americanecology_10q-063008.htm
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 1934
             
 
 
  
         
   For the Quarterly Period Ended:  June 30, 2008          Commission File Number:  0-11688  
             
   
AMERICAN 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          No o

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    x 
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).
 
Yes o          No x

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 INFORMATION
    
         
Item 1.
  
Financial Statements (Unaudited)
    
         
   
Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
  
1
         
   
Consolidated Statements of Operations for the three and six months ended
June 30, 2008 and 2007
  
2
         
   
Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
  
3
         
   
Notes to Consolidated Financial Statements
  
4
         
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
11
         
Item 3.
  
Quantitative and Qualitative Disclosures About Market Risk
  
18
         
Item 4.
  
Controls and Procedures
  
19
         
PART II.
  
OTHER INFORMATION
    
         
Cautionary Statement
  
20
         
Item 1.
  
Legal Proceedings
  
20
         
Item 1A.
  
Risk Factors
  
20
         
Item 2.
  
Unregistered Sales of Equity Securities and Use of Proceeds
  
20
         
Item 3.
  
Defaults Upon Senior Securities
  
20
         
Item 4.
  
Submission of Matters to a Vote of Security Holders
  
21
         
Item 5.
  
Other Information
  
21
         
Item 6.
  
Exhibits
  
22
         
SIGNATURE
  
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)
    
2007
  
Assets
            
             
Current Assets:
            
Cash and cash equivalents
   $ 18,517     $ 12,563  
Short-term investments
     -       2,209  
Receivables, net
     31,684       29,422  
Prepaid expenses and other current assets
     2,999       3,034  
Income tax receivable
     -       994  
Deferred income taxes
     1,058       667  
Total current assets
     54,258       48,889  
                 
Property and equipment, net
     67,294       63,306  
Restricted cash
     4,846       4,881  
Total assets
   $ 126,398     $ 117,076  
                 
Liabilities and Stockholders’ Equity
                
                 
Current Liabilities:
                
Accounts payable
   $ 7,743     $ 4,861  
Deferred revenue
     5,389       4,491  
Accrued liabilities
     3,781       6,267  
Accrued salaries and benefits
     2,316       2,613  
Income tax payable
     38       -  
Current portion of closure and post-closure obligations
     1,646       803  
Current portion of capital lease obligations
     10       8  
Total current liabilities
     20,923       19,043  
                 
Long-term closure and post-closure obligations
     13,598       14,331  
Long-term capital lease obligations
     26       27  
Deferred income taxes
     1,792       577  
Total liabilities
     36,339       33,978  
                 
Contingencies and commitments
                
                 
Stockholders’ Equity
                
                 
Common stock $0.01 par value, 50,000 authorized; 18,252 and
                
18,246 shares issued and outstanding, respectively
     183       182  
Additional paid-in capital
     59,273       58,816  
Retained earnings
     30,603       24,100  
Total stockholders’ equity
     90,059       83,098  
Total 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 Ended
  
   
June 30,
    
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Revenue
   $ 44,516     $ 41,267     $ 90,735     $ 80,231  
Transportation costs
     19,251       19,760       41,309       36,931  
Other direct operating costs
     11,687       9,854       22,404       20,133  
                                 
Gross profit
     13,578       11,653       27,022       23,167  
                                 
Selling, general and administrative expenses
     3,732       3,474       7,651       7,073  
Operating income
     9,846       8,179       19,371       16,094  
                                 
Other income (expense):
                                
Interest income
     111       150       174       361  
Interest expense
     (3 )     (1 )     (4 )     (2 )
Other
     94       48       159       52  
Total other income
     202       197       329       411  
                                 
Income before income taxes
     10,048       8,376       19,700       16,505  
Income tax
     3,938       3,292       7,722       6,486  
Net income
   $ 6,110     $ 5,084     $ 11,978     $ 10,019  
                                 
Earnings per share:
                                
Basic
   $ 0.34     $ 0.28     $ 0.66     $ 0.55  
Dilutive
   $ 0.33     $ 0.28     $ 0.66     $ 0.55  
                                 
Shares used in earnings per share calculation:
                                
Basic
     18,232       18,216       18,230       18,213  
Dilutive
     18,295       18,254       18,286       18,254  
                                 
Dividends 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
    
2007
  
Cash Flows From Operating Activities:
            
Net income
   $ 11,978     $ 10,019  
Adjustments to reconcile net income to net cash provided by
                
 operating activities:
                
Depreciation, amortization and accretion
     5,671       4,681  
Deferred income taxes
     824       1,501  
Stock-based compensation expense
     415       278  
Accretion 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       650  
Other assets
     35       (1,310 )
Accounts payable and accrued liabilities
     (1,320 )     685  
Deferred revenue
     898       413  
Accrued salaries and benefits
     (297 )     32  
Income tax payable
     38       334  
Closure and post-closure obligations
     (507 )     (274 )
Net cash provided by operating activities
     16,456       11,577  
                 
Cash 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       20,323  
Restricted cash
     35       (100 )
Proceeds from sale of property and equipment
     11       15  
Net 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       326  
Tax benefit of common stock options
     20       201  
Other
     (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       3,775  
                 
