44,516
                
                
                $
                41,267
                
                
                $
                90,735
                
                
                $
                80,231Transportation
      costs
                
                
                19,251
                
                
                
                19,760
                
                
                
                41,309
                
                
                
                36,931Other
      direct operating costs
                
                
                11,687
                
                
                
                9,854
                
                
                
                22,404
                
                
                
                20,133Gross
      profit
                
                
                13,578
                
                
                
                11,653
                
                
                
                27,022
                
                
                
                23,167Selling,
      general and administrative expenses
                
                
                3,732
                
                
                
                3,474
                
                
                
                7,651
                
                
                
                7,073Operating
      income
                
                
                9,846
                
                
                
                8,179
                
                
                
                19,371
                
                
                
                16,094Other
      income (expense):Interest
      income
                
                
                111
                
                
                
                150
                
                
                
                174
                
                
                
                361Interest
      expense
                
                
                (3
                )
                
                
                (1
                )
                
                
                (4
                )
                
                
                (2
                )Other
                
                
                94
                
                
                
                48
                
                
                
                159
                
                
                
                52Total
      other income
                
                
                202
                
                
                
                197
                
                
                
                329
                
                
                
                411Income
      before income taxes
                
                
                10,048
                
                
                
                8,376
                
                
                
                19,700
                
                
                
                16,505Income
      tax
                
                
                3,938
                
                
                
                3,292
                
                
                
                7,722
                
                
                
                6,486Net
      income
                
                $
                6,110
                
                
                $
                5,084
                
                
                $
                11,978
                
                
                $
                10,019Earnings
      per share:Basic
                
                $
                0.34
                
                
                $
                0.28
                
                
                $
                0.66
                
                
                $
                0.55Dilutive
                
                $
                0.33
                
                
                $
                0.28
                
                
                $
                0.66
                
                
                $
                0.55Shares
      used in earnings per share calculation:Basic
                
                
                18,232
                
                
                
                18,216
                
                
                
                18,230
                
                
                
                18,213Dilutive
                
                
                18,295
                
                
                
                18,254
                
                
                
                18,286
                
                
                
                18,254Dividends
      paid per share
                
                $
                0.15
                
                
                $
                0.15
                
                
                $
                0.30
                
                
                $
                0.30
 See Notes
to Consolidated Financial Statements.
 
  2
 
 AMERICAN
ECOLOGY CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (in
thousands)
 (unaudited)
 
 Six
      Months Ended June 30,2008
                
                
                2007Cash
      Flows From Operating Activities:Net
      income
                
                $
                11,978
                
                
                $
                10,019Adjustments
      to reconcile net income to net cash provided byoperating
      activities:Depreciation,
      amortization and accretion
                
                
                5,671
                
                
                
                4,681Deferred
      income taxes
                
                
                824
                
                
                
                1,501Stock-based
      compensation expense
                
                
                415
                
                
                
                278Accretion
      of interest income
                
                
                (15
                )
                
                
                (107
                )Net
      loss (gain) on sale of property and equipment
                
                
                4
                
                
                
                (48
                )Changes
      in assets and liabilities:Receivables
                
                
                (2,262
                )
                
                
                (5,277
                )Income
      tax receivable
                
                
                994
                
                
                
                650Other
      assets
                
                
                35
                
                
                
                (1,310
                )Accounts
      payable and accrued liabilities
                
                
                (1,320
                )
                
                
                685Deferred
      revenue
                
                
                898
                
                
                
                413Accrued
      salaries and benefits
                
                
                (297
                )
                
                
                32Income
      tax payable
                
                
                38
                
                
                
                334Closure
      and post-closure obligations
                
                
                (507
                )
                
                
                (274
                )Net
      cash provided by operating activities
                
                
                16,456
                
                
                
                11,577Cash
      Flows From Investing Activities:Purchases
      of property and equipment
                
                
                (7,335
                )
                
                
                (8,551
                )Purchases
      of short-term investments
                
                
                (992
                )
                
                
                (18,341
                )Maturities
      of short-term investments
                
                
                3,216
                
                
                
                20,323Restricted
      cash
                
                
                35
                
                
                
                (100
                )Proceeds
      from sale of property and equipment
                
                
                11
                
                
                
                15Net
      cash used in investing activities
                
                
                (5,065
                )
                
                
                (6,654
                )Cash
      Flows From Financing Activities:Dividends
      paid
                
                
                (5,475
                )
                
                
                (5,467
                )Proceeds
      from stock option exercises
                
                
                23
                
                
                
                326Tax
      benefit of common stock options
                
                
                20
                
                
                
                201Other
                
                
                (5
                )
                
                
                (3
                )Net
      cash used in financing activities
                
                
                (5,437
                )
                
                
                (4,943
                )Increase
      (decrease) in cash and cash equivalents
                
                
                5,954
                
                
                
                (20
                )Cash
      and cash equivalents at beginning of period
                
                
                12,563
                
                
                
                3,775Cash
      and cash equivalents at end of period
                
                $
                18,517
                
                
                $
                3,755Supplemental
      DisclosuresIncome
      taxes paid
                
                $
                5,848
                
                
                $
                3,803Interest
      paid
                
                
                3
                
                
                
                2Non-cash
      investing and financing activities:Capital
      expenditures in accounts payable
                
                
                2,127
                
                
                
                975Acquisition
      of equipment with capital leases
                
                
                6
                
                
                
                -
 
 See Notes
to Consolidated Financial Statements.
 
 
 3
 
 AMERICAN
ECOLOGY CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 NOTE
1 – GENERAL
 
 Basis of
Presentation
 The
accompanying unaudited consolidated financial statements include the results of
operations, financial position and cash flows of American Ecology Corporation
and its wholly-owned subsidiaries (collectively, “AEC” or “the Company”). All
material intercompany balances have been eliminated.
  In the
opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments necessary to present fairly, in all material
respects, the results of the Company for the periods presented. These
consolidated financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been omitted pursuant to the rules and regulations of
the SEC. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and accompanying notes included in
the Company’s 2007 Annual Report on Form 10-K filed with the SEC on February 27,
2008. The results of operations for the three and six months ended June 30, 2008
are not necessarily indicative of results to be expected for the entire fiscal
year.
  The
Company’s Consolidated Balance Sheet as of December 31, 2007 has been derived
from the Company’s audited Consolidated Balance Sheet as of that
date.
  Use of
Estimates
 The
preparation of the Company’s consolidated financial statements, in conformity
with accounting principles generally accepted in the United States, requires
management to make estimates and assumptions. Some of these estimates require
difficult, subjective or complex judgments about matters that are inherently
uncertain. As a result, actual results could differ from these estimates, in
some cases materially. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period.
 
 NOTE
2 – EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
 SFAS 157. In September 2006,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standard (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”), which defines fair value, establishes a framework for measuring
fair value under generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS 157 applies to other existing
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. While SFAS 157 does not require any
new fair value measurements, its application may change the current practice for
fair value measurements. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No.
157, which delays the effective date of SFAS 157 for nonfinancial
assets and liabilities to fiscal years beginning after November 15, 2008. The
adoption of SFAS 157 for financial assets and liabilities in the first quarter
of 2008 had no significant impact on our consolidated financial
statements.  We are currently evaluating the impact of SFAS 157 for
non-financial assets and liabilities.
  SFAS 159. In February 2007,
the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”), which permits entities to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007 and was
adopted by the Company beginning in the first quarter of fiscal 2008. The
adoption of SFAS 159 had no impact on our consolidated financial
statements.
  
