SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended
|
September 30, 2011 |
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period from
|
|
to |
|
|
Commission File No.
|
111596
|
|
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
(State or other jurisdiction of incorporation or organization)
|
|
58-1954497
(IRS Employer Identification Number)
|
|
|
|
8302 Dunwoody Place, Suite 250, Atlanta, GA
(Address of principal executive offices)
|
|
30350
(Zip Code)
|
(770) 587-9898
(Registrant's telephone number)
|
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
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 definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
Accelerated Filer x |
Non-accelerated Filer o |
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
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the close of the latest practical date.
Class |
|
Outstanding at November 1, 2011 |
Common Stock, $.001 Par Value |
|
56,030,038 shares of registrant’s Common Stock |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART I - FINANCIAL INFORMATION
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
|
|
|
|
|
December 31,
|
|
(Amounts in Thousands, Except for Share and per Share Amounts)
|
|
(Unaudited)
|
|
|
2010
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
10,641 |
|
|
$ |
101 |
|
Restricted cash
|
|
|
75 |
|
|
|
35 |
|
Accounts receivable, net of allowance for doubtful accounts of $203 and $215, respectively
|
|
|
17,032 |
|
|
|
8,541 |
|
Unbilled receivables - current
|
|
|
8,665 |
|
|
|
9,436 |
|
Inventories
|
|
|
449 |
|
|
|
465 |
|
Prepaid and other assets
|
|
|
2,895 |
|
|
|
2,870 |
|
Deferred tax assets - current
|
|
|
107 |
|
|
|
1,734 |
|
Current assets related to discontinued operations
|
|
|
504 |
|
|
|
2,034 |
|
Total current assets
|
|
|
40,368 |
|
|
|
25,216 |
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Buildings and land
|
|
|
25,691 |
|
|
|
24,693 |
|
Equipment
|
|
|
33,394 |
|
|
|
33,279 |
|
Vehicles
|
|
|
235 |
|
|
|
235 |
|
Leasehold improvements
|
|
|
11,510 |
|
|
|
11,506 |
|
Office furniture and equipment
|
|
|
1,911 |
|
|
|
1,890 |
|
Construction-in-progress
|
|
|
1,448 |
|
|
|
593 |
|
|
|
|
74,189 |
|
|
|
72,196 |
|
Less accumulated depreciation and amortization
|
|
|
(35,143 |
) |
|
|
(31,753 |
) |
Net property and equipment
|
|
|
39,046 |
|
|
|
40,443 |
|
|
|
|
|
|
|
|
|
|
Property and equipment related to discontinued operations
|
|
|
2,631 |
|
|
|
4,209 |
|
|
|
|
|
|
|
|
|
|
Intangibles and other long term assets:
|
|
|
|
|
|
|
|
|
Permits
|
|
|
16,865 |
|
|
|
16,863 |
|
Goodwill
|
|
|
16,170 |
|
|
|
15,330 |
|
Unbilled receivables – non-current
|
|
|
782 |
|
|
|
2,556 |
|
Finite Risk Sinking Fund
|
|
|
19,342 |
|
|
|
17,424 |
|
Other assets
|
|
|
2,074 |
|
|
|
2,084 |
|
Intangible and other assets related to discontinued operations
|
|
|
1,061 |
|
|
|
1,190 |
|
Total assets
|
|
$ |
138,339 |
|
|
$ |
125,315 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets, Continued
|
|
|
|
|
December 31,
|
|
(Amounts in Thousands, Except for Share and per Share Amounts)
|
|
(Unaudited)
|
|
|
2010
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
5,286 |
|
|
$ |
4,891 |
|
Accrued expenses
|
|
|
10,501 |
|
|
|
5,996 |
|
Disposal/transportation accrual
|
|
|
2,673 |
|
|
|
2,188 |
|
Unearned revenue
|
|
|
8,487 |
|
|
|
3,527 |
|
Current liabilities related to discontinued operations
|
|
|
2,416 |
|
|
|
2,673 |
|
Current portion of long-term debt
|
|
|
2,075 |
|
|
|
3,612 |
|
Total current liabilities
|
|
|
31,438 |
|
|
|
22,887 |
|
|
|
|
|
|
|
|
|
|
Accrued closure costs
|
|
|
12,421 |
|
|
|
12,362 |
|
Other long-term liabilities
|
|
|
595 |
|
|
|
671 |
|
Deferred tax liability
|
|
|
1,262 |
|
|
|
1,180 |
|
Long-term liabilities related to discontinued operations
|
|
|
1,965 |
|
|
|
3,074 |
|
Long-term debt, less current portion
|
|
|
3,487 |
|
|
|
6,637 |
|
Total long-term liabilities
|
|
|
19,730 |
|
|
|
23,924 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
51,168 |
|
|
|
46,811 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized, 1,284,730 shares issued and outstanding, liquidation value $1.00 per share
|
|
|
1,285 |
|
|
|
1,285 |
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding
|
|
|
¾ |
|
|
|
¾ |
|
Common Stock, $.001 par value; 75,000,000 shares authorized, 55,211,796 and 55,106,180 shares issued, respectively; 55,173,586 and 55,067,970 shares outstanding, respectively
|
|
|
55 |
|
|
|
55 |
|
Additional paid-in capital
|
|
|
101,278 |
|
|
|
100,821 |
|
Accumulated deficit
|
|
|
(15,359 |
) |
|
|
(23,569 |
) |
Less Common Stock in treasury at cost; 38,210 shares, respectively
|
|
|
(88 |
) |
|
|
(88 |
) |
Total stockholders' equity
|
|
|
85,886 |
|
|
|
77,219 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$ |
138,339 |
|
|
$ |
125,315 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(Amounts in Thousands, Except for Per Share Amounts)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
32,787 |
|
|
$ |
22,864 |
|
|
$ |
85,315 |
|
|
$ |
72,277 |
|
Cost of goods sold
|
|
|
21,486 |
|
|
|
20,269 |
|
|
|
62,935 |
|
|
|
57,558 |
|
Gross profit
|
|
|
11,301 |
|
|
|
2,595 |
|
|
|
22,380 |
|
|
|
14,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
4,022 |
|
|
|
3,435 |
|
|
|
10,829 |
|
|
|
10,253 |
|
Research and development
|
|
|
357 |
|
|
|
345 |
|
|
|
1,019 |
|
|
|
734 |
|
Loss on disposal of property and equipment
|
|
|
¾ |
|
|
|
143 |
|
|
|
¾ |
|
|
|
145 |
|
Income (loss) from operations
|
|
|
6,922 |
|
|
|
(1,328 |
) |
|
|
10,532 |
|
|
|
3,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14 |
|
|
|
15 |
|
|
|
40 |
|
|
|
51 |
|
Interest expense
|
|
|
(99 |
) |
|
|
(157 |
) |
|
|
(458 |
) |
|
|
(581 |
) |
Interest expense-financing fees
|
|
|
(22 |
) |
|
|
(103 |
) |
|
|
(178 |
) |
|
|
(308 |
) |
Other
|
|
|
5 |
|
|
|
(1 |
) |
|
|
8 |
|
|
|
5 |
|
Income (loss) from continuing operations before taxes
|
|
|
6,820 |
|
|
|
(1,574 |
) |
|
|
9,944 |
|
|
|
2,754 |
|
Income tax expense (benefit)
|
|
|
2,399 |
|
|
|
(609 |
) |
|
|
3,504 |
|
|
|
1,029 |
|
Income (loss) from continuing operations
|
|
|
4,421 |
|
|
|
(965 |
) |
|
|
6,440 |
|
|
|
1,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
(187 |
) |
|
|
(101 |
) |
|
|
(7 |
) |
|
|
(708 |
) |
Gain on disposal of discontinued operations, net of taxes
|
|
|
1,777 |
|
|
|
¾ |
|
|
|
1,777 |
|
|
|
¾ |
|
Net income (loss)
|
|
$ |
6,011 |
|
|
$ |
(1,066 |
) |
|
$ |
8,210 |
|
|
$ |
1,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
.08 |
|
|
$ |
(.02 |
) |
|
$ |
.12 |
|
|
$ |
.03 |
|
Discontinued operations
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
(.01 |
) |
Disposal of discontinued operations
|
|
|
.03 |
|
|
|
¾ |
|
|
|
.03 |
|
|
|
¾ |
|
Net income (loss) per common share
|
|
$ |
.11 |
|
|
$ |
(.02 |
) |
|
$ |
.15 |
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
.08 |
|
|
$ |
(.02 |
) |
|
$ |
.12 |
|
|
$ |
.03 |
|
Discontinued operations
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
(.01 |
) |
Disposal of discontinued operations
|
|
|
.03 |
|
|
|
¾ |
|
|
|
.03 |
|
|
|
¾ |
|
Net income (loss) per common share
|
|
$ |
.11 |
|
|
$ |
(.02 |
) |
|
$ |
.15 |
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
55,174 |
|
|
|
55,031 |
|
|
|
55,137 |
|
|
|
54,906 |
|
Diluted
|
|
|
55,174 |
|
|
|
55,031 |
|
|
|
55,142 |
|
|
|
55,031 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
Nine Months Ended
|
|
(Amounts in Thousands)
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
8,210 |
|
|
$ |
1,017 |
|
Less: income (loss) on discontinued operations (Note 8)
|
|
|
1,770 |
|
|
|
(708 |
) |
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
6,440 |
|
|
|
1,725 |
|
Adjustments to reconcile net income to cash provided by operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,503 |
|
|
|
3,374 |
|
Amortization of debt discount
|
|
|
131 |
|
|
|
250 |
|
Deferred taxes
|
|
|
1,709 |
|
|
|
607 |
|
Provision for bad debt and other reserves
|
|
|
22 |
|
|
|
55 |
|
Loss on disposal of plant, property and equipment
|
|
|
― |
|
|
|
145 |
|
Issuance of common stock for services
|
|
|
159 |
|
|
|
180 |
|
Share based compensation
|
|
|
262 |
|
|
|
237 |
|
Changes in operating assets and liabilities of continuing operations, net of effect from business acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,513 |
) |
|
|
2,324 |
|
Unbilled receivables
|
|
|
2,545 |
|
|
|
1,097 |
|
Prepaid expenses, inventories and other assets
|
|
|
982 |
|
|
|
1,639 |
|
Accounts payable, accrued expenses and unearned revenue
|
|
|
6,864 |
|
|
|
(6,161 |
) |
Cash provided by continuing operations
|
|
|
14,104 |
|
|
|
5,472 |
|
Cash provided by (used in) discontinued operations
|
|
|
1,036 |
|
|
|
(102 |
) |
Gain on disposal of discontinued operations (Note 8)
|
|
|
(1,777 |
) |
|
|
― |
|
Cash provided by operating activities
|
|
|
13,363 |
|
|
|
5,370 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,995 |
) |
|
|
(1,466 |
) |
Payment to finite risk sinking fund
|
|
|
(1,918 |
) |
|
|
(1,930 |
) |
Change in restricted cash
|
|
|
(40 |
) |
|
|
― |
|
Proceeds from sale of plant, property and equipment
|
|
|
― |
|
|
|
1 |
|
Payment of earn-out to Nuvotec shareholders
|
|
|
― |
|
|
|
(1,000 |
) |
Cash used in investing activities of continuing operations
|
|
|
(3,953 |
) |
|
|
(4,395 |
) |
Cash provided by (used in) investing activities of discontinued operations
|
|
|
6 |
|
|
|
(419 |
) |
Net proceeds from sale of capital stock of discontinued operations (Note 8)
|
|
|
5,370 |
|
|
|
― |
|
Cash provided by (used in) investing activities
|
|
|
1,423 |
|
|
|
(4,814 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net (repayment) borrowing of revolving credit
|
|
|
(2,019 |
) |
|
|
791 |
|
Principal repayments of long term debt
|
|
|
(2,763 |
) |
|
|
(2,470 |
) |
Proceeds from finite risk financing
|
|
|
685 |
|
|
|
653 |
|
Proceeds from issuance of stock
|
|
|
― |
|
|
|
509 |
|
Cash used in financing activities of continuing operations
|
|
|
(4,097 |
) |
|
|
(517 |
) |
Principal repayments of long term debt for discontinued operations
|
|
|
(149 |
) |
|
|
(29 |
) |
Cash used in financing activities
|
|
|
(4,246 |
) |
|
|
(546 |
) |
|
|
|
|
|
|
|
|
|
Increase in cash
|
|
|
10,540 |
|
|
|
10 |
|
Cash at beginning of period
|
|
|
101 |
|