Cash and cash equivalents at end of period
   $ 18,517     $ 3,755  
                 
Supplemental Disclosures
                
Income taxes paid
   $ 5,848     $ 3,803  
Interest paid
     3       2  
Non-cash investing and financing activities:
                
Capital expenditures in accounts payable
     2,127       975  
Acquisition 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 Ended
  
Customer
  
June 30, 2008
    
June 30, 2007
  
             
Honeywell International, Inc.
     40%       40%  
Molycorp, Inc.
     6%       12%  
                 
   
Six Months Ended
    
Six Months Ended
  
Customer
  
June 30, 2008
    
June 30, 2007
  
                 
Honeywell 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
    
2007
  
             
Trade
   $ 30,130     $ 28,821  
Unbilled revenue
     853       613  
Other
     832       122  
      31,815       29,556  
Allowance for doubtful accounts
     (131 )     (134 )
    $ 31,684     $ 29,422  

NOTE 5 – PROPERTY AND EQUIPMENT
 
   
June 30,
    
December 31,
  
(in thousands)
  
2008
    
2007
  
             
Cell development costs
   $ 38,661     $ 32,492  
Land and improvements
     8,910       8,858  
Buildings and improvements
     27,237       26,547  
Railcars
     17,375       17,375  
Vehicles and other equipment
     20,675       19,823  
Construction in progress
     7,907       6,676  
      120,765       111,771  
Accumulated 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, 2008
  
             
Beginning obligation
   $ 15,279     $ 15,134  
Accretion expense
     308       617  
Payments
     (447 )     (611 )
Adjustments
     104       104  
Ending obligation
     15,244       15,244  
Less 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
    
2007
  
     
Basic
    
Diluted
    
Basic
    
Diluted
  
 
Net income
   $ 6,110     $ 6,110     $ 5,084     $ 5,084  
 
Weighted average common
                                
 
shares outstanding
     18,232       18,232       18,216       18,216  
                                   
 
Dilutive effect of stock options and
                                
 
restricted stock
             63               38  
 
Weighted average
                                
 
shares outstanding
             18,295               18,254  
                                   
 
Earnings per share
   $ 0.34     $ 0.33     $ 0.28     $ 0.28  
 
Anti-dilutive shares
                                
 
excluded from calculation
             31               153  
                                   
                                   
 
(in thousands, except per share data)
  
Six Months Ended June 30,
  
     
2008
    
2007
  
     
Basic
    
Diluted
    
Basic
    
Diluted
  
 
Net income
   $ 11,978     $ 11,978     $ 10,019     $ 10,019  
 
Weighted average common
                                
 
shares outstanding
     18,230       18,230       18,213       18,213  
                                   
 
Dilutive effect of stock options and
                                
 
restricted stock
             56               41  
 
Weighted average
                                
 
shares outstanding
             18,286               18,254  
                                   
 
Earnings per share
   $ 0.66     $ 0.66     $ 0.55     $ 0.55  
 
Anti-dilutive shares
                                
 
excluded 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
    
Total
  
 
Three months ended June 30, 2008
                        
 
Revenue
   $ 44,510     $ 6     $ -     $ 44,516  
 
Transportation costs
     19,251       -       -       19,251  
 
Other direct operating costs
     11,476       179       32       11,687  
 
Gross profit
     13,783       (173 )     (32 )     13,578  
 
Selling, general
                                
 
& administration
     1,253       -       2,479       3,732  
 
Operating income (loss)
     12,530       (173 )     (2,511 )     9,846  
 
Interest income, net
     -       -       108       108  
 
Other income
     93       -       1       94  
 
Income (loss) before tax
     12,623       (173 )     (2,402 )     10,048  
 
Tax expense
     -       -       3,938       3,938  
 
Net income (loss)
   $ 12,623     $ (173 )   $ (6,340 )   $ 6,110  
 
Depreciation, amortization & accretion
   $ 2,749     $ 71     $ 13     $ 2,833  
 
Capital expenditures
   $ 3,857     $ -     $ 14     $ 3,871  
 
Total assets
   $ 99,265     $ 58     $ 27,075     $ 126,398  
                                   
 
(in thousands)
  
Operating
Disposal
Facilities
  
Non-
Operating
Disposal
Facilities
  
Corporate
    
Total
  
 
Three months ended June 30, 2007
                                
 
Revenue
   $ 41,261     $ 6     $ -     $ 41,267  
 
Transportation costs
     19,760       -       -       19,760  
 
Other direct operating costs
     9,744       110       -       9,854  
 
Gross profit
     11,757       (104 )     -       11,653  
 
Selling, general
                                
 
& administration
     1,291       -       2,183       3,474  
 
Operating income (loss)
     10,466       (104 )     (2,183 )     8,179  
 
Interest income, net
     3       -       146       149  
 
Other income
     (18 )     66       -       48  
 
Income (loss) before tax
     10,451       (38 )     (2,037 )     8,376  
 
Tax expense
     -       -       3,292       3,292  
 
Net income (loss)
   $ 10,451     $ (38 )   $ (5,329 )   $ 5,084  
 
Depreciation, amortization & accretion
   $ 2,243     $ 78     $ 9     $ 2,330  
 
Capital expenditures
   $ 4,771     $ 2     $ 3     $ 4,776  
 
Total assets
   $ 93,363     $ 125     $ 17,691     $ 111,179  

 
 
