##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the Quarter Ended: September 30, 2006
 Commission File Number: 0-11688
 AMERICAN ECOLOGY CORPORATION
 
  Delaware
    
    95-3889638(State or other jurisdiction)
    
    (I.R.S. Employer Identification Number)
 Lakepointe Centre I, 
300 E. Mallard, Suite 300
Boise, Idaho
    
    83706(Address of principal executive offices)
    
    (Zip Code)
  
  þ o
  o þ o
 o þ




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##### 



AMERICAN ECOLOGY CORPORATION
INDEX
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II
    
    OTHER INFORMATIONCautionary Statement
    
    
    25Item 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars and shares in thousands, except per share data)
(unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent Assets:Cash and cash equivalents
    
    $
    9,075
    
    
    $
    3,641Short-term investments
    
    
    1,997
    
    
    
    16,214Receivables, net
    
    
    18,777
    
    
    
    13,573Insurance receivable
    
    
    
    
    
    
    157Prepaid expenses and other current assets
    
    
    3,378
    
    
    
    3,183Income tax receivable
    
    
    440
    
    
    
    1,248Deferred income taxes
    
    
    1,794
    
    
    
    6,714Total current assets
    
    
    35,461
    
    
    
    44,730Property and equipment, net
    
    
    54,278
    
    
    
    40,896Restricted cash
    
    
    4,701
    
    
    
    84Deferred income taxes
    
    
    2,362
    
    
    
    3,021Other assets
    
    
    336
    
    
    
    738Total assets
    
    $
    97,138
    
    
    $
    89,469Liabilities And Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    5,649
    
    
    $
    3,665Deferred revenue
    
    
    3,065
    
    
    
    1,261Customer advances
    
    
    1,912
    
    
    
    1,535Accrued liabilities
    
    
    1,516
    
    
    
    1,337State burial fees payable
    
    
    1,190
    
    
    
    1,454Management incentive plan payable
    
    
    364
    
    
    
    1,272Customer refunds
    
    
    338
    
    
    
    1,062Line of credit
    
    
    
    
    
    
    Current portion of closure and post closure obligations
    
    
    721
    
    
    
    1,127Current portion of long-term debt
    
    
    6
    
    
    
    Total current liabilities
    
    
    14,761
    
    
    
    12,713Long-term closure and post closure obligations
    
    
    10,825
    
    
    
    10,560Long-term customer advances
    
    
    533
    
    
    
    485Other long-term liabilities
    
    
    530
    
    
    
    1,752Long-term debt
    
    
    27
    
    
    
    Total liabilities
    
    
    26,676
    
    
    
    25,510Contingencies and commitmentsStockholders EquityCommon stock $0.01 par value, 50,000 authorized; 18,139 and
17,742 shares issued and outstanding, respectively
    
    
    181
    
    
    
    177Additional paid-in capital
    
    
    55,709
    
    
    
    53,213Retained earnings
    
    
    14,572
    
    
    
    10,569Total stockholders equity
    
    
    70,462
    
    
    
    63,959Total liabilities and stockholders equity
    
    $
    97,138
    
    
    $
    89,469
   3




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##### Table of Contents



AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    27,464
    
    
    $
    24,791
    
    
    $
    78,910
    
    
    $
    56,124Transportation costs
    
    
    12,683
    
    
    
    8,435
    
    
    
    29,199
    
    
    
    15,471Other direct operating costs
    
    
    7,874
    
    
    
    6,387
    
    
    
    22,569
    
    
    
    17,623Gross profit
    
    
    6,907
    
    
    
    9,969
    
    
    
    27,142
    
    
    
    23,030Selling, general and administrative expenses
    
    
    2,902
    
    
    
    3,103
    
    
    
    9,446
    
    
    
    8,975Business interruption insurance claim
    
    
    (704
    )
    
    
    
    
    
    
    (704
    )
    
    
    (41
    )Operating income
    
    
    4,709
    
    
    
    6,866
    
    
    
    18,400
    
    
    
    14,096Other income (expense)Interest income
    
    
    215
    
    
    
    164
    
    
    
    608
    
    
    
    342Interest expense
    
    
    (6
    )
    
    
    (45
    )
    
    
    (8
    )
    
    
    (140
    )Gain on litigation settlement
    
    
    
    
    
    
    5,327
    
    
    
    
    
    
    
    5,327Other
    
    
    
    
    
    
    (31
    )
    
    
    458
    
    
    