|
|
66 |
|
Cash at end of period
|
|
$ |
10,641 |
|
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
563 |
|
|
$ |
689 |
|
Income taxes paid
|
|
|
551 |
|
|
|
457 |
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Warrants extension for debt modification
|
|
|
36 |
|
|
|
― |
|
Long-term debt incurred for purchase of property and equipment
|
|
|
― |
|
|
|
87 |
|
Note issued for earn-out to Nuvotec shareholders
|
|
|
― |
|
|
|
1,322 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited, for the nine months ended September 30, 2011)
(Amounts in thousands,
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Common
Stock Held In
|
|
|
Accumulated
|
|
|
Total Stockholders'
|
|
except for share amounts)
|
|
Shares
|
|
|
Amount
|
|
|
Capital |
|
|
Treasury |
|
|
Deficit |
|
|
Equity |
|
Balance at December 31, 2010
|
|
|
55,106,180 |
|
|
$ |
55 |
|
|
$ |
100,821 |
|
|
$ |
(88 |
) |
|
$ |
(23,569 |
) |
|
$ |
77,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
8,210 |
|
|
|
8,210 |
|
Warrant extension for debt modification
|
|
|
¾ |
|
|
|
¾ |
|
|
|
36 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
36 |
|
Issuance of Common Stock for services
|
|
|
105,616 |
|
|
|
¾ |
|
|
|
159 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
159 |
|
Stock-Based Compensation
|
|
|
¾ |
|
|
|
¾ |
|
|
|
262 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
262 |
|
Balance at September 30, 2011
|
|
|
55,211,796 |
|
|
$ |
55 |
|
|
$ |
101,278 |
|
|
$ |
(88 |
) |
|
$ |
(15,359 |
) |
|
$ |
85,886 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
September 30, 2011
(Unaudited)
Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.
The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the nine months ended September 30, 2011 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2011.
It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
As previously disclosed, on October 6, 2010, our Board of Directors authorized the divestiture of our three remaining operations within our Industrial Segment, Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-Fix of South Georgia, Inc. (“PFSG”), and Perma-Fix of Orlando, Inc. (“PFO”). On October 6, 2010, PFFL, PFSG, and PFO met the held for sale criteria under Accounting Standards Codification (“ASC”) 360 (“ASC 360”), “Property, Plant, and Equipment”, and therefore, certain assets and liabilities of these facilities have been reclassified as discontinued operations in the Consolidated Balance Sheet, and we ceased depreciation of these facilities’ long-lived assets classified as held for sale. The results of operations and cash flows of these three operations have been reported in the Consolidated Financial Statements as discontinued operations for all periods presented. See “Note 8 – Discontinued Operations and Divestitures” for the sale of our PFFL subsidiary on August 12, 2011 and “Note 12 – Subsequent Events – Divestiture of Perma-Fix of Orlando, Inc. (“PFO”)” on the sale of PFO completed on October 14, 2011.
2.
|
Summary of Significant Accounting Policies
|
Our accounting policies are as set forth in the notes to consolidated financial statements referred to above.
Recently Issued Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04 (“ASU 2011-04”), “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. ASU 2011-04 improves comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRSs”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The amendments in this guidance are to be applied prospectively, and are effective for interim and annual periods beginning after December 15, 2011. We do not expect ASU 2011-04 to have a material effect on our financial position, results of operations, or cash flow.
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income”, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 with early adoption permitted. We do not expect ASU 2011-05 to have a material impact on our current presentation.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment” that gives companies the option to make a qualitative evaluation about the likelihood of goodwill impairment. Companies will be required to perform the two-step impairment test only if it concludes that the fair value of a reporting unit is more likely than not, less than its carrying value. ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is currently assessing the impact of this ASU on its Consolidated Financial Statements.
We follow FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) to account for stock-based compensation. ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.
The Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers, and outside directors. Stock options granted to employees have either a ten year contractual term with one-fifth yearly vesting over a five year period or a six year contractual term with one-third yearly vesting over a three year period. Stock options granted to outside directors have a ten year contractual term with a vesting period of six months.
On August 24, 2011, we granted an aggregate of 90,000 options from the Company’s 2003 Outside Directors Stock Plan to our one newly elected director and our five re-elected directors at our Annual Meeting of Stockholders held on August 24, 2011. The options granted were for a contractual term of ten years with vesting period of six months. The exercise price of the options was $1.41 per share which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Outside Directors Stock Plan. During 2010, 72,000 options were granted from the same plan to our six re-elected outside directors at the Company’s September 29, 2010 Annual Meeting of Stockholders.
On July 25, 2011, we granted 300,000 Incentive Stock Options (“ISOs”) from the 2010 Stock Option Plan to Mr. James Blankenhorn, our Chief Operating Officer, which allows for the purchase of up to 300,000 shares of the Company’s Common Stock at $1.57 per share. Mr. Blankenhorn’s employment with the Company became effective June 1, 2011. The options granted are for a term of six years from grant date with one-third yearly vesting over a three year period. No employee options were granted during the nine months ended September 30, 2010.
The Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted during the nine months ended September 30, 2011 and 2010 noted above and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows:
|
|
Outside Director Stock Options Granted
|
|
|
|
September 30, 2011
|
|
|
September 30, 2010
|
|
Weighted-average fair value per share
|
|
$ |
.94 |
|
|
$ |
1.12 |
|
Risk -free interest rate (1)
|
|
|
2.29 |
% |
|
|
2.52 |
% |
Expected volatility of stock (2)
|
|
|
57.48 |
% |
|
|
60.69 |
% |
Dividend yield
|
|
None
|
|
|
None
|
|
Expected option life (3)
|
|
10.0 years
|
|
|
10.0 years
|
|
|
|
Employee Stock Options Granted
as of September 30, 2011
|
|
Weighted-average fair value per share
|
|
$ |
.89 |
|
Risk -free interest rate (1)
|
|
|
1.92 |
% |
Expected volatility of stock (2)
|
|
|
60.02 |
% |
Dividend yield
|
|
None
|
|
Expected option life (3)
|
|
6.0 years
|
|
|
(1)
|
The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.
|
|
(2)
|
The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.
|
|
(3)
|
The expected option life is based on historical exercises and post-vesting data.
|
As of September 30, 2011, we had 2,030,833 employee stock options outstanding, of which 1,644,166 are vested. The weighted average exercise price of the 1,644,166 outstanding and fully vested employee stock options is $2.09 with a remaining weighted contractual life of 1.98 years. Additionally, we had 811,000 outstanding director stock options, of which 721,000 are vested. The weighted average exercise price of the 721,000 outstanding and fully vested director stock options is $2.23 with a remaining weighted contractual life of 5.01 years.
The following table summarizes stock-based compensation recognized for the three and nine months ended September 30, 2011 and 2010 for our employee and director stock options.
Stock Options
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Employee Stock Options
|
|
$ |
53,000 |
|
|
$ |
71,000 |
|
|
$ |
205,000 |
|
|
$ |
209,000 |
|
Director Stock Options
|
|
|
17,000 |
|
|
|
1,000 |
|
|
|
57,000 |
|
|
|
28,000 |
|
Total
|
|
$ |
70,000 |
|
|
$ |
72,000 |
|
|
$ |
262,000 |
|
|
$ |
237,000 |
|
We recognized stock-based compensation expense using a straight-line amortization method over the requisite period, which is the vesting period of the stock option grant. ASC 718 requires that stock-based compensation expense be based on options that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We have generally estimated forfeiture rate based on historical trends of actual forfeitures. When actual forfeitures vary from our estimates, we recognize the difference in compensation expense in the period the actual forfeitures occur or when options vest. As of September 30, 2011, we have approximately $331,000 of total unrecognized compensation cost related to unvested options, of which $75,000 is expected to be recognized in the remainder of 2011, $117,000 in 2012, $89,000 in 2013, and $50,000 in 2014.
4.
|
Capital Stock, Stock Plans, and Warrants
|
During the nine months ended September 30, 2011, we issued 105,616 shares of our Common Stock under our 2003 Outside Directors Stock Plan to our outside directors as compensation for serving on our Board of Directors. We pay each of our outside directors $6,500 in fees quarterly for serving as a member of our Board of Directors. The Audit Committee Chairman receives an additional quarterly fee of $5,500 due to the position’s additional responsibility. In addition, effective August 24, 2011, our Research and Development Committee Chairman (a newly formed Committee) will receive an additional quarterly fee of $1,000 due to the additional time commitment to the position. Each board member is also paid $1,000 for each board meeting attendance as well as $500 for each telephonic conference call. As a member of the Board of Directors, each director elects to receive either 65% or 100% of the director’s fee in shares of our Common Stock based on 75% of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due. The balance of each director’s fee, if any, is payable in cash.