9
 

 
(in thousands)
  
Operating
Disposal
Facilities
  
Non-
Operating
Disposal
Facilities
  
Corporate
    
Total
  
 
Six months ended June 30, 2008
                        
 
Revenue
   $ 90,725     $ 10     $ -     $ 90,735  
 
Transportation costs
     41,309       -       -       41,309  
 
Other direct operating costs
     22,121       251       32       22,404  
 
Gross profit
     27,295       (241 )     (32 )     27,022  
 
Selling, general
                                
 
& administration
     2,575       -       5,076       7,651  
 
Operating income (loss)
     24,720       (241 )     (5,108 )     19,371  
 
Interest income, net
     (1 )     -       171       170  
 
Other income
     158       -       1       159  
 
Income (loss) before tax
     24,877       (241 )     (4,936 )     19,700  
 
Tax expense
     -       -       7,722       7,722  
 
Net income (loss)
   $ 24,877     $ (241 )   $ (12,658 )   $ 11,978  
 
Depreciation, amortization & accretion
   $ 5,504     $ 143     $ 24     $ 5,671  
 
Capital expenditures
   $ 7,276     $ 9     $ 50     $ 7,335  
 
Total assets
   $ 99,265     $ 58     $ 27,075     $ 126,398  
                                   
 
(in thousands)
  
Operating
Disposal
Facilities
  
Non-
Operating
Disposal
Facilities
  
Corporate
    
Total
  
 
Six months ended June 30, 2007
                                
 
Revenue
   $ 80,221     $ 10     $ -     $ 80,231  
 
Transportation costs
     36,931       -       -       36,931  
 
Other direct operating costs
     19,916       217       -       20,133  
 
Gross profit
     23,374       (207 )     -       23,167  
 
Selling, general
                                
 
& administration
     2,587       -       4,486       7,073  
 
Operating income (loss)
     20,787       (207 )     (4,486 )     16,094  
 
Interest income, net
     7       -       352       359  
 
Other income
     (14 )     66       -       52  
 
Income (loss) before tax
     20,780       (141 )     (4,134 )     16,505  
 
Tax expense
     -       -       6,486       6,486  
 
Net income (loss)
   $ 20,780     $ (141 )   $ (10,620 )   $ 10,019  
 
Depreciation, amortization & accretion
   $ 4,509     $ 155     $ 17     $ 4,681  
 
Capital expenditures
   $ 8,543     $ 5     $ 3     $ 8,551  
 
Total 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, 2008
Government
  
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 and
                                                                
administrative 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             $ 0.55          
Dilutive
   $ 0.33             $ 0.28             $ 0.66             $ 0.55          
                                                                 
Shares used in earnings
                                                                
per share calculation:
                                                                
Basic
     18,232               18,216               18,230               18,213          
Dilutive
     18,295               18,254               18,286               18,254          
                                                                 
Dividends 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, 2007
     
Government
  
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, 2007
     
Other 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.    


 
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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.
 

 
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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.
 

 
 
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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.


 
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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.


 
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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 Withheld
Victor J. Barnhart
  
16,362,881
  
47,957
Joe F. Colvin
  
16,363,320
  
47,518
Roy C. Eliff
  
16,328,101
  
82,737
Edward F. Heil
  
16,240,623
  
170,214
Jeffrey S. Merrifield
  
16,363,312
  
47,526
John W. Polling
  
16,301,094
  
109,744
Stephen 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 Committee
John W. Poling, Chairman
  
Roy C. Eliff, Chairman
  
Jeffrey S. Merrifield, Chairman
Roy C. Eliff
  
John W. Poling
  
Edward F. Heil
Victor 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-Voted
16,372,522
  
22,353
  
15,962
  
-

3)
Approval of 2008 Stock Option Incentive Plan

Votes For
  
Votes Against
  
Abstentions
  
Broker Non-Voted
11,303,770
  
1,656,820
  
20,448
  
3,429,799

Item 5. Other Information

None.


 
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Item 6. Exhibits 

 
10.50
Revolving Credit Agreement between American Ecology Corporation and Wells Fargo Bank, National Association dated as of June 30, 20081
     
 
10.64
*2008 Employee Stock Option Incentive Plan2
     
 
10.65
* Form of Incentive Stock Option Agreement
     
 
10.66
* Form of Non-Qualified Stock Option Agreement
     
 
31.1
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
31.2
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
32
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.
1 Incoporated by reference from the Registrant’s Form 8-K dated 7-1-2008
2 Incoporated by reference from the Registrant’s Proxy Statement dated 4-9-2008


 
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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. Feeler
 
Jeffrey R. Feeler
Vice President and
Chief Financial Officer
 
 

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