 4
  SFAS 141 R.  In
December 2007, the FASB issued SFAS 141(revised 2007), Business Combinations (“SFAS
141 R”), which establishes principles and requirements for how an acquirer
recognizes and measures the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree in a business
combination. SFAS 141 R requires that assets and liabilities, including
contingencies, be recorded at the fair value determined on the acquisition date
with changes thereafter reflected in results of operations, as opposed to
goodwill. Additionally, SFAS 141 R modifies the treatment of restructuring costs
associated with a business combination and requires acquisition costs to be
expensed as incurred. The statement also provides guidance on disclosures
related to the nature and financial impact of the business combination. SFAS 141
R is effective for transactions closing after December 15, 2008 and for fiscal
years beginning after December 15, 2008. SFAS 141 R will be adopted for
business combinations entered into by the Company after December 31, 2008.
Although the Company will continue to evaluate the application of SFAS 141 R, we
do not currently believe adoption will have a material impact on our
consolidated financial statements.
  SFAS 160.  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS
160”). This statement establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This statement is effective prospectively, except for certain
retrospective disclosure requirements, for fiscal years beginning after
December 15, 2008. This statement will be effective for the Company
beginning in the first quarter of 2009. Although the Company will continue to
evaluate the application of SFAS 160, we do not currently believe adoption of
SFAS 160 will have a material impact on our consolidated financial
statements.
  SFAS 161.  In March
2008, the FASB issued SFAS No. 161, Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133 (“SFAS 161”).  SFAS 161 expands quarterly disclosure
requirements in SFAS 133 about an entity’s derivative instruments and hedging
activities.  SFAS is effective for fiscal years beginning after
November 15, 2008.  This statement will be effective for the Company
beginning in the first quarter of 2009.  Although the Company will
continue to evaluate the application of SFAS 161, we do not currently believe
the adoption will have a material impact on our consolidated financial
statements.
  In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of non-governmental
entities that are presented in conformity with generally accepted accounting
principles in the United States.  This statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting
Principles.  Although the Company will continue to evaluate the
application of SFAS 162, we do not currently believe the adoption of SFAS 162
will have a material impact on our consolidated financial
statements.
  NOTE 3–CONCENTRATION AND CREDIT
RISK
 
 Major
Customers. The following customers represented 10% or more of our revenue
during the three and six months ended June 30, 2008 and 2007.
 
 Three
      Months Ended
                
                
                Three
      Months EndedCustomer
                
                June
      30, 2008
                
                
                June
      30, 2007Honeywell
      International, Inc.
                
                
                40%
                
                
                
                40%Molycorp,
      Inc.
                
                
                6%
                
                
                
                12%Six
      Months Ended
                
                
                Six
      Months EndedCustomer
                
                June
      30, 2008
                
                
                June
      30, 2007Honeywell
      International, Inc.
                
                
                39%
                
                
                
                38%
 
 The
Company has a long-term contract with Honeywell for transportation, treatment
and disposal of hazardous waste for a clean-up project presently estimated to
conclude in November 2009.  Receivables from Honeywell represented 48%
of our total trade receivables at June 30, 2008 and 50% of total trade
receivables at December 31, 2007.  No other customer’s receivable
balances exceeded 10% of our total trade receivables at June 30, 2008 or
December 31, 2007.
  
 5
  Credit
Risk Concentration. We maintain most of our cash and short-term
investments with Wells Fargo Bank. Substantially all balances are uninsured and
are not used as collateral for other obligations. Short-term investments consist
of high-quality commercial paper currently with a maximum maturity of
approximately three months.
 
 Concentrations
of credit risk on accounts receivable are believed to be limited due to the
number, diversification and character of the obligors and our credit evaluation
process, except for receivables from Honeywell for which significant credit risk
exists.  Credit risk on Honeywell receivables is partially mitigated
by court orders requiring that Honeywell perform activities covered by our
contract. Typically, we have not required customers to provide collateral for
such obligations.
  NOTE 4–RECEIVABLES
  Receivables
were as follows:
  June
      30,
                
                
                December
      31,(in
      thousands)
                
                2008
                
                
                2007Trade
                
                $
                30,130
                
                
                $
                28,821Unbilled
      revenue
                
                
                853
                
                
                
                613Other
                
                
                832
                
                
                
                12231,815
                
                
                
                29,556Allowance
      for doubtful accounts
                
                
                (131
                )
                
                
                (134
                )$
                31,684
                
                
                $
                29,422
 NOTE 5–PROPERTY AND
EQUIPMENT
  June
      30,
                
                
                December
      31,(in
      thousands)
                
                2008
                
                
                2007Cell
      development costs
                
                $
                38,661
                
                
                $
                32,492Land
      and improvements
                
                
                8,910
                
                
                
                8,858Buildings
      and improvements
                
                
                27,237
                
                
                
                26,547Railcars
                
                
                17,375
                
                
                
                17,375Vehicles
      and other equipment
                
                
                20,675
                
                
                
                19,823Construction
      in progress
                
                
                7,907
                
                
                
                6,676120,765
                
                
                
                111,771Accumulated
      depreciation and amortization
                
                
                (53,471
                )
                
                
                (48,465
                )$
                67,294
                
                
                $
                63,306
  
 Depreciation
expense for the three months ended June 30, 2008 and 2007 was $2.5 million and
$2.1 million, respectively.  Depreciation expense for the six months
ended June 30, 2008 and 2007 was $5.1 million and $4.2 million,
respectively.
 
 NOTE
6 – RESTRICTED CASH
 
 Restricted
cash balances of $4.8 million and $4.9 million at June 30, 2008 and
December 31, 2007, respectively, represent funds held in third-party
managed trust accounts as collateral for our financial assurance policies for
closure and post-closure obligations.  These restricted cash balances
are maintained by third-party trustees and are invested in money market
accounts.
 
 
 6
 
 NOTE 7–LINE OF CREDIT
 
 On June
30, 2008, we entered into a new $15.0 million unsecured revolving line of credit
(the “Revolving Credit Agreement”) with Wells Fargo Bank, National Association
(“Wells Fargo”).  The Revolving Credit Agreement expires on June 15,
2010 and replaced the Company’s expired Amended and Restated Credit
Agreement.  Monthly interest only payments are paid based on a pricing
grid, under which the interest rate decreases or increases based on our ratio of
funded debt to earnings before interest, taxes, depreciation and amortization.
We can elect to borrow utilizing the offshore London Inter-Bank Offering Rate
(“LIBOR”) plus an applicable spread or the prime rate. The credit agreement
contains certain quarterly financial covenants, including a maximum leverage
ratio, a maximum funded debt ratio and a minimum required tangible net worth.
Pursuant to our credit agreement, we may only declare quarterly or annual
dividends if on the date of declaration, no event of default has occurred, or no
other event or condition has occurred that would constitute an event of default
after giving effect to the payment of the dividend. At June 30, 2008, we were in
compliance with all of the financial covenants in the credit
agreement.
 
 At June
30, 2008 and December 31, 2007, we had no amounts outstanding on the revolving
line of credit. At June 30, 2008 and December 31, 2007, the availability under
the line of credit was $11.0 million, with $4.0 million of the line of credit
issued in the form of a standby letter of credit utilized as collateral for
closure and post-closure financial assurance.
 
 NOTE
8 – CLOSURE AND POST-CLOSURE OBLIGATIONS
 
 Closure
and post-closure obligations are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably estimated
consistent with SFAS No. 5, Accounting for Contingencies
and with the liability calculated in accordance with SFAS No. 143, Accounting for Asset Retirement
Obligations. We perform periodic reviews of both non-operating and
operating facilities and revise accruals for estimated post-closure, remediation
and other costs when necessary. Our recorded liabilities are based on best
estimates of future costs and are updated periodically to reflect existing
environmental conditions, current technology, laws and regulations, permit
conditions, inflation and other factors.
  Changes
to reported closure and post-closure obligations were as follows:
  (in
      thousands)
                
                Three
      Months Ended
                  June
      30, 2008
                
                
                Six
      Months Ended
                  June
      30, 2008Beginning
      obligation
                
                $
                15,279
                
                
                $
                15,134Accretion
      expense
                
                
                308
                
                
                
                617Payments
                
                
                (447
                )
                
                
                (611
                )Adjustments
                
                
                104
                
                
                
                104Ending
      obligation
                
                
                15,244
                
                
                
                15,244Less
      current portion
                
                
                (1,646
                )
                
                
                (1,646
                )Long-term
      portion
                
                $
                13,598
                
                
                $
                13,598
 
 NOTE 9–INCOME TAXES
 
 As of
June 30, 2008 and December 31, 2007, we had no unrecognized tax benefits. We
recognize interest assessed by taxing authorities as a component of interest
expense. We recognize any penalties assessed by taxing authorities as a
component of selling, general and administrative expenses.Interest and penalties for
the three and six months ended June 30, 2008 and 2007 were not
material.
 