The summary of the Company’s total Plans as of September 30, 2011 as compared to September 30, 2010, and changes during the periods then ended are presented as follows. The Company’s Plans consist of the 1993 Non-Qualified Stock Option plan, the 2004 and 2010 Stock Option Plans, and the 1992 and 2003 Outside Director Plans:
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
|
Aggregate Intrinsic Value
|
|
Options outstanding Janury 1, 2011
|
|
|
2,755,525 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
Granted
|
|
|
390,000 |
|
|
|
1.53 |
|
|
|
|
|
|
|
|
Exercised
|
|
─
|
|
|
─
|
|
|
|
|
|
$ |
─
|
|
Forfeited
|
|
|
(303,692 |
) |
|
|
1.84 |
|
|
|
|
|
|
|
|
Options outstanding End of Period (2)
|
|
|
2,841,833 |
|
|
|
2.04 |
|
|
|
3.4 |
|
|
$ |
─
|
|
Options Exercisable at September 30, 2011 (1)
|
|
|
2,365,166 |
|
|
$ |
2.13 |
|
|
|
2.9 |
|
|
$ |
─
|
|
Options Vested and expected to be vested at September 30, 2011
|
|
|
2,841,833 |
|
|
$ |
2.04 |
|
|
|
3.4 |
|
|
$ |
─
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic Value
|
|
Options outstanding Janury 1, 2010
|
|
|
3,109,525 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
Granted
|
|
|
72,000 |
|
|
|
1.68 |
|
|
|
|
|
|
|
Exercised
|
|
|
(350,000 |
) |
|
|
1.70 |
|
|
|
|
|
$ |
223,000 |
|
Forfeited
|
|
|
(60,000 |
) |
|
|
2.11 |
|
|
|
|
|
|
|
|
Options outstanding End of Period (1)
|
|
|
2,771,525 |
|
|
|
2.09 |
|
|
|
3.5 |
|
|
$ |
36,900 |
|
Options Exercisable at September 30, 2010 (1)
|
|
|
2,301,025 |
|
|
$ |
2.10 |
|
|
|
3.3 |
|
|
$ |
16,900 |
|
Options Vested and expected to be vested at September 30, 2010
|
|
|
2,752,634 |
|
|
$ |
2.09 |
|
|
|
3.5 |
|
|
$ |
36,900 |
|
(1)
|
Options with exercise prices ranging from $1.42 to $2.98
|
(2)
|
Options with exercise prices ranging from $1.41 to $2.98
|
5.
|
Earnings (Loss) Per Share
|
Basic earnings (loss) per share excludes any dilutive effects of stock options, warrants, and convertible preferred stock. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per share.
The following is a reconciliation of basic net income (loss) per share to diluted net income (loss) per share for the three and nine months ended September 30, 2011 and 2010:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
(Amounts in Thousands, Except for Per Share Amounts)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Income (loss) per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
4,421 |
|
|
$ |
(965 |
) |
|
$ |
6,440 |
|
|
$ |
1,725 |
|
Basic income (loss) per share
|
|
$ |
.08 |
|
|
$ |
(.02 |
) |
|
$ |
.12 |
|
|
$ |
.03 |
|
Diluted income (loss) per share
|
|
$ |
.08 |
|
|
$ |
(.02 |
) |
|
$ |
.12 |
|
|
$ |
.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$ |
(187 |
) |
|
$ |
(101 |
) |
|
$ |
(7 |
) |
|
$ |
(708 |
) |
Basic loss per share
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(.01 |
) |
Diluted loss per share
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share from disposal of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations
|
|
$ |
1,777 |
|
|
$ |
- |
|
|
$ |
1,777 |
|
|
$ |
- |
|
Basic income per share
|
|
$ |
.03 |
|
|
$ |
- |
|
|
$ |
.03 |
|
|
$ |
- |
|
Diluted income per share
|
|
$ |
.03 |
|
|
$ |
- |
|
|
$ |
.03 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
55,174 |
|
|
|
55,031 |
|
|
|
55,137 |
|
|
|
54,906 |
|
Potential shares exercisable under stock option plans
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
93 |
|
Potential shares upon exercise of Warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32 |
|
Weighted average shares outstanding – diluted
|
|
|
55,174 |
|
|
|
55,031 |
|
|
|
55,142 |
|
|
|
55,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include:
|
|
Upon exercise of options
|
|
|
2,842 |
|
|
|
2,463 |
|
|
|
2,602 |
|
|
|
1,715 |
|
Upon exercise of Warrants
|
|
|
150 |
|
|
|
¾ |
|
|
|
150 |
|
|
|
¾ |
|
Long-term debt consists of the following at September 30, 2011 and December 31, 2010:
(Amounts in Thousands)
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Revolving Credit facility dated December 22, 2000, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at option of prime rate (3.25% at September 30, 2011) plus 2.0% or minimum floor base London InterBank Offer Rate ("LIBOR") of 1.0% plus 3.0%, balance due in July 2012. Effective interest rate for the nine months of 2011 was 4.3%. (1) (2) (6)
|
|
$ |
— |
|
|
$ |
2,019 |
|
Term Loan dated December 22, 2000, payable in equal monthly installments of principal of $83, balance due in July 2012, variable interest paid monthly at option of prime rate plus 2.5% or minimum floor base LIBOR of 1.0% plus 3.5%. Effective interest rate for nine months of 2011 was 4.5%. (1) (2) (6)
|
|
|
3,917 |
|
|
|
4,667 |
|
Installment Agreement in the Agreement and Plan of Merger with Nuvotec and PEcoS, dated April 27, 2007, payable in three equal yearly installments of principal of $833 beginning June 2009. Interest accrues at annual rate of 8.25% on outstanding principal balance. Final principal and remaining accrued interest payment was due on June 30, 2011.
|
|
|
— |
|
|
|
833 |
|
Promissory Note dated April 18, 2011, payable in monthly installments of principal of $83 starting May 8, 2011, balance due April 8, 2012, variable interest paid monthly at LIBOR plus 4.5%, with LIBOR at least 1.5%.(3) (4)
|
|
|
556 |
|
|
|
1,222 |
|
Promissory Note dated September 28, 2010, payable in 36 monthly equal installments of $40, which includes interest and principal, beginning October 15, 2010, interest accrues at annual rate of 6.0% (5)
|
|
|
905 |
|
|
|
1,218 |
|
Various capital lease and promissory note obligations, payable 2011 to 2015, interest at rates ranging from 5.0% to 8.3%.
|
|
|
298 |
|
|
|
697 |
|
|
|
|
5,676 |
|
|
|
10,656 |
|
Less current portion of long-term debt
|
|
|
2,075 |
|
|
|
3,612 |
|
Less long-term debt related to assets held for sale
|
|
|
114 |
|
|
|
407 |
|
|
|
$ |
3,487 |
|
|
$ |
6,637 |
|
(1) Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by our property, plant, and equipment.
(2) From March 5, 2009 to January 24, 2010, variable interest was determined based on the options as noted; however, minimum floor base under the LIBOR option was 2.5% for both our Revolving Credit and Term Loan. Effective January 25, 2010, minimum floor base under the LIBOR option was amended from 2.5% to 1.0%.
(3) Original promissory note dated May 8, 2009 of $3,000,000 was modified on April 18, 2011, with principal balance of approximately $990,000. See “Promissory Note and Installment Agreement” below for terms of original and amended promissory notes.
(4) Net of debt discount of ($22,000) and ($117,000) for September 30, 2011 and December 31, 2010, respectively. See “Promissory Note and Installment Agreement” below for additional information.
(5) Uncollateralized note.
(6) See “Amended and Restated Revolving Credit, Term Loan and Security Agreement” entered into with PNC Bank on October 31, 2011 in “Note 12 – Subsequent Events” for new terms and new maturity date of October 31, 2016.
Revolving Credit and Term Loan Agreement
On December 22, 2000, we entered into a Revolving Credit, Term Loan and Security Agreement ("Loan Agreement") with PNC Bank, National Association (“PNC”), a national banking association acting as agent ("Agent") for lenders, and as issuing bank, as amended. The Agreement provided for a term loan ("Term Loan") in the amount of $7,000,000, which requires monthly installments of $83,000. The Agreement also provided for a revolving line of credit ("Revolving Credit") with a maximum principal amount outstanding at any one time of $18,000,000, as amended. The Revolving Credit advances are subject to limitations of an amount up to the sum of (a) up to 85% of Commercial Receivables aged 90 days or less from invoice date, (b) up to 85% of Commercial Broker Receivables aged up to 120 days from invoice date, (c) up to 85% of acceptable Government Agency Receivables aged up to 150 days from invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less (e) reserves the Agent reasonably deems proper and necessary. As of September 30, 2011, the excess availability under our Revolving Credit was $13,092,000 based on our eligible receivables.
Promissory Note and Installment Agreement
In conjunction with our acquisition of Perma-Fix Northwest, Inc. (“PFNW”), we agreed to pay shareholders of Nuvotec (n/k/a “PFNW”) that qualified as accredited investors (which includes Mr. Robert Ferguson, a member of our Board of Directors), pursuant to Rule 501 of Regulation D promulgated under the Securities Act of 1933, $2,500,000, with principal payable in equal installments of $833,333 on June 30, 2009, June 30, 2010, and June 30, 2011. Interest is accrued on the outstanding principal balance at 8.25% starting in June 2007 and is payable on June 30, 2008, June 30, 2009, June 30, 2010, and June 30, 2011. On June 30, 2011, we made the final principal installment of $833,333 plus accrued interest of $69,000. See “Note 11 – Related Party Transactions” in this section for information regarding Mr. Robert Ferguson”.
On September 28, 2010, the Company entered into a promissory note in the principal amount of $1,322,000, with the former shareholders of Nuvotec (which includes Mr. Robert Ferguson, a member of our Board of Directors) in connection with an earn-out amount that we are required to pay upon meeting certain conditions for each earn-out measurement year ending June 30, 2008 to June 30, 2011, as a result of our acquisition of PFNW and Perma-Fix Northwest Richland, Inc. (“PFNWR”). Interest is accrued at an annual interest rate of 6%. The promissory note provides for 36 equal monthly payments of approximately $40,000, consisting of interest and principal, starting October 15, 2010. The promissory note may be prepaid at any time without penalty. See further details of the earn-out amount in “Note 7 - Commitments and Contingencies - Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNW”) and Perma-Fix Northwest Richland, Inc. (“PFNWR”)” and “Note 11 – Related Party Transactions” for information regarding Mr. Robert Ferguson.