    8Income before tax
    
    
    4,918
    
    
    
    12,281
    
    
    
    19,458
    
    
    
    19,633Income tax expense
    
    
    1,925
    
    
    
    4,545
    
    
    
    7,359
    
    
    
    7,335Net income
    
    $
    2,993
    
    
    $
    7,736
    
    
    $
    12,099
    
    
    $
    12,298Earnings per share:Basic
    
    $
    0.17
    
    
    $
    0.44
    
    
    $
    0.67
    
    
    $
    0.70Dilutive
    
    $
    0.16
    
    
    $
    0.43
    
    
    $
    0.66
    
    
    $
    0.68Shares used in earnings
per share calculation:Basic
    
    
    18,129
    
    
    
    17,636
    
    
    
    18,046
    
    
    
    17,519Dilutive
    
    
    18,237
    
    
    
    18,139
    
    
    
    18,215
    
    
    
    17,974Dividends paid per share
    
    $
    0.15
    
    
    $
    0.15
    
    
    $
    0.45
    
    
    $
    0.15
   4




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AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months Ended September 30,2006
    
    
    2005Cash Flows From Operating Activities:Net income
    
    $
    12,099
    
    
    $
    12,298Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation, amortization and accretion
    
    
    5,796
    
    
    
    4,851Deferred income taxes
    
    
    5,579
    
    
    
    5,878Stock-based compensation expense
    
    
    243
    
    
    
    180Net gain on sale of property and equipment
    
    
    (166
    )
    
    
    Gain on settlement of litigation
    
    
    
    
    
    
    (5,327
    )Other
    
    
    (299
    )
    
    
    (235
    )Changes in assets and liabilities:Receivables
    
    
    (5,204
    )
    
    
    (6,903
    )Income taxes receivable
    
    
    808
    
    
    
    Insurance receivable
    
    
    157
    
    
    
    Other assets
    
    
    133
    
    
    
    (1,398
    )Closure and post closure obligations
    
    
    (947
    )
    
    
    (1,440
    )Accounts payable and accrued liabilities
    
    
    (1,339
    )
    
    
    4,161Net cash provided by operating activities
    
    
    16,860
    
    
    
    12,065Cash Flows From Investing Activities:Purchases of short-term investments
    
    
    (24,393
    )
    
    
    (51,369
    )Purchases of property and equipment
    
    
    (15,731
    )
    
    
    (12,118
    )Restricted cash
    
    
    (4,617
    )
    
    
    Maturities of short-term investments
    
    
    38,909
    
    
    
    41,600Proceeds from sale of property and equipment
    
    
    174
    
    
    
    878Proceeds from litigation settlement
    
    
    
    
    
    
    11,805Net cash used in investing activities
    
    
    (5,658
    )
    
    
    (9,204
    )Cash Flows From Financing Activities:Dividends paid
    
    
    (8,096
    )
    
    
    (2,645
    )Payment of indebtedness
    
    
    (1
    )
    
    
    (1,093
    )Proceeds from stock option exercises
    
    
    1,778
    
    
    
    871Tax benefit of common stock options
    
    
    551
    
    
    
    654Net cash used in financing activities
    
    
    (5,768
    )
    
    
    (2,213
    )Decrease in cash and cash equivalents
    
    
    5,434
    
    
    
    648Cash and cash equivalents at Beginning of Period
    
    
    3,641
    
    
    
    2,160Cash and cash equivalents at End of Period
    
    $
    9,075
    
    
    $
    2,808Supplemental DisclosuresIncome taxes paid
    
    $
    404
    
    
    $
    804Interest paid
    
    $
    8
    
    
    $
    140Non-cash investing and financing activities:Capital expenditures in accounts payable
    
    $
    2,613
    
    
    $
    Acquisition of equipment with capital leases
    
    $
    34
    
    
    $
    
   5




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AMERICAN ECOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands, except per share data)
(unaudited)
 NOTE 1  GENERAL
 Basis of Presentation
    Use of Estimates
 NOTE 2  EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 Share-Based Payment Accounting for Stock-based
Compensation Accounting for Stock Based
CompensationTransition and Disclosure Accounting for Stock Issued to Employees
 Applying Paragraph 19 of FAS 131 in Determining Whether to Aggregate Operating Segments That
Do Not Meet the Quantitative Thresholds Disclosures about Segments of an Enterprise and
Related Information
 Accounting Changes and Error Corrections Reporting Accounting Changes in Interim Financial
Statements Accounting Changes
  6




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Accounting for Purchases and Sales of Inventory
with the Same Counterparty Accounting for Nonmonetary Transactions
 Accounting for Uncertainty in
Income Taxes Accounting for Income Taxes
 NOTE 3   CONCENTRATION AND CREDIT RISK
 Major Customers
 Three Months Ended
    
    
    Nine Months EndedCustomer
    
    September 30, 2006
    
    
    September 30, 2006Honeywell International, Inc.
    