 Our
effective income tax rate for the three and six months ended June 30, 2008 was
39.2%, compared to 39.3% for the three and six months ended June 30,
2007.
   7
  We file
U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as
well as income tax returns in various states. We may be subject to examination
by the IRS for tax years 2003 through 2007. Additionally, we may be subject to
examinations by various state taxing jurisdictions for tax years 2002 through
2007. We are currently not under examination by the IRS or state taxing
jurisdictions.
 
 NOTE 10–COMMITMENTS AND
CONTINGENCIES
 
 In the
ordinary course of business, we are involved in judicial and administrative
proceedings involving federal, state or local governmental authorities. Actions
may also be brought by individuals or groups regarding the permitting of planned
facility expansions, alleged violations of existing permits, or alleged damages
suffered from exposure to hazardous substances purportedly released from our
operated sites, as well as other litigation. We maintain insurance intended to
cover property and damage claims asserted as a result of our operations.
Periodically, management reviews and may establish reserves for legal and
administrative matters, or fees expected to be incurred in connection therewith.
As of June 30, 2008, we did not have any ongoing, pending or threatened legal
action that management believes would have a material adverse effect on our
financial position, results of operations or cash flows.
 
 NOTE
11 – COMPUTATION OF EARNINGS PER SHARE
 
 (in
      thousands, except per share data)
                
                Three
      Months Ended June 30,2008
                
                
                2007Basic
                
                
                Diluted
                
                
                Basic
                
                
                DilutedNet
      income
                
                $
                6,110
                
                
                $
                6,110
                
                
                $
                5,084
                
                
                $
                5,084Weighted
      average commonshares
      outstanding
                
                
                18,232
                
                
                
                18,232
                
                
                
                18,216
                
                
                
                18,216Dilutive
      effect of stock options andrestricted
      stock
                
                
                
                
                
                
                63
                
                
                
                
                
                
                
                38Weighted
      averageshares
      outstanding
                
                
                
                
                
                
                18,295
                
                
                
                
                
                
                
                18,254Earnings
      per share
                
                $
                0.34
                
                
                $
                0.33
                
                
                $
                0.28
                
                
                $
                0.28Anti-dilutive
      sharesexcluded
      from calculation
                
                
                
                
                
                
                31
                
                
                
                
                
                
                
                153(in
      thousands, except per share data)
                
                Six
      Months Ended June 30,2008
                
                
                2007Basic
                
                
                Diluted
                
                
                Basic
                
                
                DilutedNet
      income
                
                $
                11,978
                
                
                $
                11,978
                
                
                $
                10,019
                
                
                $
                10,019Weighted
      average commonshares
      outstanding
                
                
                18,230
                
                
                
                18,230
                
                
                
                18,213
                
                
                
                18,213Dilutive
      effect of stock options andrestricted
      stock
                
                
                
                
                
                
                56
                
                
                
                
                
                
                
                41Weighted
      averageshares
      outstanding
                
                
                
                
                
                
                18,286
                
                
                
                
                
                
                
                18,254Earnings
      per share
                
                $
                0.66
                
                
                $
                0.66
                
                
                $
                0.55
                
                
                $
                0.55Anti-dilutive
      sharesexcluded
      from calculation
                
                
                
                
                
                
                88
                
                
                
                
                
                
                
                153
 
 
 8
 
 NOTE
12 – OPERATING SEGMENTS
 
 We
operate within two segments, Operating Disposal Facilities and Non-Operating
Disposal Facilities. The Operating Disposal Facilities segment represents
facilities currently accepting waste. The Non-Operating Disposal Facilities
segment represents facilities that are no longer accepting waste.
 
 Income
taxes are assigned to Corporate, but all other items are included in the segment
where they originated. Intercompany transactions have been eliminated from the
segment information and are not significant between segments.
 
 Summarized
financial information concerning our reportable segments is shown in the
following tables:
 
 (in
      thousands)
                
                Operating
                  Disposal
                  Facilities
                
                Non-
                  Operating
                  Disposal
                  Facilities
                
                Corporate
                
                
                TotalThree months ended
      June 30, 2008Revenue
                
                $
                44,510
                
                
                $
                6
                
                
                $
                -
                
                
                $
                44,516Transportation
      costs
                
                
                19,251
                
                
                
                -
                
                
                
                -
                
                
                
                19,251Other
      direct operating costs
                
                
                11,476
                
                
                
                179
                
                
                
                32
                
                
                
                11,687Gross
      profit
                
                
                13,783
                
                
                
                (173
                )
                
                
                (32
                )
                
                
                13,578Selling,
      general&
      administration
                
                
                1,253
                
                
                
                -
                
                
                
                2,479
                
                
                
                3,732Operating
      income (loss)
                
                
                12,530
                
                
                
                (173
                )
                
                
                (2,511
                )
                
                
                9,846Interest
      income, net
                
                
                -
                
                
                
                -
                
                
                
                108
                
                
                
                108Other
      income
                
                
                93
                
                
                
                -
                
                
                
                1
                
                
                
                94Income
      (loss) before tax
                
                
                12,623
                
                
                
                (173
                )
                
                
                (2,402
                )
                
                
                10,048Tax
      expense
                
                
                -
                
                
                
                -
                
                
                
                3,938
                
                
                
                3,938Net
      income (loss)
                
                $
                12,623
                
                
                $
                (173
                )
                
                $
                (6,340
                )
                
                $
                6,110Depreciation,
      amortization & accretion
                
                $
                2,749
                
                
                $
                71
                
                
                $
                13
                
                
                $
                2,833Capital
      expenditures
                
                $
                3,857
                
                
                $
                -
                
                
                $
                14
                
                
                $
                3,871Total
      assets
                
                $
                99,265
                
                
                $
                58
                
                
                $
                27,075
                
                
                $
                126,398(in
      thousands)
                
                Operating
                  Disposal
                  Facilities
                
                Non-
                  Operating
                  Disposal
                  Facilities
                
                Corporate
                
                
                TotalThree months ended
      June 30, 2007Revenue
                
                $
                41,261
                
                
                $
                6
                
                
                $
                -
                
                
                $
                41,267Transportation
      costs
                
                
                19,760
                
                
                
                -
                
                
                
                -
                
                
                
                19,760Other
      direct operating costs
                
                
                9,744
                
                
                
                110
                
                
                
                -
                
                
                
                9,854Gross
      profit
                
                
                11,757
                
                
                
                (104
                )
                
                
                -
                
                
                
                11,653Selling,
      general&
      administration
                
                
                1,291
                
                
                
                -
                
                
                
                2,183
                
                
                
                3,474Operating
      income (loss)
                
                
                10,466
                
                
                
                (104
                )
                
                
                (2,183
                )
                
                
                8,179Interest
      income, net
                
                
                3
                
                
                
                -
                
                
                
                146
                
                
                
                149Other
      income
                
                
                (18
                )
                
                
                66
                
                
                
                -
                
                
                
                48Income
      (loss) before tax
                
                
                10,451
                
                
                
                (38
                )
                
                
                (2,037
                )
                
                
                8,376Tax
      expense
                
                
                -
                
                
                