On May 8, 2009, the Company entered into a promissory note with William N. Lampson and Diehl Rettig (collectively, the “Lenders”) for $3,000,000. The Lenders were formerly shareholders of PFNW prior to our acquisition of PFNW and PFNWR and are also stockholders of the Company having received shares of our Common Stock in connection with our acquisition of PFNW and PFNWR. The promissory note provided for monthly principal repayment of approximately $87,000 plus accrued interest, starting June 8, 2009, with interest payable at LIBOR plus 4.5%, with LIBOR at least 1.5%. Any unpaid principal balance along with accrued interest was due May 8, 2011. We paid approximately $22,000 in closing costs on the promissory note which was being amortized over the term of the note. The promissory note may be prepaid at any time by the Company without penalty. As consideration of the Company receiving this loan, we issued a Warrant to Mr. Lampson and a Warrant to Mr. Diehl to purchase up to 135,000 and 15,000 shares, respectively, of the Company’s Common Stock at an exercise price of $1.50 per share. The Warrants were exercisable six months from May 8, 2009 and were to expire on May 8, 2011. We also issued an aggregate of 200,000 shares of the Company’s Common Stock, with Mr. Lampson receiving 180,000 shares and Mr. Rettig receiving 20,000 shares of the Company’s Common Stock. The fair value of the Common Stock and Warrants on the date of issuance was estimated to be $476,000 and $190,000, respectively. The fair value of the Common Stock and Warrants was recorded as a debt discount and was being amortized over the term of the loan as interest expense – financing fees. On April 18, 2011, we entered into an amendment to the promissory note whereby the remaining principal balance on the promissory note of approximately $990,000 is to be repaid in twelve monthly principal payments of approximately $82,500 plus accrued interest, starting May 8, 2011, with interest payable at the same rate of the original loan. As consideration of the amended loan, the original Warrants issued to Mr. Lampson and to Mr. Rettig, which were to expire on May 8, 2011, were extended to May 8, 2012 at the same exercise price (Mr. Rettig is now deceased; accordingly, the amended Warrant and the remaining portion of the note payable to Mr. Rettig is now held by and payable to his personal representative or estate). We accounted for the amended loan as a modification in accordance with ASC 470-50, “Debt – Modifications and Extinguishments”. At the date of the loan modification, unamortized debt discount and fees on the original loan and the fair value of the modified Warrants were determined to be approximately $42,000, which is being amortized as debt discount over the term of the modified loan as interest expense-financing fees in accordance to ASC 470-50. See “Note 11 - Related Party Transactions” for Mr. Robert Ferguson’s (a member of our Board of Directors) acquisition of one-half of Mr. Lampson’s Warrant to purchase up to 65,000 shares of the Company’s Common Stock).
The promissory note also includes an embedded Put Option (“Put”) that can be exercised upon default, whereby the lender has the option to receive a cash payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest, or the number of whole shares of our Common Stock equal to the outstanding principal balance. The maximum number of payoff shares is restricted to less than 19.9% of the outstanding equity. We concluded that the Put should have been bifurcated at inception; however, the Put had and continues to have nominal value as of September 30, 2011. We will continue to monitor the fair value of the Put until expiration.
7.
|
Commitments and Contingencies
|
Hazardous Waste
In connection with our waste management services, we handle hazardous, radioactive and non-hazardous waste, which we transport to our own, or other facilities, for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is required, we could be a potentially responsible party (“PRP”) for the costs of the cleanup notwithstanding any absence of fault on our part.
Legal Matters
In the normal course of conducting our business, we are involved in various litigations. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations.
Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNW”) and Perma-Fix Northwest Richland, Inc. (“PFNWR”)
In connection with the acquisition of PFNW and PFNWR in June 2007, we are required to pay to those former shareholders of Nuvotec (which includes Mr. Robert Ferguson, a member of our Board of Directors) an earn-out amount upon meeting certain conditions for each measurement year ended June 30, 2008 to June 30, 2011, with the aggregate of the full earn-out amount not to exceed $4,552,000, pursuant to the Merger Agreement, as amended (“Agreement”) (See “Note 11 – Related Party Transactions” for further information regarding Mr. Ferguson). Under the Agreement, the earn-out amount to be paid for any particular measurement year is to be an amount equal to 10% of the amount that the revenues for our nuclear business (as defined) for such measurement year exceeds the budgeted amount of revenues for our nuclear business for that particular period. No earn-out was required to be paid for measurement year 2008, and we paid $734,000 in earn out for measurement year 2009 in 2009. We were required to pay $2,978,000 in earn-out prior to the Offset Amounts as discussed below for measurement year ended June 30, 2010. Pursuant to the Agreement, any indemnification obligations payable to the Company by the former shareholders of Nuvotec will be deducted (“Offset Amount”) from any earn-out amounts payable by the Company for the measurement year ended June 30, 2010 and June 30, 2011. Pursuant to the Agreement, the aggregate amount of any Offset Amount may total up to $1,000,000, except an Offset Amount is unlimited as to indemnification relating to liabilities for taxes, misrepresentation or inaccuracies with respect to the capitalization of Nuvotec or PEcoS or for willful or reckless misrepresentation of any representation, warranty or covenant. For the $2,978,000 in earn-out for measurement year ended June 30, 2010, we identified an Offset Amount of approximately $93,000 relating to an excise tax issue and a refund request from a PEcoS (n/k/a “PFNWR”) customer in connection with services for waste treatment prior to our acquisition of PFNWR and PFNW. We also identified an anticipated Offset Amount of $563,000 in connection with the receipt of nonconforming waste at the PFNWR facility prior to our acquisition of PFNWR and PFNW. We are currently involved in litigation with the party that delivered the nonconforming waste to the facility prior to our acquisition of PFNWR and PFNW. After the total Offset Amount of $93,000 and the anticipated Offset Amount of $563,000, we were required to pay $2,322,000 in earn-out amount for measurement year ended June 30, 2010. In September 2010, we paid $1,000,000 of the $2,322,000 in earn-out amount, with the remaining $1,322,000 payable in a promissory note (see “Note 6 – Long Term Debt – Promissory Note and Installment Agreement” for details and terms of the promissory note). For measurement year June 30, 2011, we determined that the remaining $840,000 earn-out amount has been earned; accordingly, this amount was recorded as an increase to goodwill for PFNWR, with an increase to accrued expense. This earn-out amount was paid in October 2011.
Insurance
The Company has a 25-year finite risk insurance policy entered into in June 2003 with Chartis, a subsidiary of American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. Prior to obtaining or renewing operating permits, we are required to provide financial assurance that guarantees to the states that in the event of closure, our permitted facilities will be closed in accordance with the regulations. The policy, as amended in 2009, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other performance and surety bond requirements. This finite risk insurance policy requires the following payments:
|
·
|
an upfront payment of $4,000,000, of which $2,766,000 represents the full premium for the 25-year term of the policy, and the remaining $1,234,000, is to be deposited in a sinking fund account representing a restricted cash account;
|
|
·
|
seven annual installments of $1,004,000 starting February 2004, of which $991,000 is to be deposited in a sinking fund account, with the remaining $13,000 representing a terrorism premium;
|
|
·
|
a payment of $2,000,000 due on March 6, 2009, of which approximately $1,655,000 is to be deposited into a sinking fund account, with the remaining representing a fee payable to Chartis;
|
|
·
|
three yearly payments of approximately $1,073,000 payable starting December 31, 2009, of which $888,000 is be deposited into a sinking fund account, with the remaining representing a fee payable to Chartis. The second of the third payments was made in January 2011; and
|
|
·
|
a payment of $2,008,000 (payable in February 2011), of which $1,982,000 is to be deposited in a sinking fund account, with the remaining $26,000 representing a terrorism premium.
|
During February 2011, the $2,008,000 and the $1,073,000 installment payments which had remained payable on the closure policy were amended, subject to finalization of the closure policy modification, as follows: $1,004,000 was to be paid by February 2011, of which $991,000 was to be deposited into a sinking fund, with the remaining $13,000 representing a terrorism premium; $1,073,000 is due December 2011, of which $888,000 is to be deposited into a sinking fund account, with the remaining representing a fee payable to Chartis; and a final payment of $1,054,000 due February 2012, of which $991,000 is to be deposited into a sinking fund, $13,000 representing a terrorism premium, and the remaining $50,000 representing a fee payable to Chartis. In February 2011, we paid the $1,004,000 under the amended terms. As a result of the revision to the payment terms, the maximum allowable coverage under this closure policy was revised to $36,431,000 as of February 2011, with such maximum allowable coverage increased to $37,300,000 in March 2011. The maximum allowable coverage will be increased to $39,000,000 upon final payment of the $1,054,000 in February 2012.
As of September 30, 2011, our total financial coverage amount under this policy totaled $36,696,000. We have recorded $13,465,000 in our sinking fund related to the policy noted above on the balance sheet, which includes interest earned of $872,000 on the sinking fund as of September 30, 2011. Interest income for the three and nine months ended September 30, 2011, was approximately $8,000 and $26,000, respectively. On the fourth and subsequent anniversaries of the contract inception, we may elect to terminate this contract. If we so elect, Chartis is obligated to pay us an amount equal to 100% of the sinking fund account balance in return for complete releases of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.
In August 2007, we entered into a second finite risk insurance policy for our PFNWR facility with Chartis. The policy provides an initial $7,800,000 of financial assurance coverage with an annual growth rate of 1.5%, which at the end of the four year term policy, will provide maximum coverage of $8,200,000. The policy requires total payments of $7,158,000, consisting of an initial payment of $1,363,000 ($1,106,000 represented premium on the policy and the remaining was deposited into a sinking fund account), two annual payments of $1,520,000 (for each annual payment, $1,344,000 was deposited into a sinking fund and the remaining represented premium), and an additional $2,755,000 payment (paid quarterly and all deposited into a sinking fund). We have made all of the payments. On July 31, 2011, the policy was renewed for an additional year which required a $46,000 fee. We have the option to renew this policy annually going forward with a similar fee which will be determined at the time of renewal. All other terms of the policy remain substantially unchanged. As of September 30, 2011, we have recorded $5,877,000 in our sinking fund related to this policy on the balance sheet, which includes interest earned of $177,000 on the sinking fund as of September 30, 2011. Interest income for the three and nine months ended September 30, 2011 totaled approximately $4,000 and $13,000, respectively.
8.
|
Discontinued Operations and Divestitures
|
Our discontinued operations consist of our PFFL, PFSG, and PFO facilities which met the held for sale criteria under ASC 360, “Property, Plant, and Equipment” on October 6, 2010, as previously discussed. Our discontinued operations also encompass our Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of Dayton, Inc. (“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”) facilities within our Industrial Segment, which we completed the sale of substantially all of the assets on January 8, 2008, March 14, 2008, and May 30, 2008, respectively. Our discontinued operations also includes three previously shut down locations, Perma-Fix of Pittsburgh, Inc. (“PFP”), Perma-Fix of Michigan, Inc. (“PFMI”), and Perma-Fix of Memphis, Inc. (“PFM”), which were approved as discontinued operations by our Board of Directors effective November 8, 2005, October 4, 2004, and March 12, 1998, respectively.