    
    45
    %
    
    
    34
    %U.S. Army Corps of Engineers
    
    
    2
    %
    
    
    11
    %
  Customer
    
    September 30, 2006Honeywell International, Inc.
    
    $
    11,171
 Credit Risk Concentration
   7




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##### Table of Contents



NOTE 4   PROPERTY AND EQUIPMENT
 September 30,
    
    
    December 31,2006
    
    
    2005Cell development costs
    
    $
    27,200
    
    
    $
    25,857Land and improvements
    
    
    8,759
    
    
    
    8,307Buildings and improvements
    
    
    18,247
    
    
    
    15,866Railcars
    
    
    17,375
    
    
    
    5,467Vehicles and other equipment
    
    
    17,204
    
    
    
    17,585Construction in progress
    
    
    3,946
    
    
    
    2,80592,731
    
    
    
    75,887Accumulated depreciation and amortization
    
    
    (38,453
    )
    
    
    (34,991
    )$
    54,278
    
    
    $
    40,896
  NOTE 5   LINE-OF-CREDIT
  NOTE 6   COMMITMENTS AND CONTINGENCIES
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    20052003 MIP expense included
in selling,
general & administrative
    
    $
    (191
    )
    
    $
    365
    
    
    $
    359
    
    
    $
    9062006 MIP expense included
in selling,
general & administrative
    
    
    157
    
    
    
    
    
    
    
    328
    
    
    
    2006 MIP expense included in
other direct costs
    
    
    36
    
    
    
    
    
    
    
    36
    
    
    
    
  8




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NOTE 7   CLOSURE AND POST-CLOSURE OBLIGATIONS
 Accounting for Contingencies Accounting for Asset Retirement Obligations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006Beginning obligation
    
    $
    11,495
    
    
    $
    11,687Accretion expense
    
    
    269
    
    
    
    806Payments
    
    
    (217
    )
    
    
    (813
    )Adjustments
    
    
    
    
    
    
    (133
    )Ending obligation
    
    $
    11,547
    
    
    $
    11,547
  NOTE 8   HONEYWELL INTERNATIONAL CONTRACT
      9




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NOTE 9   EQUITY
 Dividends
 Stock Option Plans
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Outstanding at beginning of period
    
    
    180,896
    
    
    
    674,031
    
    
    
    567,320
    
    
    
    913,708Granted
    
    
    166,000
    
    
    
    
    
    
    
    166,000
    
    
    
    7,500Exercised
    
    
    (200
    )
    
    
    (210
    )
    
    
    (386,624
    )
    
    
    (222,387
    )Cancelled or expired
    
    
    (20,000
    )
    
    
    
    
    
    
    (20,000
    )
    
    
    (25,000
    )Outstanding at end of period
    
    
    326,696
    
    
    
    673,821
    
    
    
    326,696
    
    
    
    673,821Weighted average exercise
price of options:Beginning of period
    
    $
    5.37
    
    
    $
    4.65
    
    
    $
    4.84
    
    
    $
    4.40Granted
    
    $
    21.74
    
    
    $
    
    
    
    $
    21.74
    
    
    $
    11.53Exercised
    
    $
    3.50
    
    
    $
    3.50
    
    
    $
    4.60
    
    
    $
    3.92Cancelled or expired
    
    $
    21.74
    
    
    $
    
    
    
    $
    21.74
    
    
    $
    4.00Outstanding at end of period
    
    $
    12.69
    
    
    $
    4.65
    
    
    $
    12.69
    
    
    $
    4.65Exercisable at end of period
    
    
    180,696
    
    
    
    521,151
    
    
    
    180,696
    
    
    
    521,151Available for future grant
    
    
    42,976
    
    
    
    188,976
    
    
    
    42,976
    
    
    
    188,976
 Outstanding options
    
    
    Exercisable optionsWeightedaverageremaining
    
    
    Weighted
    
    
    
    
    