                -
                
                
                
                3,292
                
                
                
                3,292Net
      income (loss)
                
                $
                10,451
                
                
                $
                (38
                )
                
                $
                (5,329
                )
                
                $
                5,084Depreciation,
      amortization & accretion
                
                $
                2,243
                
                
                $
                78
                
                
                $
                9
                
                
                $
                2,330Capital
      expenditures
                
                $
                4,771
                
                
                $
                2
                
                
                $
                3
                
                
                $
                4,776Total
      assets
                
                $
                93,363
                
                
                $
                125
                
                
                $
                17,691
                
                
                $
                111,179
 
 9
 
 (in
      thousands)
                
                Operating
                  Disposal
                  Facilities
                
                Non-
                  Operating
                  Disposal
                  Facilities
                
                Corporate
                
                
                TotalSix months ended June
      30, 2008Revenue
                
                $
                90,725
                
                
                $
                10
                
                
                $
                -
                
                
                $
                90,735Transportation
      costs
                
                
                41,309
                
                
                
                -
                
                
                
                -
                
                
                
                41,309Other
      direct operating costs
                
                
                22,121
                
                
                
                251
                
                
                
                32
                
                
                
                22,404Gross
      profit
                
                
                27,295
                
                
                
                (241
                )
                
                
                (32
                )
                
                
                27,022Selling,
      general&
      administration
                
                
                2,575
                
                
                
                -
                
                
                
                5,076
                
                
                
                7,651Operating
      income (loss)
                
                
                24,720
                
                
                
                (241
                )
                
                
                (5,108
                )
                
                
                19,371Interest
      income, net
                
                
                (1
                )
                
                
                -
                
                
                
                171
                
                
                
                170Other
      income
                
                
                158
                
                
                
                -
                
                
                
                1
                
                
                
                159Income
      (loss) before tax
                
                
                24,877
                
                
                
                (241
                )
                
                
                (4,936
                )
                
                
                19,700Tax
      expense
                
                
                -
                
                
                
                -
                
                
                
                7,722
                
                
                
                7,722Net
      income (loss)
                
                $
                24,877
                
                
                $
                (241
                )
                
                $
                (12,658
                )
                
                $
                11,978Depreciation,
      amortization & accretion
                
                $
                5,504
                
                
                $
                143
                
                
                $
                24
                
                
                $
                5,671Capital
      expenditures
                
                $
                7,276
                
                
                $
                9
                
                
                $
                50
                
                
                $
                7,335Total
      assets
                
                $
                99,265
                
                
                $
                58
                
                
                $
                27,075
                
                
                $
                126,398(in
      thousands)
                
                Operating
                  Disposal
                  Facilities
                
                Non-
                  Operating
                  Disposal
                  Facilities
                
                Corporate
                
                
                TotalSix months ended June
      30, 2007Revenue
                
                $
                80,221
                
                
                $
                10
                
                
                $
                -
                
                
                $
                80,231Transportation
      costs
                
                
                36,931
                
                
                
                -
                
                
                
                -
                
                
                
                36,931Other
      direct operating costs
                
                
                19,916
                
                
                
                217
                
                
                
                -
                
                
                
                20,133Gross
      profit
                
                
                23,374
                
                
                
                (207
                )
                
                
                -
                
                
                
                23,167Selling,
      general&
      administration
                
                
                2,587
                
                
                
                -
                
                
                
                4,486
                
                
                
                7,073Operating
      income (loss)
                
                
                20,787
                
                
                
                (207
                )
                
                
                (4,486
                )
                
                
                16,094Interest
      income, net
                
                
                7
                
                
                
                -
                
                
                
                352
                
                
                
                359Other
      income
                
                
                (14
                )
                
                
                66
                
                
                
                -
                
                
                
                52Income
      (loss) before tax
                
                
                20,780
                
                
                
                (141
                )
                
                
                (4,134
                )
                
                
                16,505Tax
      expense
                
                
                -
                
                
                
                -
                
                
                
                6,486
                
                
                
                6,486Net
      income (loss)
                
                $
                20,780
                
                
                $
                (141
                )
                
                $
                (10,620
                )
                
                $
                10,019Depreciation,
      amortization & accretion
                
                $
                4,509
                
                
                $
                155
                
                
                $
                17
                
                
                $
                4,681Capital
      expenditures
                
                $
                8,543
                
                
                $
                5
                
                
                $
                3
                
                
                $
                8,551Total
      assets
                
                $
                93,363
                
                
                $
                125
                
                
                $
                17,691
                
                
                $
                111,179
  NOTE 13–SUBSEQUENT EVENT
 
 On July
1, 2008, we declared a quarterly dividend of $0.18 per common share to
stockholders of record on July 11, 2008. The dividend was paid out of cash on
hand on July 18, 2008 in an aggregate amount of $3.3 million.
 
  10
  AMERICAN
ECOLOGY CORPORATION
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Item
2.      Management’s Discussion and Analysis of
Financial Condition and Results of Operations
 
 Overview
 
 American
Ecology Corporation, through its subsidiaries, is a hazardous, non-hazardous and
radioactive waste services company providing treatment, disposal and
transportation services to commercial and government entities including oil
refineries and chemical production facilities, manufacturers, electric
utilities, steel mills and medical and academic institutions. The majority of
the waste received is produced within the United States. We generate revenue
from fees charged to treat and dispose of waste at our four fixed disposal
facilities located near Grand View, Idaho; Richland, Washington; Beatty, Nevada;
and Robstown, Texas. We also manage transportation of waste to our facilities,
which contributes significant revenue. We have been in the waste services
business for 55 years.
  Our
customers may be divided into categories to help understand period-to-period
changes in our treatment and disposal revenue.  Each of these
categories is described in the table below, along with information on the
percentage of total treatment and disposal revenues for each category during the
three and six months ended June 30, 2008.
  Customer
                  Category
                
                Description
                
                %
      of Treatment and
                  Disposal
      Revenue (1)
                  for
      the
                  Three
      Months Ended
                  June
      30, 2008
                
                %
      of Treatment and
                  Disposal
      Revenue (1)
                  for
      the
                  Six
      Months Ended
                  June
      30, 2008Government
                
                Federal
      and State government clean-up project waste, typically event
      business.
                
                30%
                
                23%Private
                
                Private
      sector clean-up project waste, typically event business.
                
                25%
                
                26%Broker
                
                Companies
      that collect and aggregate waste from their direct customers comprised of
      both recurring base and event clean-up waste.
                
                23%
                
                25%Other
      industry
                
                Category
      for electric utilities, chemical manufacturers and other industries not
      included in other categories. Comprised of both recurring base business
      and event clean-up business.
                
                9%
                
                12%Rate
      regulated
                
                Northwest
      and Rocky Mountain Compact customers paying rate-regulated disposal fees
      set by the State of Washington, typically recurring base
      business.
                
                6%
                
                7%Refinery
                
                Petroleum
      refinery customers comprising both recurring base and event clean-up
      business.
                
                4%
                
                4%Steel
                
                Steel
      mill customers comprising both recurring base and event clean-up
      business.
                