On August 12, 2011, we completed the sale of our wholly-owned subsidiary, PFFL, pursuant to the terms of a Stock Purchase Agreement, dated June 13, 2011. In consideration for the sale of 100% of the capital stock of PFFL, the buyer paid us $5,500,000 in cash at closing. The cash consideration is subject to certain working capital adjustments within one hundred twenty days after closing. The proceeds received were used to pay down our revolver and used for working capital with the remaining excess funds swept into a money market account. As of September 30, 2011, expenses related to the sale of PFFL totaled approximately $160,000, of which $130,000 has been paid. In the quarter ended September 30, 2011, the gain on the sale of PFFL totaled approximately $1,777,000, which is net of taxes of $812,000. The gain is recorded separately on the Consolidated Statement of Operations as “Gain on disposal of discontinued operations, net of taxes”.
On August 12, 2011, we entered into an Asset Purchase Agreement to sell substantially all of the assets of PFO for approximately $2,000,000 in cash, subject to certain working capital adjustments after closing, and the assumption of certain liabilities by the buyer. See “Note 12 - Subsequent Events – Divestiture of Perma-Fix of Orlando, Inc.” for the completed sale of PFO on October 14, 2011. We continue to market our PFSG facility for sale.
As required by ASC 360 and ASC 350, “Intangibles – Goodwill and Other”, based on our internal financial valuations, we concluded that no tangible asset impairments and goodwill or other intangible asset impairments existed for PFO and PFSG as of September 30, 2011.
The following table summarizes the results of discontinued operations for the three and nine months ended September 30, 2011 and 2010. The operating results of discontinued operations are included in our Consolidated Statements of Operations as part of our “(Loss) income from discontinued operations, net of taxes”. The gain on disposal of discontinued operations, net of taxes, is reported separately on our Consolidated Statements of Operations as “Gain on disposal of discontinued operations, net of taxes”.
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(Amounts in Thousands)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
1,266 |
|
|
$ |
2,224 |
|
|
$ |
6,433 |
|
|
$ |
6,766 |
|
Interest expense
|
|
$ |
(18 |
) |
|
$ |
(17 |
) |
|
$ |
(55 |
) |
|
$ |
(62 |
) |
Operating loss from discontinued operations (1)
|
|
$ |
(187 |
) |
|
$ |
(101 |
) |
|
$ |
(7 |
) |
|
$ |
(708 |
) |
Gain on disposal of discontinued operations (2)
|
|
$ |
1,777 |
|
|
$ |
— |
|
|
$ |
1,777 |
|
|
$ |
— |
|
Income (loss) from discontinued operations
|
|
$ |
1,590 |
|
|
$ |
(101 |
) |
|
$ |
1,770 |
|
|
$ |
(708 |
) |
(1) Net of tax benefit of $101,000 and tax benefit of $4,000 for the three and nine months ended September 30, 2011, respectively, and net of tax benefit of $25,000 and tax benefit of $177,000 for the corresponding periods of 2010.
(2) Net of taxes of $812,000 for each of the three and nine months ended September 30, 2011, respectively.
Assets and liabilities related to discontinued operations total $4,196,000 and $4,381,000 as of September 30, 2011, respectively and $7,433,000 and $5,747,000 as of December 31, 2010, respectively.
The following table presents the Industrial Segment’s major classes of assets and liabilities of discontinued operations that are classified as held for sale as of September 30, 2011 and December 31, 2010. The held for sale assets and liabilities may differ at the closing of a sale transaction from the reported balances as of September 30, 2011:
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net (1)
|
|
$ |
430 |
|
|
$ |
1,760 |
|
Inventories
|
|
|
23 |
|
|
|
131 |
|
Other assets
|
|
|
1,075 |
|
|
|
1,295 |
|
Property, plant and equipment, net (2)
|
|
|
2,631 |
|
|
|
4,209 |
|
Total assets held for sale
|
|
$ |
4,159 |
|
|
$ |
7,395 |
|
Accounts payable
|
|
$ |
190 |
|
|
$ |
705 |
|
Accrued expenses and other liabilities
|
|
|
837 |
|
|
|
1,170 |
|
Note payable
|
|
|
114 |
|
|
|
407 |
|
Environmental liabilities
|
|
|
1,497 |
|
|
|
1,500 |
|
Total liabilities held for sale
|
|
$ |
2,638 |
|
|
$ |
3,782 |
|
(1) net of allowance for doubtful accounts of $43,000 and $97,000 as of September 30, 2011 and December 31, 2010, respectively.
(2) net of accumulated depreciation of $216,000 and $755,000 as of September 30, 2011 and December 31, 2010, respectively.
The following table presents the Industrial Segment’s major classes of assets and liabilities of discontinued operations that are not held for sale as of September 30, 2011 and December 31, 2010:
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$ |
37 |
|
|
$ |
38 |
|
Total assets of discontinued operations
|
|
$ |
37 |
|
|
$ |
38 |
|
Accrued expenses and other liabilities
|
|
$ |
1,064 |
|
|
$ |
1,209 |
|
Accounts payable
|
|
|
27 |
|
|
|
— |
|
Environmental liabilities
|
|
|
652 |
|
|
|
756 |
|
Total liabilities of discontinued operations
|
|
$ |
1,743 |
|
|
$ |
1,965 |
|
The environmental liabilities for our discontinued operations consist of remediation projects currently in progress at PFMI, PFM, PFD, and PFSG. These remediation projects principally entail the removal/remediation of contaminated soil, and in some cases, the remediation of surrounding ground water. All of the remedial clean-up projects were an issue for years prior to our acquisition of the facility and were recognized pursuant to a business combination and recorded as part of the purchase price allocation to assets acquired and liabilities assumed. The environmental liability for PFD was retained by the Company upon the sale of PFD in March 2008 and pertains to the remediation of a leased property which was separate and apart from the property on which PFD’s facility was located. The net decrease in environmental liabilities of approximately $107,000 from the December 31, 2010 balance of $2,256,000 represents payment on remediation projects of $320,000 and increases to the reserve of $50,000 and $163,000 at PFMI and PFM, respectively, made in the second quarter of 2011 due to reassessment of our remediation reserves.
“Accrued expenses and other liabilities” (not held for sale) for our discontinued operations include a pension payable at PFMI of $574,000 as of September 30, 2011. The pension plan withdrawal liability is a result of the termination of the union employees of PFMI. The PFMI union employees participated in the Central States Teamsters Pension Fund ("CST"), which provides that a partial or full termination of union employees may result in a withdrawal liability, due from PFMI to CST. The recorded liability is based upon a demand letter received from CST in August 2005 that provided for the payment of $22,000 per month over an eight year period. This obligation is recorded as a long-term liability, with a current portion of $215,000 that we expect to pay over the next year.
In accordance to ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
|
·
|
from which we may earn revenue and incur expenses;
|
|
·
|
whose operating results are regularly reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance; and
|
|
·
|
for which discrete financial information is available.
|
We currently have two operating segments, which are defined as each business line that we operate. This however, excludes corporate headquarters, which does not generate revenue, and our discontinued operations, which includes all facilities within our Industrial Segment (See Note 8 – “Discontinued Operations and Divestitures”).
Our operating segments are defined as follows:
The Nuclear Segment provides treatment, storage, processing and disposal of nuclear, low-level radioactive, mixed (waste containing both hazardous and non-hazardous constituents), hazardous and non-hazardous waste and on-site waste management services through our four facilities: Perma-Fix of Florida, Inc. (“PFF”), Diversified Scientific Services, Inc. (“DSSI”), East Tennessee Materials and Energy Corporation (“M&EC”), and Perma-Fix of Northwest Richland, Inc. (“PFNWR”).
The Engineering Segment provides environmental engineering and regulatory compliance services through Schreiber, Yonley & Associates, Inc. (“SYA”) which includes oversight management of environmental restoration projects, air, soil, and water sampling, water and hazardous waste permitting, compliance reporting, emission reduction strategies, compliance auditing, and various compliance and training activities to industrial, education, healthcare, and service organizations, as well as, engineering and compliance support needed by our other facilities.
The table below presents certain financial information of our operating segments as of and for the three and nine months ended September 30, 2011 and 2010 (in thousands).