    Weightedcontractual
    
    
    average
    
    
    
    
    
    averageNumber of
    
    
    life
    
    
    exercise
    
    
    Number of
    
    
    exerciseRange of exercise prices
    
    Shares
    
    
    (in years)
    
    
    price
    
    
    Shares
    
    
    price$1.00 - $1.47
    
    
    27,500
    
    
    
    0.9
    
    
    $
    1.26
    
    
    
    27,500
    
    
    $
    1.26$2.13
    
    
    10,000
    
    
    
    2.6
    
    
    $
    2.13
    
    
    
    10,000
    
    
    $
    2.13$2.42 - $3.50
    
    
    11,600
    
    
    
    4.7
    
    
    $
    2.57
    
    
    
    11,600
    
    
    $
    2.57$3.75 - $4.50
    
    
    22,200
    
    
    
    4.3
    
    
    $
    3.81
    
    
    
    22,200
    
    
    $
    3.81$6.50
    
    
    84,396
    
    
    
    6.4
    
    
    $
    6.50
    
    
    
    84,396
    
    
    $
    6.50$9.20 - $12.15
    
    
    25,000
    
    
    
    7.8
    
    
    $
    10.09
    
    
    
    25,000
    
    
    $
    10.09$21.74
    
    
    146,000
    
    
    
    9.8
    
    
    $
    21.74
    
    
    
    
    
    
    $
    
 .
  10




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Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006Stock-based compensation recorded in selling, general
and administrative expense
    
    $
    82
    
    
    $
    129Stock-based compensation recorded in other direct costs
    
    
    2
    
    
    
    2Total stock-based compensation expense
    
    $
    84
    
    
    $
    131
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005Net income
    
    $
    7,736
    
    
    $
    12,298Deduct: Stock-based employee compensation expense
determined under fair-value-based method for all
awards, net of related tax effects
    
    
    (94
    )
    
    
    (321
    )Pro Forma net income
    
    $
    7,642
    
    
    $
    11,977Basic Earnings Per Share:As Reported
    
    $
    0.44
    
    
    $
    0.70Pro Forma
    
    $
    0.43
    
    
    $
    0.68Diluted Earnings Per Share:As Reported
    
    $
    0.43
    
    
    $
    0.68Pro Forma
    
    $
    0.42
    
    
    $
    0.67
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Expected life
    
    3.5 years
    
    
    
    
    
    3.5 years
    
    10 yearsExpected volatility
    
    
    52
    %
    
    
    
    
    
    
    52
    %
    
    
    50
    %Risk-free interest rate
    
    
    5.0
    %
    
    
    
    
    
    
    5.0
    %
    
    
    4.1
    %Expected dividend yeild
    
    
    3.1
    %
    
    
    
    
    
    
    3.1
    %
    
    
    2.7
    %Weighted-average fair value of options granted during the period
    
    $
    7.63
    
    
    
    
    
    
    $
    7.63
    
    
    $
    5.28
  11




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2005 Non-Employee Director Compensation Plan 
 2006 Employee Restricted Stock Plan
 Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006Outstanding at beginning of period
    
    
    934
    
    
    
    Granted
    
    
    5,300
    
    
    
    6,234Vested
    
    
    
    
    
    
    Cancelled or expired
    
    
    (934
    )
    
    
    (934
    )Outstanding at end of period
    
    
    5,300
    
    
    
    5,300Available for future grant
    
    
    194,700
    
    
    
    194,700Compensation expense recognized in:Other direct costs
    
    $
    1
    
    
    $
    1Selling, general & administrative
    
    $
    3
    
    
    $
    5
  12




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NOTE 10  COMPUTATION OF EARNINGS PER SHARE
 Three Months Ended September 30,2006
    
    
    2005Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedNet income
    
    $
    2,993
    
    
    $
    2,993
    
    
    $
    7,736
    
    
    $
    7,736Weighted average common
shares outstanding
    
    
    18,129
    
    
    
    18,129
    
    
    
    17,636
    
    
    
    17,636Dilutive effect of stock options and
restricted stock
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    503Weighted average
shares outstanding
    
    
    
    
    
    
    18,237
    
    
    
    
    
    
    
    18,139Earnings per share
    
    $
    0.17
    
    
    $
    0.16
    
    
    $
    0.44
    
    
    $
    0.43Anti-dilutive shares
excluded from calculation
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
 Nine Months Ended September 30,2006
    