                3%
                
                3%(1)
      Excludes all transportation service revenue
  
 11
 
 A
significant portion of our disposal revenue is attributable to discrete waste
clean-up projects (“Event Business”) which vary substantially in size and
duration.  Approximately 60% and 58% of our treatment and disposal
revenues were derived from Event Business for the three and six months ended
June 30, 2008, respectively.  The one-time nature of Event Business
necessarily creates variability in revenue and earnings. This variability is
influenced by funding availability, changes in laws and regulations, government
enforcement actions, public controversy, litigation, weather, real estate
redevelopment projects and other factors. The types and amounts of waste
received from recurring customers (“Base Business”) also vary from quarter to
quarter. As a result of this variability, we can experience significant
quarter-to-quarter and year-to-year differences in revenue, gross profit, gross
margin, operating income and net income. Also, while many large projects are
pursued years in advance of work performance, both large and small clean-up
project opportunities routinely arise with little prior notice. This
uncertainty, which is inherent to the disposal business, is factored into our
internal budgeting and externally communicated business outlook
statements.  Approximately one quarter of our 2008 revenue budget is
comprised of new Event and Base Business from non-specific sources. Our internal
budgeting process combines historical experience with identified sales pipeline
opportunities and new or expanded service line projections.
 Depending
on project-specific customer needs and competitive economics, transportation
services may be offered at or near our cost to help secure new business. For
waste transported by rail from New Jersey (for Honeywell), Pennsylvania (for
Chevron/Molycorp) and other locations distant from our Grand View, Idaho
facility, transportation-related revenue can account for as much as
three-fourths (75%) of total project revenue. While bundling transportation and
disposal services reduces overall gross profit as a percentage of total revenue
(“gross margin”), this value-added service has allowed us to win multiple
projects that we could not otherwise have competed for
successfully.  Our acquisition of a Company-owned railcar fleet has
reduced transportation expenses previously incurred when we relied solely on
railcar operating leases and short-term rentals. The increased waste volumes
resulting from projects won through this bundling strategy increases operating
leverage and profitability. While waste treatment and other variable costs are
project-specific, the contribution to profitability from each new project
performed generally increases as overall waste disposal volumes
increase.  Management believes that maximizing operating income and
earnings per share is a higher priority than maintaining or increasing gross
margin.  We will continue to aggressively bid bundled transportation
and disposal services based on this income growth strategy.
  
 12
 
 Results
of Operations
  The
following table summarizes our results of operations for the three months and
six months ended June 30, 2008 and 2007 in dollars and as a percentage of total
revenue.
 
 (in
      thousands, except per
                
                Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,share
      amounts)
                
                2008
                
                
                %
                
                
                2007
                
                
                %
                
                
                2008
                
                
                %
                
                
                2007
                
                
                %Revenue
                
                $
                44,516
                
                
                
                100.0
                %
                
                $
                41,267
                
                
                
                100.0
                %
                
                $
                90,735
                
                
                
                100.0
                %
                
                $
                80,231
                
                
                
                100.0
                %Transportation
      costs
                
                
                19,251
                
                
                
                43.2
                %
                
                
                19,760
                
                
                
                47.9
                %
                
                
                41,309
                
                
                
                45.5
                %
                
                
                36,931
                
                
                
                46.0
                %Other
      direct operating costs
                
                
                11,687
                
                
                
                26.3
                %
                
                
                9,854
                
                
                
                23.9
                %
                
                
                22,404
                
                
                
                24.7
                %
                
                
                20,133
                
                
                
                25.1
                %Gross
      profit
                
                
                13,578
                
                
                
                30.5
                %
                
                
                11,653
                
                
                
                28.2
                %
                
                
                27,022
                
                
                
                29.8
                %
                
                
                23,167
                
                
                
                28.9
                %Selling,
      general andadministrative
      expenses
                
                
                3,732
                
                
                
                8.4
                %
                
                
                3,474
                
                
                
                8.4
                %
                
                
                7,651
                
                
                
                8.4
                %
                
                
                7,073
                
                
                
                8.8
                %Operating
      income
                
                
                9,846
                
                
                
                22.1
                %
                
                
                8,179
                
                
                
                19.8
                %
                
                
                19,371
                
                
                
                21.4
                %
                
                
                16,094
                
                
                
                20.1
                %Other
      income (expense):Interest
      income
                
                
                111
                
                
                
                0.2
                %
                
                
                150
                
                
                
                0.4
                %
                
                
                174
                
                
                
                0.2
                %
                
                
                361
                
                
                
                0.4
                %Interest
      expense
                
                
                (3
                )
                
                
                0.0
                %
                
                
                (1
                )
                
                
                0.0
                %
                
                
                (4
                )
                
                
                0.0
                %
                
                
                (2
                )
                
                
                0.0
                %Other
                
                
                94
                
                
                
                0.3
                %
                
                
                48
                
                
                
                0.1
                %
                
                
                159
                
                
                
                0.2
                %
                
                
                52
                
                
                
                0.1
                %Total
      other income
                
                
                202
                
                
                
                0.5
                %
                
                
                197
                
                
                
                0.5
                %
                
                
                329
                
                
                
                0.4
                %
                
                
                411
                
                
                
                0.5
                %Income
      before income taxes
                
                
                10,048
                
                
                
                22.6
                %
                
                
                8,376
                
                
                
                20.3
                %
                
                
                19,700
                
                
                
                21.8
                %
                
                
                16,505
                
                
                
                20.6
                %Income
      tax
                
                
                3,938
                
                
                
                8.9
                %
                
                
                3,292
                
                
                
                8.0
                %
                
                
                7,722
                
                
                
                8.6
                %
                
                
                6,486
                
                
                
                8.1
                %Net
      income
                
                $
                6,110
                
                
                
                13.7
                %
                
                $
                5,084
                
                
                
                12.3
                %
                
                $
                11,978
                
                
                
                13.2
                %
                
                $
                10,019
                
                
                
                12.5
                %Earnings
      per share:Basic
                
                $
                0.34
                
                
                
                
                
                
                $
                0.28
                
                
                
                
                
                
                $
                0.66
                
                
                
                
                
                
                $
                0.55Dilutive
                
                $
                0.33
                
                
                
                
                
                
                $
                0.28
                
                
                
                
                
                
                $
                0.66
                
                
                
                
                
                
                $
                0.55Shares
      used in earningsper
      share calculation:Basic
                
                
                18,232
                
                
                
                
                
                
                
                18,216
                
                
                
                
                
                
                
                18,230
                
                
                
                
                
                
                
                18,213Dilutive
                
                
                18,295
                
                
                
                
                
                
                
                18,254
                
                
                
                
                
                
                
                18,286
                
                
                
                
                
                
                
                18,254Dividends
      paid per share
                
                $
                0.15
                
                
                
                
                
                
                $
                0.15
                
                
                
                
                
                
                $
                0.30
                
                
                
                
                
                
                $
                0.30
 
 Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007
 
 Revenue -
Revenue increased 8% to $44.5 million for the second quarter of 2008, up from
$41.3 million for the second quarter of 2007. This increase reflects higher
treatment and disposal revenue, partially offset by slightly lower revenue from
transportation services on bundled rail transportation and disposal contracts.
In the second quarter of 2008, we disposed of 325,000 tons of waste in our
landfills, up 18% from the 275,000 tons disposed in the second quarter of 2007.
Our average selling price for treatment and disposal services (excluding
transportation) for the second quarter of 2008 was 2% higher than in the same
quarter last year. This slight increase in average selling price reflects normal
variations in service mix that are inherent to the business.
 
 During
the second quarter of 2008, treatment and disposal revenue from recurring Base
Business was 3% higher than the second quarter of 2007 and comprised 40% of
non-transportation revenue, as compared to 47% of non-transportation revenue in
the second quarter of 2007. Base Business revenue increased as a result of
growth in our broker and other industry categories. Event Business revenue in
the second quarter of 2008 increased 37% over the same quarter in 2007, and
comprised 60% of non-transportation revenue during the quarter. As discussed
further below, this primarily reflects increased treatment and disposal revenue
from government clean-up customers and increased shipments from the Honeywell
Jersey City private clean-up project.  These increases were partially
offset by lower shipments from the Molycorp project in the second quarter of
2008 compared to the same quarter last year.
  13
 
 The
following table summarizes our second quarter 2008 revenue growth (both Base and
Event Business) by customer type as compared with the second quarter of
2007.
 