Segment Reporting for the Quarter Ended September 30, 2011
|
|
Nuclear
|
|
|
Engineering
|
|
Segments
Total
|
|
Corporate (2)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$ |
32,086 |
(3) |
|
$ |
701 |
|
|
$ |
32,787 |
|
|
$ |
- |
|
|
$ |
32,787 |
|
Intercompany revenues
|
|
|
629 |
|
|
|
43 |
|
|
|
672 |
|
|
|
- |
|
|
|
- |
|
Gross profit
|
|
|
11,133 |
|
|
|
168 |
|
|
|
11,301 |
|
|
|
- |
|
|
|
11,301 |
|
Interest income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
|
|
14 |
|
Interest expense
|
|
|
5 |
|
|
|
1 |
|
|
|
6 |
|
|
|
93 |
|
|
|
99 |
|
Interest expense-financing fees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
22 |
|
|
|
22 |
|
Depreciation and amortization
|
|
|
1,130 |
|
|
|
6 |
|
|
|
1,136 |
|
|
|
35 |
|
|
|
1,171 |
|
Segment profit (loss)
|
|
|
6,453 |
|
|
|
21 |
|
|
|
6,474 |
|
|
|
(2,053 |
) |
|
|
4,421 |
|
Segment assets(1)
|
|
|
97,585 |
|
|
|
2,119 |
|
|
|
99,704 |
|
|
|
38,635 |
(4) |
|
|
138,339 |
|
Expenditures for segment assets
|
|
|
325 |
|
|
|
- |
|
|
|
325 |
|
|
|
22 |
|
|
|
347 |
|
Total long-term debt
|
|
|
171 |
|
|
|
13 |
|
|
|
184 |
|
|
|
5,378 |
(5) |
|
|
5,562 |
|
Segment Reporting for the Quarter Ended September 30, 2010
|
|
Nuclear
|
|
|
Engineering
|
|
Segments
Total
|
|
Corporate (2)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$ |
22,283 |
(3) |
|
$ |
581 |
|
|
$ |
22,864 |
|
|
$ |
- |
|
|
$ |
22,864 |
|
Intercompany revenues
|
|
|
893 |
|
|
|
44 |
|
|
|
937 |
|
|
|
- |
|
|
|
- |
|
Gross profit (negative gross profit)
|
|
|
2,631 |
|
|
|
(36 |
) |
|
|
2,595 |
|
|
|
- |
|
|
|
2,595 |
|
Interest income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
15 |
|
Interest expense
|
|
|
24 |
|
|
|
1 |
|
|
|
25 |
|
|
|
132 |
|
|
|
157 |
|
Interest expense-financing fees
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
102 |
|
|
|
103 |
|
Depreciation and amortization
|
|
|
1,143 |
|
|
|
6 |
|
|
|
1,149 |
|
|
|
6 |
|
|
|
1,155 |
|
Segment profit (loss)
|
|
|
1,207 |
|
|
|
(173 |
) |
|
|
1,034 |
|
|
|
(1,999 |
) |
|
|
(965 |
) |
Segment assets(1)
|
|
|
92,812 |
|
|
|
2,033 |
|
|
|
94,845 |
|
|
|
30,436 |
(4) |
|
|
125,281 |
|
Expenditures for segment assets
|
|
|
363 |
|
|
|
15 |
|
|
|
378 |
|
|
|
3 |
|
|
|
381 |
|
Total long-term debt
|
|
|
1,064 |
|
|
|
19 |
|
|
|
1,083 |
|
|
|
11,090 |
(5) |
|
|
12,173 |
|
Segment Reporting for the Nine Months Ended September 30, 2011
|
|
Nuclear
|
|
|
Engineering
|
|
Segments
Total
|
|
Corporate (2)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$ |
83,391 |
(3) |
|
$ |
1,924 |
|
|
$ |
85,315 |
|
|
$ |
- |
|
|
$ |
85,315 |
|
Intercompany revenues
|
|
|
1,423 |
|
|
|
199 |
|
|
|
1,622 |
|
|
|
- |
|
|
|
- |
|
Gross profit
|
|
|
22,084 |
|
|
|
296 |
|
|
|
22,380 |
|
|
|
- |
|
|
|
22,380 |
|
Interest income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40 |
|
|
|
40 |
|
Interest expense
|
|
|
69 |
|
|
|
2 |
|
|
|
71 |
|
|
|
387 |
|
|
|
458 |
|
Interest expense-financing fees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
178 |
|
|
|
178 |
|
Depreciation and amortization
|
|
|
3,414 |
|
|
|
20 |
|
|
|
3,434 |
|
|
|
69 |
|
|
|
3,503 |
|
Segment profit (loss)
|
|
|
12,195 |
|
|
|
(37 |
) |
|
|
12,158 |
|
|
|
(5,718 |
) |
|
|
6,440 |
|
Segment assets(1)
|
|
|
97,585 |
|
|
|
2,119 |
|
|
|
99,704 |
|
|
|
38,635 |
(4) |
|
|
138,339 |
|
Expenditures for segment assets
|
|
|
1,984 |
|
|
|
1 |
|
|
|
1,985 |
|
|
|
10 |
|
|
|
1,995 |
|
Total long-term debt
|
|
|
171 |
|
|
|
13 |
|
|
|
184 |
|
|
|
5,378 |
(5) |
|
|
5,562 |
|
Segment Reporting for the Nine Months Ended September 30, 2010
|
|
Nuclear
|
|
|
Engineering
|
|
Segments
Total
|
|
Corporate (2)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$ |
70,356 |
(3) |
|
$ |
1,921 |
|
|
$ |
72,277 |
|
|
$ |
- |
|
|
$ |
72,277 |
|
Intercompany revenues
|
|
|
2,461 |
|
|
|
391 |
|
|
|
2,852 |
|
|
|
- |
|
|
|
- |
|
Gross profit
|
|
|
14,541 |
|
|
|
178 |
|
|
|
14,719 |
|
|
|
- |
|
|
|
14,719 |
|
Interest income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
51 |
|
|
|
51 |
|
Interest expense
|
|
|
114 |
|
|
|
2 |
|
|
|
116 |
|
|
|
465 |
|
|
|
581 |
|
Interest expense-financing fees
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
307 |
|
|
|
308 |
|
Depreciation and amortization
|
|
|
3,337 |
|
|
|
21 |
|
|
|
3,358 |
|
|
|
16 |
|
|
|
3,374 |
|
Segment profit (loss)
|
|
|
7,650 |
|
|
|
(183 |
) |
|
|
7,467 |
|
|
|
(5,742 |
) |
|
|
1,725 |
|
Segment assets(1)
|
|
|
92,812 |
|
|
|
2,033 |
|
|
|
94,845 |
|
|
|
30,436 |
(4) |
|
|
125,281 |
|
Expenditures for segment assets
|
|
|
1,427 |
|
|
|
16 |
|
|
|
1,443 |
|
|
|
23 |
|
|
|
1,466 |
|
Total long-term debt
|
|
|
1,064 |
|
|
|
19 |
|
|
|
1,083 |
|
|
|
11,090 |
(5) |
|
|
12,173 |
|
(1)
|
Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.
|
(2)
|
Amounts reflect the activity for corporate headquarters not included in the segment information.
|
(3)
|
The consolidated revenues within the Nuclear Segment include the CH Plateau Remediation Company (“CHPRC”) revenue of $19,570,000 or 59.7% and $50,403,000 or 59.1% for the three and nine months ended September 30, 2011, respectively of our total consolidated revenue from continuing operations, as compared to $13,880,000 or 60.7% and $37,881,000 or 52.4% for the three and nine months ended September 30, 2010, respectively, of our total consolidated revenue from continuing operations. Our M&EC facility was awarded a subcontract by CHPRC, a general contractor to the Department of Energy (“DOE”), in the second quarter of 2008. We also have three waste processing contracts with CHPRC.
|
(4)
|
Amount includes assets from discontinued operations of $4,196,000 and $6,756,000 as of September 30, 2011 and 2010, respectively.
|
(5)
|
Net of debt discount of ($22,000) and ($200,000) as of September 30, 2011 and September 30, 2010, respectively, in connection with Warrants and Common Stock issued on May 8, 2009 in connection with a $3,000,000 promissory note entered into by the Company and Mr. William Lampson and Mr. Diehl Rettig on May 8, 2009. The promissory note and the Warrants were modified on April 18, 2011. See Note 6 - “Promissory Note and Installment Agreement” for additional information.
|
The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.
Income tax expense for continuing operations was $2,399,000 for the three months ended September 30, 2011, as compared to income tax benefit of $609,000 for the corresponding period of 2010 and income tax expense of $3,504,000 for the nine months ended September 30, 2011, as compared to income tax expense of $1,029,000 for the corresponding period of 2010. The Company’s effective tax rates were approximately 35.2% and 38.7% for the three months ended September 30, 2011 and 2010, respectively, and 35.2% and 37.4% for the nine months ended September 30, 2011 and 2010, respectively.
The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”. Deferred income tax assets and liabilities are recognized for future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income tax assets to an amount that is more likely than not to be realized.
11.
|
Related Party Transactions
|
On June 13, 2007, we acquired Nuvotec (n/k/a Perma-Fix Northwest, Inc. or “PFNW”) and Nuvotec's wholly owned subsidiary, PEcoS (n/k/a Perma-Fix Northwest Richland, Inc. or “PFNWR”), pursuant to the terms of the Merger Agreement, as amended, between us, Nuvotec, PEcoS, and our wholly owned subsidiaries. At the time of the acquisition, Robert L. Ferguson was the Chairman, Chief Executive Officer, and individually or through entities controlled by him, the owner of approximately 21.29% of Nuvotec’s outstanding common stock. In connection with the acquisition, Mr. Ferguson was nominated to serve as a Director and subsequently was elected annually as a director at our Annual Meeting of Stockholders until his resignation in February 2010. Mr. Ferguson was recommended by the Corporate Governance and Nominating Committee and the Board of Directors nominated Mr. Ferguson to stand for election as a Director again at our 2011 Annual Meeting of Stockholders. Mr. Ferguson was subsequently elected as a Director at the August 24, 2011 Annual Meeting of Stockholders. See “Note 6 – Long Term Debt – Promissory Note and Installment Agreement” and “Note 7 – Commitments and Contingencies – Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNW”) and Perma-Fix Northwest Richland, Inc. (“PFNWR”)” for a discussion of Mr. Ferguson’s interest in consideration paid and to be paid by us in connection with our acquisition of PFNW and PFNWR.
Effective June 29, 2011, Mr. Ferguson acquired from Mr. William Lampson one-half of a Warrant (the “Lampson Warrant”) for the purchase of up to 135,000 of the Company’s Common Stock at $1.50 per share. We originally issued the Lampson Warrant to Mr. Lampson as consideration for a loan in the principal amount of $3,000,000 on May 8, 2009 from Mr. Lampson and Mr. Diehl Rettig. The terms of the loan were amended on April 18, 2011, to provide that the remaining principal balance of $990,000 is payable in 12 monthly principal payments plus accrued interest starting May 8, 2011. In connection with the loan amendment, the expiration date of the Lampson Warrant was extended one year to May 8, 2012. As a result of the acquisition of one-half of the Lampson Warrant, Mr. Ferguson and Mr. Lampson each now holds a Warrant for the purchase of up to 67,500 shares of Common Stock at $1.50 per share and with an expiration date of May 8, 2012. See “Note 6 – Long Term Debt – Promissory Note and Installment Agreement” for further information regarding the original Lampson Warrant.
Divestiture of Perma-Fix of Orlando, Inc. (“PFO”)
On October 14, 2011, we completed the sale of our wholly-owned subsidiary, PFO, pursuant to the terms of an Asset Purchase Agreement, dated August 12, 2011. In consideration for such assets, the buyer paid us $2,000,000 in cash at the closing and assumed certain liabilities of PFO. The cash consideration is subject to certain working capital adjustments within one hundred twenty days after closing. The proceeds received were swept into a money market account.