    
    2005Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedNet income
    
    $
    12,099
    
    
    $
    12,099
    
    
    $
    12,298
    
    
    $
    12,298Weighted average common
shares outstanding
    
    
    18,046
    
    
    
    18,046
    
    
    
    17,519
    
    
    
    17,519Dilutive effect of stock options and
restricted stock
    
    
    
    
    
    
    169
    
    
    
    
    
    
    
    455Weighted average
shares outstanding
    
    
    
    
    
    
    18,215
    
    
    
    
    
    
    
    17,974Earnings per share
    
    $
    0.67
    
    
    $
    0.66
    
    
    $
    0.70
    
    
    $
    0.68Anti-dilutive shares
excluded from calculation
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
 NOTE 11  OPERATING SEGMENTS
    13




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##### Table of Contents



Non-Operating
    
    
    OperatingDisposal
    
    
    DisposalFacilities
    
    
    Facilities
    
    
    Corporate
    
    
    TotalThree months ended September 30, 2006Revenue
    
    $
    27,458
    
    
    $
    6
    
    
    $
    
    
    
    $
    27,464Transportation costs
    
    
    12,683
    
    
    
    
    
    
    
    
    
    
    
    12,683Other direct operating costs
    
    
    7,781
    
    
    
    93
    
    
    
    
    
    
    
    7,874Gross profit
    
    
    6,994
    
    
    
    (87
    )
    
    
    
    
    
    
    6,907Selling, general
& administration
    
    
    1,353
    
    
    
    
    
    
    
    1,549
    
    
    
    2,902Business interruption claim
    
    
    (704
    )
    
    
    
    
    
    
    
    
    
    
    (704
    )Operating income (loss)
    
    
    6,345
    
    
    
    (87
    )
    
    
    (1,549
    )
    
    
    4,709Interest income, net
    
    
    7
    
    
    
    
    
    
    
    202
    
    
    
    209Gain on litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before tax
    
    
    6,352
    
    
    
    (87
    )
    
    
    (1,347
    )
    
    
    4,918Tax expense
    
    
    
    
    
    
    
    
    
    
    1,925
    
    
    
    1,925Net income (loss)
    
    $
    6,352
    
    
    $
    (87
    )
    
    $
    (3,272
    )
    
    $
    2,993Depreciation, amortization & accretion
    
    $
    1,852
    
    
    $
    89
    
    
    $
    8
    
    
    $
    1,949Capital expenditures
    
    $
    4,623
    
    
    $
    6
    
    
    $
    22
    
    
    $
    4,651Total assets
    
    $
    74,833
    
    
    $
    86
    
    
    $
    22,219
    
    
    $
    97,138
 Non-Operating
    
    
    OperatingDisposal
    
    
    DisposalFacilities
    
    
    Facilities
    
    
    Corporate
    
    
    TotalThree months ended September 30, 2005Revenue
    
    $
    24,774
    
    
    $
    17
    
    
    $
    
    
    
    $
    24,791Transportation costs
    
    
    8,435
    
    
    
    
    
    
    
    
    
    
    
    8,435Other direct operating costs
    
    
    6,272
    
    
    
    115
    
    
    
    
    
    
    
    6,387Gross profit
    
    
    10,067
    
    
    
    (98
    )
    
    
    
    
    
    
    9,969Selling, general
& administration
    
    
    1,154
    
    
    
    3
    
    
    
    1,946
    
    
    
    3,103Business interruption claim
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    8,913
    
    
    
    (101
    )
    
    
    (1,946
    )
    
    
    6,866Interest income, net
    
    
    11
    
    
    
    
    
    
    
    108
    
    
    
    119Gain on litigation settlement
    
    
    
    
    
    
    5,327
    
    
    
    
    
    
    
    5,327Other income (expense)
    
    
    (31
    )
    
    
    
    
    
    
    
    
    
    
    (31
    )Income (loss) before tax
    
    
    8,893
    
    
    
    5,226
    
    
    
    (1,838
    )
    
    
    12,281Tax expense
    
    
    
    
    
    
    
    
    
    
    4,545
    
    
    
    4,545Net income (loss)
    
    $
    8,893
    
    
    $
    5,226
    
    
    $
    (6,383
    )
    
    $
    7,736Depreciation, amortization & accretion
    
    $
    1,470
    
    
    $
    1
    
    
    $
    6
    
    
    $
    1,477Capital expenditures
    
    $
    4,898
    
    
    $
    3
    
    
    $
    
    
    