 Treatment
      and Disposal Revenue Growth
                  Three
      Months Ended June 30, 2008 vs.
                  Three
      Months Ended June 30, 2007Government
                
                102%Other
      industry
                
                10%Broker
                
                9%Private
                
                5%Rate
      regulated
                
                4%Refinery
                
                -16%Steel
                
                -19%
 Government
clean-up business revenue increased 102% in the second quarter of 2008 compared
to the second quarter of 2007. This increase reflects a state funded clean-up
project which shipped to our Robstown, Texas facility and increased shipments
from the Department of Defense in the second quarter of 2008.  Event
Business clean-up work under the U.S. Army Corps of Engineers (“USACE”) contract
contributed $2.4 million or 6% of total revenue in the second quarter of 2008,
as compared to $3.0 million or 7% of total revenue in the second quarter of
2007. This decrease reflects shipment timing as task orders are completed under
our multi-year contract with the USACE.
  Our other
industry revenue increased 10% in the second quarter of 2008 over the second
quarter of 2007. This increase reflects growth over multiple electric utility,
chemical manufacturers and other industrial customers.
  Our
broker business increased 9% in the second quarter of 2008 compared to the same
quarter in 2007.  This reflects continued success working with
national and smaller regional waste broker companies that do not compete with us
for disposal business.
  Treatment
and disposal revenue from private clean-up customers increased approximately 5%
during the second quarter of 2008 over the same period last year. This reflects
increased shipments on the Honeywell Jersey City project and other smaller event
projects.  This increase was partially offset by decreased shipments
on the Molycorp project which is expected to be completed in September
2008.  The Honeywell Jersey City project contributed 40% of total
revenue (including transportation) in both the second quarter of 2008 and 2007,
or $17.9 million and $16.4 million, respectively.  Shipments from our
bundled transportation and disposal contract with Molycorp contributed 6% of
total revenue (including transportation) in the second quarter of 2008, or $2.5
million compared to 12% of total revenue (including transportation) or $4.8
million in the second quarter of 2007.
  Rate-regulated
business at our Richland, Washington low-level radioactive waste facility
increased 4% in the second quarter of 2008 over the second quarter of 2007. Our
Richland facility operates under a State-approved revenue requirement and this
increase reflects timing for the rate-regulated portion of that facility’s
revenue.
  Treatment
and disposal revenue from refinery customers decreased 16% in the second quarter
of 2008 compared to the same quarter in 2007. This decline primarily reflects
decreased waste volumes in the second quarter of 2008 by one refinery customer
due to refining process changes.  We expect revenue in this category
to increase in the future based on initiation of thermal desorption recycling
services at our Robstown, Texas facility.
  Treatment
and disposal revenue from our steel mill customers decreased 19% in the second
quarter of 2008 compared to the second quarter of 2007. This decline reflects
expiration of a contract with a Midwestern steel mill in December
2007.
  Gross
Profit. Gross
profit for the second quarter of 2008 increased by 17% to $13.6 million, up from
$11.7 million in the second quarter of 2007. This increase primarily reflects
higher volumes of waste disposed in the second quarter of 2008 as compared to
the same period in 2007.  The increase was partially offset by
expenses of $104,000 recorded in the second quarter of 2008 related to the
closure of the deepwell facility at our non-operating Winona, Texas site. Gross
margin was 31% in the second quarter of 2008, up from 28% in the second quarter
of 2007.  This gross margin increase reflects reduced transportation
revenue which is generally provided as a value-added service with little to no
margin.  Excluding transportation revenue, disposal gross margins
were 54% in the second quarter of both 2008 and 2007.
  
 14
 
 Selling, General
and Administrative (“SG&A”). As a percentage of total
revenue, SG&A expense were 8% for both the second quarter of 2008 and 2007.
SG&A expenses increased 7% to $3.7 million, up from $3.5 million for the
second quarter of 2007. The growth in SG&A expense was due primarily to
higher payroll and benefit expenses, stock-based compensation expense, employee
performance based bonus compensation and other administrative costs in support
of the increased waste volumes received.
 
 Interest
income.During the second
quarter of 2008, we earned $111,000 of interest income, down from $150,000 in
the second quarter of 2007. This decrease reflects a lower average rate of
interest earned on investments.
 
 Other
expense/income.Other
expense/income includes business activities not included in current year
ordinary and usual revenue and expenses. In the second quarter of 2008, we
recognized $93,000 in royalty income from a previously sold municipal waste
landfill in Texas. In the second quarter of 2007, we recognized $48,000 on the
sale of property and equipment no longer required in our business.
 
 Income tax
expense.Our
effective income tax rate for second quarter of 2008 was 39.2%, compared to
39.3% for the second quarter of 2007.
 
 As of
June 30, 2008 and December 31, 2007, we had no unrecognized tax benefits. We
recognize interest assessed by taxing authorities as a component of interest
expense. We recognize any penalties assessed by taxing authorities as a
component of selling, general and administrative expenses.Interest and penalties for
the three months ended June 30, 2008 and 2007 were not material.
 
 Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007
 
 Revenue -
Revenue increased 13% to $90.7 million for the first six months of 2008, up from
$80.2 million for the first six months of 2007. This increase reflects higher
treatment and disposal revenue and higher revenue from bundled rail
transportation and disposal contracts. In the six months ended June 30, 2008, we
disposed of 668,000 tons of waste in our landfills, up 23% from 543,000 tons
disposed in the first six months of 2007. Our average selling price for
treatment and disposal services (excluding transportation) in the first six
months of 2008 was 19% lower than in the first six months of 2007. This decline
reflects variations in service mix, a higher percentage of direct disposal in
the first half of 2008 including a large, non-hazardous soil project shipped to
our Beatty, Nevada site from Death Valley National Park and increased shipments
from the Honeywell Jersey City project.
 
 During
the six months ended June 30, 2008, treatment and disposal revenue from
recurring Base Business grew 12% over the same period of 2007 and comprised 42%
of non-transportation revenue.  Base Business was 43% of
non-transportation revenue for the same period in 2007. Base Business revenue
increased as a result of growth in our broker, rate regulated and other industry
categories. Event Business revenue in the first half of 2008 increased 21% over
the same period in 2007 and was 58% of non-transportation revenue. Event
Business was 57% of non-transportation revenue for the first half of 2007. As
discussed further below, this primarily reflects increased disposal revenue from
our other industry and private clean-up customers including increased shipments
from the Honeywell Jersey City project in the first half of
2008.  These diversified revenue increases more than offset the loss
of revenue from two large event clean-up projects which were substantially
completed in the first quarter of 2007.
 15
 The
following table summarizes our revenue growth (both Base and Event Business) by
industry customer type for the six months ended June 30, 2008 as compared to the
six months ended June 30, 2007.
 Treatment
      and Disposal Revenue Growth
                  Six
      Months Ended June 30, 2008 vs.
                  Six
      Months Ended June 30, 2007Other
      industry
                