Acquisition of Safety & Ecology Holdings Corporation
On October 31, 2011, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of Safety & Ecology Holdings Corporation (“SEHC”) and its subsidiaries, Safety & Ecology Corporation, SEC Federal Services Corporation, Safety & Ecology Corporation Limited and SEC Radcon Alliance, LLC (collectively, “SEC”), pursuant to that certain Stock Purchase Agreement, dated July 15, 2011 (“Purchase Agreement”), between the Company, Homeland Capital Security Corporation (“Homeland”) and SEHC. In consideration of the acquisition, the Company paid Homeland the following:
(i)
|
cash consideration of $13,884,256, after certain working capital closing adjustments and deduction for the amount due to the Company in connection with the purchase of the Company’s common stock as discussed below;
|
(ii)
|
the sum of $2,000,000 deposited in an escrow account to satisfy any claims that the Company may have against Homeland for indemnification pursuant to the Purchase Agreement and the Escrow Agreement, dated October 31, 2011 (“Escrow Agreement”);
|
(iii)
|
$2,500,000 unsecured, non-negotiable promissory note (the “Note”), bearing an annual rate of interest of 6%, which Note provides that the Company has the right to prepay such at any time without interest or penalty. The Company has agreed to prepay $500,000 of the principal amount of the Note within 10 days of closing of the acquisition. The Note may be subject to offset of amounts Homeland owes the Company for indemnification for breach of, or failure to perform, certain terms and provisions of the Purchase Agreement if the Escrow Agreement has terminated pursuant to its terms or the amount held in escrow has been exhausted pursuant to the terms of the Purchase Agreement. The principal of the Note and accrued interest due thereon is payable in 36 monthly installments of principal and interest. Under the terms of the Note, in the event of a continuing Event of Default under the Note, Homeland has the option to convert the unpaid portion of the Note into the Company’s restricted shares of common stock equal to the quotient determined by dividing the principal amount owing under the Note and all accrued and unpaid interest thereon, plus certain expenses, by the average of the closing prices per share of the Company common stock as reported by the primary national securities exchange or automatic quotation system on which the Company’s common stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by the Company of Homeland’s written notice of its election to receive the Company’s common stock as a result of the Event of Default that is continuing; provided that the number of shares of common stock to be issued to Homeland under the Note in the event of a continuing Event of Default plus the number of shares of the Company common stock issued to the Management Investors, as discussed below, shall not exceed 19.9% of the voting power of all of the Company’s voting securities issued and outstanding as of the date of the Purchase Agreement. Upon issuance of the shares of the Company’s common stock to Homeland in the event of a continuing Event of Default, the Company and Homeland will enter into a registration rights agreement.
|
Pursuant to the terms of the Purchase Agreement, upon closing of the Purchase Agreement certain security holders of Homeland (“Management Investors”) purchased approximately 813,007 restricted shares of the Company’s Common Stock for a total consideration of approximately $1,000,000 or $1.23 a share. The purchase of the shares of the Company’s Common Stock was pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the “Act”) or Rule 506 of Regulation D promulgated under the Act. The purchase price for these shares of the Company’s Common Stock was deducted from the purchase price payable to Homeland. See “Related Party Transactions” below for shares purchased by Mr. Christopher Leichtweis, who was appointed a Senior Vice President of the Company and President of SEC, upon the acquisition of SEHC and its subsidiaries.
The Company has not completed the valuations and accounting required under FASB ASC 805, “Business Combinations”.
Amended and Restated Revolving Credit, Term Loan and Security Agreement
In connection with the acquisition of SEHC and its subsidiaries as discussed above, the Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with its lender, PNC Bank, National Association (“PNC”), replacing its previous Loan Agreement with PNC discussed in Note 6. The Amended Loan Agreement provides the Company with the following credit facilities:
|
·
|
up to $25,000,000 revolving credit facility, subject to the amount of borrowings based on a percentage of eligible receivables and subject to certain reserves;
|
|
·
|
a term loan of $16,000,000, which requires monthly installments of approximately $190,000; and
|
|
·
|
equipment line of credit up to $2,500,000, subject to certain limitations.
|
The Amended Loan Agreement terminates as of October 31, 2016, unless sooner terminated.
The Company has the option of paying an annual rate of interest due on the revolving credit facility at prime plus 2% or London Inter Bank Offer Rate (“LIBOR”) plus 3% and the term and equipment credit facilities at prime plus 2.5% or LIBOR plus 3.5%.
As a condition of the Amended Loan Agreement, the Company paid the remaining balance due under the term loan of its previous Loan Agreement totaling $3,833,346, and paid PNC a fee of $217,500 plus it’s out of pocket legal fees using its credit facilities under the Amended Loan Agreement.
The Company financed the acquisition of SEHC utilizing its credit facilities under the Amended Loan Agreement. As of the close of business on October 31, 2011, after utilizing its credit facilities under the Amended Loan Agreement in connection with the acquisition of SEHC and payments discussed in the preceding paragraph, the Company’s excess availability under its revolving credit facility as provided in the Amended Loan Agreement was approximately $18,708,000 based on the amount of the Company’s eligible receivables.
Pursuant to the Amended Loan Agreement, the Company may terminate the Amended Loan Agreement upon 90 days’ prior written notice upon payment in full of its obligations under the Amended Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the event it pays off its obligations on or before October 31, 2012 and 1/2% of the total financing if it pays off its obligations after October 31, 2012 but prior to or on October 31, 2013. No early termination fee shall apply if the Company pays off its obligations after October 31, 2013.
Related Party Transactions
Upon the closing of the acquisition of SEHC on October 31, 2011, Mr. Christopher Leichtweis (“Leichtweis”), a former officer and director of Homeland, was appointed a Senior Vice President of the Company and President of SEC pursuant to the terms of a four year employment agreement. In connection with Leichtweis’ employment on October 31, 2011, we granted Leichtweis a non-qualified stock option (the “Option”) to purchase up to 250,000 shares of our Common Stock as reported on the Nasdaq on the grant date, which was $1.35. The Option has a term of 10 years from grant date, with 25% yearly vesting over a four-year period. The Option was granted in accordance with, and is subject to, Non-Qualified Stock Option Agreement, dated October 31, 2011.
Under an agreement of indemnity, SEC, Leichtweis and his spouse, jointly and severally, agreed to indemnify the individual surety with respect to contingent liabilities that may be incurred by the individual surety under certain of SEC’s bonded projects. In addition, SEC has agreed to indemnify Leichtweis against judgments, penalties, fines, and expense associated with those SEC performance bonds that Leichtweis has agreed to indemnify in the event SEC cannot perform, which has an aggregate bonded amount of approximately $14,000,000. The indemnification agreement provided by SEC to Leichtweis also provides for compensating Leichtweis at a rate of 0.75% of the value of bonds (60% having been paid previously and the balance at substantial completion of the contract).
Under a Lease Agreement, dated June 1, 2008 (the “Lease”), between Leichtweis Enterprises, LLC, as lessor, and SEHC, as lessee, SEHC is obligated to make lease payments of approximately $29,000 per month through June 2018. The Lease covers SEHC’s principal offices in Knoxville, Tennessee. Leichtweis Enterprises is owned by Leichtweis.
As a member of the Management Investors who purchased in a private placement restricted shares of the Company’s Common Stock pursuant to the Purchase Agreement, as discussed in “Acquisition of Safety and Ecology Holdings Corporation”, Leichtweis purchased 747,112 shares of the Company’s Common Stock for the aggregate purchase price of approximately $918,948 or $1.23 per share. The purchase price for these shares was deducted from the consideration paid to Homeland for the acquisition of SEHC.
Forward-looking Statements
Certain statements contained within this report may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the "Private Securities Litigation Reform Act of 1995"). All statements in this report other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the Company to differ materially from such statements. The words "believe," "expect," "anticipate," "intend," "will," and similar expressions identify forward-looking statements. Forward-looking statements contained herein relate to, among other things,
·
|
our cash flows from operations and our available liquidity from the amended and restated line of credit are sufficient to service the Company’s current obligations and the current obligations resulting from the acquisition of SEHC and its subsidiaries;
|
·
|
we continue to take steps to improve our operations and liquidity and to invest working capital into our facilities to fund capital additions in our Segments;
|
·
|
meeting our financial covenants in 2011;
|
·
|
demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including our national debt, the current economic conditions, and the manner in which the government will be required to spend funding to remediate federal sites;
|
·
|
significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flow;
|
·
|
with much of our Nuclear Segment customer base being government or prime contractors treating government waste, we do not believe economic upturns or downturns have a significant impact on the demand for our services;
|
·
|
our ability to remediate certain contaminated sites for projected amounts;
|
·
|
despite our aggressive compliance and auditing procedures for disposal of wastes, we could, in the future, be notified that we are a Partially Responsible Party (“PRP”) at a remedial action site, which could have a material adverse effect;
|
·
|
we, along with many of our competitors, may be required to pay fines for violations or investigate and potentially remediate our waste management facilities;
|
·
|
our ability to generate funds internally to remediate sites;
|
·
|
our ability to fund budgeted capital expenditures of $2,600,000 during 2011 through our operations or lease financing or a combination of both;
|
·
|
the initiation and timing of projects are determined by financing alternatives or funds available for such capital projects;
|
·
|
full operations under the CHPRC subcontract will result in revenues for on-site and off-site work of approximately $200,000,000 to $250,000,000 over the five year base period unless funding is reduced for this project due to budget issues relating to the federal government;
|
·
|
because government spending is contingent upon its annual budget allocation of funding, we may have larger fluctuations in the quarters in the near future;
|
·
|
our inability to continue under existing contracts that we have with the federal government (directly or indirectly as a subcontractor) could have a material adverse effect on our operations and financial condition;
|
·
|
changes within the environmental insurance market and continued insurance coverage;
|
·
|
the effect due to a change in the number of available disposal sites or an increase or decrease in demand for the existing disposal areas;
|
·
|
purchase by the Company of its Common Stock and the timing and amount of such purchases;
|
·
|
effect of future regulations on the Company;
|
·
|
the effect as to pending legislative and regulatory proposals as to greenhouse gas emissions; and
|
·
|
the Company does not expect ASU 2011-04 to have a material effect on its financial position, results of operations or cash flows and ASU 2011-05 to have a material impact on our current presentation.
|
While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to have been correct. There are a variety of factors, which could cause future outcomes to differ materially from those described in this report, including, but not limited to:
·
|
general economic conditions;
|
·
|
material reduction in revenues;
|
·
|
ability to meet PNC covenant requirements;
|
·
|
inability to collect in a timely manner a material amount of receivables;
|
·
|
increased competitive pressures;
|
·
|
the ability to maintain and obtain required permits and approvals to conduct operations;
|
·
|
the ability to develop new and existing technologies in the conduct of operations;
|
·
|
the ability to maintain and obtain closure and operating insurance requirements;
|
·
|
ability to retain or renew certain required permits;
|
·
|
discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures;
|
·
|
changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;
|
·
|
potential increases in equipment, maintenance, operating or labor costs;
|
·
|
management retention and development;
|
·
|
financial valuation of intangible assets is substantially more/less than expected;
|
·
|
the requirement to use internally generated funds for purposes not presently anticipated;
|
·
|
inability to continue to be profitable on an annualized basis;
|
·
|
the inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
|
·
|
terminations of contracts with federal agencies or subcontracts involving federal agencies, or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
|
·
|
renegotiation of contracts involving the federal government;
|
·
|
disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment;
|
·
|
Risk Factors contained in Item 1A of our 2010 Form 10-K; and
|
·
|
factors set forth in “Special Note Regarding Forward-Looking Statements” contained in our 2010 Form 10-K.
|
The Company undertakes no obligations to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.