    $
    4,901Total assets
    
    $
    52,844
    
    
    $
    43
    
    
    $
    38,143
    
    
    $
    91,030
  14




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##### Table of Contents



Non-Operating
    
    
    OperatingDisposal
    
    
    DisposalFacilities
    
    
    Facilities
    
    
    Corporate
    
    
    TotalNine months ended September 30, 2006Revenue
    
    $
    78,894
    
    
    $
    16
    
    
    $
    
    
    
    $
    78,910Transportation costs
    
    
    29,199
    
    
    
    
    
    
    
    
    
    
    
    29,199Other direct operating costs
    
    
    22,292
    
    
    
    277
    
    
    
    
    
    
    
    22,569Gross profit
    
    
    27,403
    
    
    
    (261
    )
    
    
    
    
    
    
    27,142Selling, general
& administration
    
    
    3,966
    
    
    
    1
    
    
    
    5,479
    
    
    
    9,446Business interruption claim
    
    
    (704
    )
    
    
    
    
    
    
    
    
    
    
    (704
    )Operating income (loss)
    
    
    24,141
    
    
    
    (262
    )
    
    
    (5,479
    )
    
    
    18,400Interest income, net
    
    
    22
    
    
    
    
    
    
    
    578
    
    
    
    600Gain on litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (expense)
    
    
    (14
    )
    
    
    173
    
    
    
    299
    
    
    
    458Income (loss) before tax
    
    
    24,149
    
    
    
    (89
    )
    
    
    (4,602
    )
    
    
    19,458Tax expense
    
    
    
    
    
    
    
    
    
    
    7,359
    
    
    
    7,359Net income (loss)
    
    $
    24,149
    
    
    $
    (89
    )
    
    $
    (11,961
    )
    
    $
    12,099Depreciation, amortization & accretion
    
    $
    5,506
    
    
    $
    270
    
    
    $
    20
    
    
    $
    5,796Capital expenditures
    
    $
    15,596
    
    
    $
    59
    
    
    $
    76
    
    
    $
    15,731Total assets
    
    $
    74,833
    
    
    $
    86
    
    
    $
    22,219
    
    
    $
    97,138
 Non-Operating
    
    
    OperatingDisposal
    
    
    DisposalFacilities
    
    
    Facilities
    
    
    Corporate
    
    
    TotalNine months ended September 30, 2005Revenue
    
    $
    56,073
    
    
    $
    51
    
    
    $
    
    
    
    $
    56,124Transportation costs
    
    
    15,471
    
    
    
    
    
    
    
    
    
    
    
    15,471Other direct operating costs
    
    
    17,299
    
    
    
    324
    
    
    
    
    
    
    
    17,623Gross profit
    
    
    23,303
    
    
    
    (273
    )
    
    
    
    
    
    
    23,030Selling, general
& administration
    
    
    3,518
    
    
    
    10
    
    
    
    5,447
    
    
    
    8,975Business interruption claim
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    (41
    )Operating income (loss)
    
    
    19,826
    
    
    
    (283
    )
    
    
    (5,447
    )
    
    
    14,096Interest income, net
    
    
    31
    
    
    
    
    
    
    
    171
    
    
    
    202Gain on litigation settlement
    
    
    
    
    
    
    5,327
    
    
    
    
    
    
    
    5,327Other income (expense)
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Income (loss) before tax
    
    
    19,865
    
    
    
    5,044
    
    
    
    (5,276
    )
    
    
    19,633Tax expense
    
    
    
    
    
    
    
    
    
    
    7,335
    
    
    
    7,335Net income (loss)
    
    $
    19,865
    
    
    $
    5,044
    
    
    $
    (12,611
    )
    
    $
    12,298Depreciation, amortization & accretion
    
    $
    4,825
    
    
    $
    5
    
    
    $
    21
    
    
    $
    4,851Capital expenditures
    
    $
    12,115
    
    
    $
    3
    
    
    $
    
    
    
    $
    12,118Total assets
    
    $
    52,844
    
    
    $
    43
    
    
    $
    38,143
    
    
    $
    91,030
 NOTE 12 PARTIAL SERVICE INTERRUPTION AT ROBSTOWN, TEXAS FACILITY
   15




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NOTE 13 SUBSEQUENT EVENT
   16




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##### Table of Contents



AMERICAN ECOLOGY CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share data)
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   Business Interruption Insurance Settlement
   17