                68%Government
                
                26%Rate
      regulated
                
                21%Broker
                
                18%Private
                
                4%Refinery
                
                -8%Steel
                
                -18%
 Other
industry revenue increased 68% in the first six months of 2008 compared to the
same period in 2007. This increase was due primarily to a large polychlorinated
biphenyls (“PCB”) waste clean-up for an electric utility customer shipped to our
Grand View, Idaho facility and substantially completed in the first quarter of
2008.
  Government
clean-up business revenue increased 26% in the first six months of 2008 compared
to the first six months of 2007.  This increase reflects a
state-funded clean-up project which shipped to our Robstown, Texas facility and
increased shipments from the Department of Defense in the second quarter of
2008.  Cleanup work under the USACE contract contributed $5.8 million
or 6% of total revenue in the first six months of 2008, as compared to $6.0
million or 7% in the first quarter of 2007.
  Rate-regulated
business at our Richland, Washington low-level radioactive waste facility
increased 21% for the six months ended June 30, 2008 compared to the same period
in 2007. Our Richland facility operates under a State of Washington approved
revenue requirement and this increase reflects timing for the rate-regulated
portion of the facility’s revenue.
  Our
broker business increased 18% in the six months ended June 30, 2008 compared to
the same period in 2007 reflecting continued success working with national and
smaller regional waste broker companies.
  Treatment
and disposal revenue from private clean-up customers increased approximately 4%
during the six months ended June 30, 2008 compared to the same period in 2007.
This increase reflects higher shipments from the Honeywell Jersey City project
as well as increased event business awards from multiple smaller projects. The
Honeywell project contributed 39% of total revenue (including transportation)
for the six months ended June 30, 2008, or $35.3 million, as compared to 38% of
total revenue (including transportation), or $30.6 million, for the same period
of 2007.  Our bundled transportation and disposal contract with
Molycorp, which began in the second quarter of 2007, contributed 7% of total
revenue (including transportation), or $6.0 million for the first half of 2008,
as compared to 6% of total revenue (including transportation), or $4.8 million
for the first half of 2007.  Shipments from the Molycorp project
slowed in the second quarter of 2008 consistent with scheduled project
completion in September 2008.
  Treatment
and disposal revenue from refinery customers decreased 8% in the first six
months of 2008 compared to the same period in 2007. This decline primarily
reflects decreased waste volumes in the second quarter of 2008 from one refinery
customer as a result of a refining process change and timing of maintenance by
other refinery customers.  We expect revenue in this category to
increase in the future based on initiation of thermal desorption recycling
services at our Robstown, Texas facility.
  Treatment
and disposal revenue from steel mill customers decreased 18% in the first six
months of 2008 compared to the same period of 2007. This decline reflects
expiration of a contract with a Midwestern steel mill in December
2007.
  Gross
Profit. Gross
profit for the six months ended June 30, 2008 increased by 17% to $27.0 million,
up from $23.2 million for the same period of 2007. This increase reflects higher
disposal volumes in the first half of 2008 as compared to the same period in
2007. Gross margin was 30% for the six months ended June 30, 2008 as compared to
29% for the six months ended June 30, 2007.  This increase reflects
higher operating leverage delivered by increased volume and normal service mix
variations.
 
 
 16
 
 Selling,
General and Administrative.
As a percentage of total revenue, SG&A expense was 8% for the six months
ended June 30, 2008, down from 9% for the same period in 2007. SG&A expenses
increased 8% to $7.7 million for the six months ended June 30, 2008, up from
$7.1 million for the six months ended June 30, 2007. This increase was due
primarily to higher payroll and benefit expenses, stock-based compensation
expense, employee performance based bonus compensation and other administrative
costs in support of the increased waste volumes received.   The
increase also reflects $154,000 of business development expenses related to an
acquisition opportunity we are no longer actively pursuing.
 
 Interest
income.During the six months
ended June 30, 2008, we earned $174,000 of interest income as compared with
$361,000 in the same period of 2007. This decrease was due to a lower average
rate of interest earned on investments.
 
 Other
expense/income. Other expense/income includes business activities not
included in current year ordinary and usual revenue and expenses. In the first
six months of 2008, we recognized $153,000 in royalty income from a previously
sold municipal waste landfill in Texas. In the first six months of 2007, we recognized $48,000 from
the sale of property and equipment no longer required in our
business.
  Income tax
expense.Our
effective income tax rate for the six months ended June 30, 2008 was 39.2%,
compared to 39.3% for the six months ended June 30, 2007.
 
 As of
June 30, 2008 and December 31, 2007, we had no unrecognized tax benefits. We
recognize interest assessed by taxing authorities as a component of interest
expense. We recognize any penalties assessed by taxing authorities as a
component of selling, general and administrative expenses.Interest and penalties for
the six months ended June 30, 2008 and 2007 were not material.
 
 Critical
Accounting Policies
 
 Financial
statement preparation requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses and
disclosure of contingent assets and liabilities. The accompanying consolidated
financial statements are prepared using the same critical accounting policies
discussed in our Annual Report on Form 10-K for the fiscal year ended December
31, 2007.
 
 Liquidity and Capital
Resources
 
 Our
principal source of cash is from operations. The $18.5 million in cash at June
30, 2008 was comprised of cash immediately available for
operations.
 
 On June
30, 2008, we entered into a $15.0 million unsecured revolving line of credit
(the “Revolving Credit Agreement”) with Wells Fargo Bank, National Association
(“Wells Fargo”).  The Revolving Credit Agreement expires on June 15,
2010 and replaced the Company’s expired Amended and Restated Credit Agreement.
The unsecured line-of-credit is available to supplement daily working capital as
needed. Monthly interest-only payments are required on outstanding debt levels
based on a pricing grid, under which the interest rate decreases or increases
based on our ratio of funded debt to earnings before interest, taxes,
depreciation and amortization. We can elect to borrow monies utilizing LIBOR
plus an applicable spread or the prime rate. The credit agreement contains
certain quarterly financial covenants, including a maximum leverage ratio, a
maximum funded debt ratio and a minimum required tangible net worth. Pursuant to
our credit agreement, we may only declare quarterly or annual dividends if on
the date of declaration, no event of default has occurred, or no other event or
condition has occurred that would constitute an event of default after giving
effect to the payment of the dividend. At June 30, 2008 we were in compliance
with all financial covenants in the credit agreement. We have a standby letter
of credit to support our closure and post-closure obligation of $4.0 million
that expires in September 2008. At June 30, 2008, we had a borrowing capacity of
$11.0 million after deducting the outstanding letter of credit, with no
borrowings outstanding.
 
 We
believe that cash on hand and cash flow from operations will be sufficient to
meet our operating cash needs during the next 12 months.
  
 17
 
 Operating
Activities - For the six months ended June 30, 2008, net cash provided by
operating activities was $16.5 million. This reflects net income of $12.0
million, depreciation, amortization and accretion of $5.7
million.  Partially offsetting these sources of cash were increases in
receivables of $2.3 million and decreases in accounts payable and accrued
liabilities of $1.3 million. The increase in net income is due to the factors
discussed above under Results of Operations.  The increase in accounts
receivable is partially due to higher disposal and transportation revenue in the
six months ended June 30, 2008 as compared to the same period in
2007.  This increase in accounts receivable is also partially
attributable to a slight increase in days sales outstanding for the six months
ended June 30, 2008 compared to the days outstanding at December 31,
2007.  Days sales outstanding was 67 days as of June 30, 2008,
compared to 65 days at December 31, 2007 and 69 days at June 30,
2007.
 
 For the
six months ended June 30, 2007, net cash provided by operating activities was
$11.6 million.  This reflects net income of $10.0 million,
depreciation, amortization and accretion of $4.7 million, changes in deferred
taxes of $1.5 million, increases in accounts payable and utilization of our
income tax receivable.  Partially offsetting these sources of cash
were increases in receivables of $5.3 million and increases in other assets of
$1.3 million.
 
 Investing
Activities- For
the six months ended June 30, 2008, net cash used in investing activities was
$5.1 million. Significant transactions affecting cash used in investing
activities during the first six months of 2008 include capital expenditures of
$7.3 million.  Construction of additional disposal capacity at our
Robstown, Texas and Beatty, Nevada facilities and infrastructure for the thermal
desorption recycling equipment installed at the Texas facility comprised a
significant portion of these expenditures. Partially offsetting cash outflows
for capital expenditures were net maturities of short-term investments totaling
$2.2 million.
 
 For the
six months ended June 30, 2007, net cash used in investing activities was $6.7
million. This included capital expenditures of $8.6 million used primarily to
construct a new treatment and storage building at our Beatty, Nevada facility; a
new storage building and laboratory at our Robstown, Texas facility; additional
disposal capacity at our Robstown, Texas facility and equipment purchases for
each of our three hazardous waste facilities. Partially offsetting cash outflows
for capital expenditures were net maturities of short-term investments totaling
$2.0 million.
 