Overview
We provide services through two reportable operating segments: Nuclear Waste Management Services Segment (“Nuclear Segment”) and Consulting Engineering Services Segment (“Engineering Segment”). The Nuclear Segment provides treatment, storage, processing and disposal services of mixed waste (waste containing both hazardous and low-level radioactive materials) and low-level radioactive wastes, including research, development and on-site and off-site mixed and low-level radioactive waste remediation. Our Engineering Segment provides environmental engineering and regulatory compliance services which includes oversight management of environmental restoration projects, air, soil, and water sampling, water and hazardous waste permitting, compliance reporting, emission reduction strategies, compliance auditing, and various compliance and training activities to industrial, education, healthcare, and service organizations, as well as, engineering and compliance support needed by our facilities.
Revenue in the third quarter of 2011 increased approximately $9,923,000 or 43.4% to $32,787,000 from $22,864,000 in the third quarter of 2010. Within our Nuclear Segment, we generated revenue of $32,086,000, an increase of $9,803,000 or 44.0% from the corresponding period of 2010. Of the $9,803,000 increase in revenue, approximately $9,016,000 was primarily due to increased waste treatment volume. The remaining increase of $787,000 was from the CH Plateau Remediation Company (“CHPRC”) subcontract. Our East Tennessee Materials and Energy Corporation (“M&EC”) subsidiary was awarded this subcontract by CHPRC, a general contractor to the U.S. Department of Energy (“DOE”), in the second quarter of 2008, to perform a portion of facility operations and waste management activities for the DOE Hanford Site. This subcontract is a cost plus award fee subcontract. Revenue from our Engineering Segment increased $120,000 or 20.7% to $701,000 from $581,000 from higher average billing rates which was partially offset by decreased billable hours.
The third quarter 2011 gross profit increased $8,706,000 or 335.5% from the corresponding period of 2010 primarily due to increased treatment waste volume and cost reductions resulting from the reduction in workforce which occurred in the Engineering Segment and the Nuclear Segment in March 2011 and April 2011, respectively.
SG&A for the third quarter of 2011 increased $587,000 to $4,022,000 from $3,435,000 for the corresponding period of 2010.
Our working capital position at September 30, 2011 increased to $8,930,000 from a working capital of $2,329,000 as of December 31, 2010.
Acquisition of Safety & Ecology Holdings Corporation
On October 31, 2011, we completed the acquisition of all of the issued and outstanding shares of capital stock of Safety & Ecology Holdings Corporation (“SEHC”) and its subsidiaries, Safety & Ecology Corporation, SEC Federal Services Corporation, Safety & Ecology Corporation Limited and SEC Radcon Alliance, LLC (collectively, “SEC”), pursuant to that certain Stock Purchase Agreement, dated July 15, 2011 (“Purchase Agreement”), between us, Homeland Capital Security Corporation (“Homeland”) and SEHC. In consideration of the acquisition, we paid Homeland the following:
(i)
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cash consideration of $13,884,256, after certain working capital closing adjustments and deduction for the amount due to us in connection with the purchase of our common stock as discussed below;
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(ii)
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the sum of $2,000,000 deposited in an escrow account to satisfy any claims that we may have against Homeland for indemnification pursuant to the Purchase Agreement and the Escrow Agreement, dated October 31, 2011 (“Escrow Agreement”);
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(iii)
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$2,500,000 unsecured, non-negotiable promissory note (the “Note”), bearing an annual rate of interest of 6%, which Note provides that we have the right to prepay such at any time without interest or penalty. We agreed to prepay $500,000 of the principal amount of the Note within 10 days of closing of the acquisition. The Note may be subject to offset of amounts Homeland owes us for indemnification for breach of, or failure to perform, certain terms and provisions of the Purchase Agreement if the Escrow Agreement has terminated pursuant to its terms or the amount held in escrow has been exhausted pursuant to the terms of the Purchase Agreement. The principal of the Note and accrued interest due thereon is payable in 36 monthly installments of principal and interest. Under the terms of the Note, in the event of a continuing Event of Default under the Note, Homeland has the option to convert the unpaid portion of the Note into our restricted shares of common stock equal to the quotient determined by dividing the principal amount owing under the Note and all accrued and unpaid interest thereon, plus certain expenses, by the average of the closing prices per share of our common stock as reported by the primary national securities exchange or automatic quotation system on which our common stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by us of Homeland’s written notice of its election to receive our common stock as a result of the Event of Default that is continuing; provided that the number of shares of common stock to be issued to Homeland under the Note in the event of a continuing Event of Default plus the number of shares of our common stock issued to the Management Investors, as discussed below, shall not exceed 19.9% of the voting power of all of our voting securities issued and outstanding as of the date of the Purchase Agreement. Upon issuance of the shares of our common stock to Homeland in the event of a continuing Event of Default, we will enter into a registration rights agreement with Homeland.
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Pursuant to the terms of the Purchase Agreement, upon closing of the Purchase Agreement certain security holders of Homeland (“Management Investors”) purchased approximately 813,007 restricted shares of our common stock for a total consideration of approximately $1 million or $1.23 a share. The purchase of the shares of the Company’s common stock was pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the “Act”) or Rule 506 of Regulation D promulgated under the Act. The purchase price for these shares of common stock was deducted from the purchase price payable to Homeland.
For fiscal year ending June 26, 2011, SEHC had consolidated net revenues of approximately $98,000,000, consolidated net income of approximately $578,000 and consolidated net working capital (current assets less current liabilities) of approximately $8,700,000.
In connection with the acquisition of SEHC, Homeland and SEHC agreed that it was in material breach of certain of its representations and warranties contained in the Purchase Agreement relating to a contract that a subsidiary of SEHC is a party to (“Sub’s Contract”). Homeland and SEHC have agreed that if, for any reason, the Sub’s Contract has not been renewed by the other party to the contract on or before December 31, 2011, for an additional term of not less than three (3) years and, based upon our determination, would not generate revenues of not less than $6,000,000 each year during the renewal term, or if the Sub’s Contract has not been renewed by the other party to the contract on or before December 31, 2011, on terms set forth above, and the other party to the Sub’s Contract has not awarded the SEHC’s subsidiary in question, for any reason, by December 31, 2011, a new subcontract for the project covered by the Sub’s Contract having a term of not less than three (3) years that would not, based upon our determination, generate revenues to SEHC’s subsidiary in question of not less than $6,000,000 each year during the term of such new subcontract, then the Escrow Agent under the Escrow Agreement shall distribute to us the sum of $1,500,000 of the amount held in escrow (“$1,500,000 Distribution”) on January 3, 2012, or such later date as instructed in writing by us.
We financed the acquisition of SEHC utilizing our credit facilities under the Amended and Restated Revolving Credit, Term Loan and Security Agreement with PNC, as discussed under “Liquidity and Capital Resources of the Company – Financing Activities.”
SEC is an international provider of environmental, hazardous and radiological remediation infrastructure upgrades and nuclear energy services. SEC provides remediation of nuclear materials for the U.S. government and other commercial customers. SEC is headquartered in Knoxville, Tennessee.
Since we acquired SEHC and its subsidiaries on October 31, 2011, the discussions contained in this Management Discussion and Analysis do not include information relating to SEHC and its subsidiaries, except on a limited basis. We are currently in the process of reviewing the liquidity and capital resource needs of SEHC and its subsidiaries and, as a result, such information is not discussed herein. Further, the Company’s results of operations for the three and nine month periods ended September 30, 2011 do not include the results of operations of SEHC and its subsidiaries, since we acquired SEHC and its subsidiaries on October 31, 2011.
Outlook
The higher government funding made available to remediate DOE sites under the economic stimulus package (American Recovery and Reinvestment Act), enacted by the Congress in February 2009, is scheduled to reduce after 2011 as the DOE has committed to spend most of its cleanup funds by the end of September 2011. The availability of additional general funding that will be available for DOE’s cleanup projects will depend on future funding and its annual budgets. Therefore, we expect that demand for our services within our Nuclear Segment will be subject to fluctuations due to a variety of factors beyond our control, including our national debt, the current economic conditions, and the manner in which the government will be required to spend funding to remediate federal sites. Our operations depend, in large part, upon governmental funding, particularly funding levels at the DOE. In addition, our governmental contracts and subcontracts relating to activities at governmental sites are subject to termination or renegotiation on 30 days notice at the government’s option. Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flows.
Results of Operations
The reporting of financial results and pertinent discussions are tailored to two reportable segments: Nuclear and Engineering. As discussed above, this reporting does not include results of operations relating to SEHC and its subsidiaries since we acquired these companies on October 31, 2011, and they are not included in the financial statements included in this report. See “Overview - Acquisition of Safety and Ecology Holdings Corporation” above for a discussion of SEHC’s consolidated net revenues, net income and working capital for its fiscal year ended June 26, 2011.
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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Consolidated (amounts in thousands)
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2011
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%
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2010
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%
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2011
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%
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2010
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%
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Net revenues
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$ |
32,787 |
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|
100.0 |
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$ |
22,864 |
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|
100.0 |
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$ |
85,315 |
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100.0 |
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$ |
72,277 |
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|
100.0 |
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Cost of goods sold
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21,486 |
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65.5 |
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20,269 |
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88.7 |
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62,935 |
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73.8 |
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57,558 |
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79.6 |
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Gross profit
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11,301 |
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34.5 |
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2,595 |
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11.3 |
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22,380 |
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26.2 |
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14,719 |
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20.4 |
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Selling, general and administrative
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4,022 |
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12.3 |
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3,435 |
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15.0 |
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10,829 |
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12.7 |
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10,253 |
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14.2 |
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Research and development
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|
357 |
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1.1 |
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|
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345 |
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1.5 |
|
|
|
1,019 |
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1.2 |
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|
734 |
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1.0 |
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Loss on disposal of property and equipment |
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|
― |
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― |
|
|
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143 |
|
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|
.6 |
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|
― |
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|
|
― |
|
|
|
145 |
|
|
|
.2 |
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Income (loss) from operations
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|
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6,922 |
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|
|
21.1 |
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|
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(1,328 |
) |
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(5.8 |
) |
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10,532 |
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12.3 |
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|
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3,587 |
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|
5.0 |
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Interest income |
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|
14 |
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|
|
― |
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|
|
15 |
|
|
|
― |
|
|
|
40 |
|
|
|
― |
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|
|
51 |
|
|
|
― |
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Interest expense
|
|
|
(99 |
) |
|
|
(.3 |
) |
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|
(157 |
) |
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