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##### Table of Contents



Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    %
    
    
    2005
    
    
    %
    
    
    2006
    
    
    %
    
    
    2005
    
    
    %Revenue
    
    $
    27,464
    
    
    
    100.0
    %
    
    $
    24,791
    
    
    
    100.0
    %
    
    $
    78,910
    
    
    
    100.0
    %
    
    $
    56,124
    
    
    
    100.0
    %Transportation costs
    
    
    12,683
    
    
    
    46.2
    %
    
    
    8,435
    
    
    
    34.0
    %
    
    
    29,199
    
    
    
    37.0
    %
    
    
    15,471
    
    
    
    27.6
    %Other direct operating costs
    
    
    7,874
    
    
    
    28.7
    %
    
    
    6,387
    
    
    
    25.8
    %
    
    
    22,569
    
    
    
    28.6
    %
    
    
    17,623
    
    
    
    31.4
    %Gross profit
    
    
    6,907
    
    
    
    25.1
    %
    
    
    9,969
    
    
    
    40.2
    %
    
    
    27,142
    
    
    
    34.4
    %
    
    
    23,030
    
    
    
    41.0
    %Selling, general and
administrative expenses
    
    
    2,902
    
    
    
    10.6
    %
    
    
    3,103
    
    
    
    12.5
    %
    
    
    9,446
    
    
    
    12.0
    %
    
    
    8,975
    
    
    
    16.0
    %Business interruption insurance
claim
    
    
    (704
    )
    
    
    -2.6
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (704
    )
    
    
    -0.9
    %
    
    
    (41
    )
    
    
    -0.1
    %Operating income
    
    
    4,709
    
    
    
    17.1
    %
    
    
    6,866
    
    
    
    27.7
    %
    
    
    18,400
    
    
    
    23.3
    %
    
    
    14,096
    
    
    
    25.1
    %Other income (expense)Interest income
    
    
    215
    
    
    
    0.8
    %
    
    
    164
    
    
    
    0.7
    %
    
    
    608
    
    
    
    0.8
    %
    
    
    342
    
    
    
    0.6
    %Interest expense
    
    
    (6
    )
    
    
    0.0
    %
    
    
    (45
    )
    
    
    -0.2
    %
    
    
    (8
    )
    
    
    0.0
    %
    
    
    (140
    )
    
    
    -0.2
    %Gain on litigation settlement
    
    
    
    
    
    
    0.0
    %
    
    
    5,327
    
    
    
    21.4
    %
    
    
    
    
    
    
    0.0
    %
    
    
    5,327
    
    
    
    9.5
    %Other
    
    
    
    
    
    
    0.0
    %
    
    
    (31
    )
    
    
    -0.1
    %
    
    
    458
    
    
    
    0.6
    %
    
    
    8
    
    
    
    0.0
    %Income before tax
    
    
    4,918
    
    
    
    17.9
    %
    
    
    12,281
    
    
    
    49.5
    %
    
    
    19,458
    
    
    
    24.7
    %
    
    
    19,633
    
    
    
    35.0
    %Income tax expense
    
    
    1,925
    
    
    
    7.0
    %
    
    
    4,545
    
    
    
    18.3
    %
    
    
    7,359
    
    
    
    9.3
    %
    
    
    7,335
    
    
    
    13.1
    %Net income
    
    $
    2,993
    
    
    
    10.9
    %
    
    $
    7,736
    
    
    
    31.2
    %
    
    $
    12,099
    
    
    
    15.4
    %
    
    $
    12,298
    
    
    
    21.9
    %Earnings per share:Basic
    
    $
    0.17
    
    
    
    
    
    
    $
    0.44
    
    
    
    
    
    
    $
    0.67
    
    
    
    
    
    
    $
    0.70Dilutive
    
    $
    0.16
    
    
    
    
    
    
    $
    0.43
    
    
    
    
    
    
    $
    0.66
    
    
    
    
    
    
    $
    0.68Shares used in earnings
per share calculation:Basic
    
    
    18,129
    
    
    
    
    
    
    
    17,636
    
    
    
    
    
    
    
    18,046
    
    
    
    
    
    
    
    17,519Dilutive
    
    
    18,237
    
    
    
    
    
    
    
    18,139
    
    
    
    
    
    
    
    18,215
    
    
    
    
    
    
    
    17,974Dividends paid per share
    
    $
    0.15
    
    
    
    
    
    
    $
    0.15
    
    
    