 Financing
Activities- For
the six months ended June 30, 2008 and 2007 respectively, net cash used in
financing activities was $5.4 million and $4.9 million, respectively. This was
primarily attributable to payment of dividends, partially offset by proceeds
from stock option exercises and associated tax benefits related to those
exercises.
 
 Contractual
Obligations and Guarantees
 
 For
information on contractual obligations and guarantees, see our Annual Report on
Form 10-K for the fiscal year ended December 31, 2007. There have not been any
material changes in the amounts of our contractual obligations and guarantees
during the six months ended June 30, 2008.
 
 Item
3. Quantitative and Qualitative Disclosures About Market Risk
 
 We do not
maintain equities, commodities, derivatives or any other instruments for trading
or any other purposes, and do not enter into transactions denominated in
currencies other than the U.S. dollar.
 
 We have
minimal interest rate risk on investments or other assets. At June 30, 2008,
approximately $18.5 million was held in cash or short-term investments at terms
ranging from overnight to three months. Together, these items earn interest at
the rate of approximately 2% per year.
 
 We are
exposed to market risks primarily from changes in interest rates. We do not
engage in financial transactions for trading or speculative
purposes.
  
 18
 
 Item
4. Controls and Procedures
 
 Management
of the Company, including the Chief Executive Officer and the Chief Financial
Officer of the Company, have evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934) as of June 30, 2008. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures, including the accumulation and communication
of disclosures to the Company’s Chief Executive Officer and Chief Financial
Officer as appropriate to allow timely decisions regarding required disclosure,
are effective to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified by the rules and forms of the SEC.
 
 There
were no changes in our internal control over financial reporting that occurred
during the most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
 
 
 19
 
 PART
II. OTHER INFORMATION
 
 Cautionary Statement for
Purposes of “Safe Harbor Provisions” of the Private Securities Litigation Reform
Act of 1995
 This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of the federal securities laws. Statements that are not historical
facts, including statements about the Company’s beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words "may," "could," "would,"
"should," "believe," "expect," "anticipate," "plan," "estimate," "target,"
"project," "intend" and similar expressions. These statements include, among
others, statements regarding our financial and operating results, strategic
objectives and means to achieve those objectives, the amount and timing of
capital expenditures, the amount and timing of interest expense, the likelihood
of our success in expanding our business, financing plans, budgets, working
capital needs and sources of liquidity.
 
 Forward-looking
statements are only predictions and are not guarantees of performance. These
statements are based on management's beliefs and assumptions, which in turn are
based on currently available information. Important assumptions include, among
others, those regarding demand for Company services, expansion of service
offerings geographically or through new service lines, the timing and cost of
planned capital expenditures, competitive conditions and general economic
conditions. These assumptions could prove inaccurate. Forward-looking statements
also involve known and unknown risks and uncertainties, which could cause actual
results to differ materially from those contained in any forward-looking
statement. Many of these factors are beyond our ability to control or predict.
Such factors include, but are not limited to,a
loss of a major customer, compliance with and changes to applicable laws and
regulations, access to cost effective transportation services, access to
insurance and other financial assurances, loss of key personnel, lawsuits,
adverse economic conditions, government funding or competitive pressures,
incidents that could limit or suspend specific operations, implementation of new
technologies,  limitations on operation of newly installed thermal
desorption at our Texas facility, our ability to perform under required
contracts, our willingness or ability to pay dividends and our ability to
integrate any potential acquisitions..
 
 Except
as required by applicable law, including the securities laws of the United
States and the rules and regulations of the SEC, we are under no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. You should not place undue reliance
on our forward-looking statements. Although we believe that the expectations
reflected in forward-looking statements are reasonable, we cannot guarantee
future results or performance. Before you invest in our common stock, you
should be aware that the occurrence of the events described in the "Risk
Factors" section in  our 2007 Annual Report on Form 10-K filed with
the SEC on February 27, 2008 could harm our business, prospects, operating
results, and financial condition.
 
 Investors
should also be aware that while we do, from time to time, communicate with
securities analysts, it is against our policy to disclose to them any material
non-public information or other confidential commercial information.
Accordingly, stockholders should not assume that we agree with any statement or
report issued by any analyst irrespective of the content of the statement or
report. Furthermore, we have a policy against issuing or confirming financial
forecasts or projections issued by others. Thus, to the extent that reports
issued by securities analysts contain any projections, forecasts or opinions,
such reports are not the responsibility of American Ecology
Corporation.
 
 Item
1. Legal Proceedings
 
 We are
not currently a party to any material pending legal proceedings and are not
aware of any claims that could have a materially adverse effect on our financial
position, results of operations or cash flows.
 
 Item
1A. Risk Factors.
 
 There
have been no material changes in our risk factors from those disclosed in Item
1A of Part I of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 None.
 
 Item
3. Defaults Upon Senior Securities
 
 None.
 
 
 20
 
 Item
4. Submission of Matters to a Vote of Security Holders
 
 The
Company held its Annual Meeting of Stockholders on May 22, 2008, and transacted
the following business:
 
 1)
              Election
      of Directors
 
 Nominee
              
              Votes
      For
              
              Votes
      WithheldVictor
      J. Barnhart
              
              16,362,881
              
              47,957Joe
      F. Colvin
              
              16,363,320
              
              47,518Roy
      C. Eliff
              
              16,328,101
              
              82,737Edward
      F. Heil
              
              16,240,623
              
              170,214Jeffrey
      S. Merrifield
              
              16,363,312
              
              47,526John
      W. Polling
              
              16,301,094
              
              109,744Stephen
      A. Romano
              
              16,240,801
              
              170,036
 
 At a
meeting of the new Board of Directors held immediately after the annual
stockholder meeting, the board appointed Mr. Stephen A. Romano to continue
serving as Chairman of the Board and appointed Jeffrey S. Merrifield to serve as
Lead Director. The Board of Directors also made the following committee
appointments:
 
 Audit
      Committee
              
              Compensation
      Committee
              
              Corporate
      Governance and
                Nominating
      CommitteeJohn
      W. Poling, Chairman
              
              Roy
      C. Eliff, Chairman
              
              Jeffrey
      S. Merrifield, ChairmanRoy
      C. Eliff
              
              John
      W. Poling
              
              Edward
      F. HeilVictor
      J. Barnhart
              
              Victor
      J. Barnhart
              
              Joe
      F. Colvin
 
 2)
              Ratification
      of the Appointment of Moss Adams LLP as Our Independent Registered Public
      Accountant
 
 Votes
      For
              
              Votes
      Against
              
              Abstentions
              
              Broker
      Non-Voted16,372,522
              
              22,353
              
              15,962
              
              -
 
 3)
              Approval
      of 2008 Stock Option Incentive Plan
 
 Votes
      For
              
              Votes
      Against
              
              Abstentions
              
              Broker
      Non-Voted11,303,770
              
              1,656,820
              
              20,448
              
              3,429,799
 
 Item
5. Other Information
 
 None.
 
 
 21
 
 Item 6. Exhibits
 
 10.50
              Revolving
      Credit Agreement between American Ecology Corporation and Wells Fargo
      Bank, National Association dated as of June 30, 2008110.64
              *2008
      Employee Stock Option Incentive Plan210.65
              *
      Form of Incentive Stock Option Agreement10.66
              *
      Form of Non-Qualified Stock Option Agreement31.1
              Certification
      of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2
              Certification
      of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002*
      Identifies compensation plans or arrangements required to be files as an
      exhibit hereto.
                1Incoporated by reference from the Registrant’s Form 8-K dated
      7-1-2008
                2Incoporated by reference from the Registrant’s Proxy Statement
      dated 4-9-2008
 
 
 22
 
 SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 
 
 American
      Ecology Corporation(Registrant)Date:  August
      1, 2008
              /s/
      Jeffrey R. FeelerJeffrey
      R. Feeler
                Vice
      President and
                Chief
      Financial Officer
 
 23