    
    
    
    $
    0.45
    
    
    
    
    
    
    $
    0.15
 Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005
 Revenue
  18




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##### Table of Contents



Operating Disposal Facilities
     Transportation and Other Direct Operating Costs
 Operating Disposal Facilities
  Non-Operating Disposal Facilities
 ,
 Selling, General and Administrative Costs (SG&A) 
  19




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##### Table of Contents



Operating Disposal Facilities
  Corporate
  Interest Income and Expense 
 Other
Income (Loss)
 Income Taxes
   Nine Months Ended September 30, 2006 Compared To Nine Months Ended September 30, 2005
 Revenue
  20




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##### Table of Contents



Operating Disposal Facilities
     Transportation and Other Direct Operating Costs 
 Operating Disposal Facilities
  Non-Operating Disposal Facilities
 ,
  21




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##### Table of Contents



Selling, General and Administrative Costs (SG&A) 
 Operating Disposal Facilities
  Interest Income and Expense 
 Other Income (Loss)
 Income Taxes
   Critical Accounting Policies
  Effect Of Recently Issued Accounting Standards
 Share-Based Payment Accounting for Stock-based
Compensation Accounting for Stock Based
CompensationTransition and Disclosure Accounting for Stock Issued to Employees
  22




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##### Table of Contents



Applying Paragraph 19 of FAS 131 in Determining Whether to Aggregate Operating Segments That
Do Not Meet the Quantitative Thresholds Disclosures about Segments of an Enterprise and
Related Information
 Accounting Changes and Error Corrections Reporting Accounting Changes in Interim Financial
Statements Accounting Changes
 Accounting for Purchases and Sales of Inventory
with the Same Counterparty Accounting for Nonmonetary Transactions
 Accounting for Uncertainty in
Income Taxes Accounting for Income Taxes
 Seasonal Effects
  Liquidity and Capital Resources
     23




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##### Table of Contents



Operating Activities
 Investing Activities 
  Financing Activities 
 Contractual Obligations and Guarantees
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
     24




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##### Table of Contents



Item 4. Controls and Procedures
   
 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 the Companys
expected business outlook, anticipated financial and operating results, the Companys business
strategy and means to implement its strategy, the Companys objectives, the amount and timing of
capital expenditures, the amount and timing of interest expense, the likelihood of the Companys
success in expanding the Companys 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 relating to the forward-looking statements include,
among others, assumptions regarding demand for the Companys products, the expansion of product
offerings geographically or through new applications, 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 that differ materially from those contained in any
forward-looking statement. Many of these factors are beyond the Companys ability to control or
predict. Such factors include, but are not limited to, the following:
changes in key personal, compliance with and
changes in applicable laws and regulations, exposure to litigation, access to insurance and
financial assurances, implementation of new technologies, potential loss of a major contract,
access to cost effective transportation services, utilization of net operating loss carryforwards,
our ability to perform contracts as required, impact of general economic trends on the
Companys business, and competition.
 Except as required by applicable law, including the securities laws of the United States and the
rules and regulations of the Securities and Exchange Commission, or SEC, the Company is under no
obligation to publicly update or revise any forward-looking statements, whether as a result of any
new information, future events or otherwise. Potential investors should not place undue reliance
on the Companys forward-looking statements. Before you invest in the Companys common stock, you
should be aware that the occurrence of the events described in the Risk Factors section in
Section 1A of Part II Other Information in this Form 10-Q and filed in the Companys Annual Report
on Form 10-K could harm the Companys business, prospects, operating results, and financial
condition. Although the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results or performance.
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors.
 In addition to the factors discussed elsewhere in this Form 10-Q and those discussed in our Annual
Report of Form 10-K , the following are important factors which could cause actual results or events
to differ materially from those contained in any forward-looking statements made by or on behalf of
the Company. Changes or additions to the risk factors set forth in our Form
10-K for the year ended December 31, 2005 are outlined below.
  25




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##### Table of Contents



We may not be able to obtain timely or cost effective transportation services which could adversely
affect our profitability.
  We may not be able or willing to pay future dividends.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of CAO 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
  26




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##### Table of Contents



American Ecology Corporation
(Registrant)Date: November 3, 2006
    /s/ Jeffrey R. FeelerJeffrey R. FeelerVice President, Controller and
Chief Accounting Officer  27




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##### Table of Contents



ExhibitNo.
    
    Description31.1
    
    Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of CAO 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
  28