UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31,
2008
or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from _____ to _____
Commission
File No. 1-11596
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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58-1954497
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State
or other jurisdiction
of
incorporation or organization
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(IRS
Employer Identification Number)
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8302
Dunwoody Place, #250, Atlanta, GA
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30350
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(Address
of principal executive offices)
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(Zip
Code)
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(770)
587-9898
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(Registrant's
telephone number)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, $.001 Par Value
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NASDAQ
Capital Markets
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Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No
x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o No
x
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
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 £ Accelerated
Filer T Non-accelerated
Filer £ Smaller
reporting company £
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes o No
x
The
aggregate market value of the Registrant's voting and non-voting common equity
held by nonaffiliates of the Registrant computed by reference to the closing
sale price of such stock as reported by NASDAQ as of the last business day of
the most recently completed second fiscal quarter (June 30, 2008), was
approximately $147,085,000. For the purposes of this calculation, all
executive officers and directors of the Registrant (as indicated in Item 12) are
deemed to be affiliates. Such determination should not be deemed an
admission that such directors or officers, are, in fact, affiliates of the
Registrant. The Company's Common Stock is listed on the NASDAQ
Capital Markets.
As of
March 9, 2009, there were 53,985,119 shares of the registrant's Common Stock,
$.001 par value, outstanding.
Documents
incorporated by reference: none
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
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Company
Overview and Principal Products and Services
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us,
or our), an environmental and technology know-how company, is a Delaware
corporation organized in 1990, and is engaged through its subsidiaries,
in:
·
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Nuclear
Waste Management Services (“Nuclear Segment”), which
includes:
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o
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Treatment,
storage, processing and disposal of mixed waste (which is waste that
contains both low-level radioactive and hazardous waste) including on and
off-site waste remediation and
processing;
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Nuclear,
low-level radioactive, and mixed waste treatment, processing and disposal;
and
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Research
and development of innovative ways to process low-level radioactive and
mixed waste.
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Consulting
Engineering Services (“Engineering Segment”), which
includes:
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Consulting
services regarding broad-scope environmental issues, including air, water,
and hazardous waste permitting, air, soil, and water sampling, compliance
reporting, emission reduction strategies, compliance auditing, and various
compliance and training activities to industrial and government customers,
as well as engineering and compliance support needed by our other
segments.
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Industrial
Waste Management Services (“Industrial Segment”), which
includes:
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o
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Treatment,
storage, processing, and disposal of hazardous and non-hazardous waste;
and
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Wastewater
management services, including the collection, treatment, processing and
disposal of hazardous and non-hazardous
wastewater.
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In May
2007, our Board of Directors authorized the divestiture of our Industrial
Segment. On September 26, 2008, our Board of Directors approved
retaining our Industrial Segment facilities/operations at Perma-Fix of Fort
Lauderdale, Inc. (“PFFL”), Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of
Orlando, Inc. (“PFO”). This subsequent decision to retain operations
at PFFL, PFSG, and PFO within our Industrial Segment is based on our belief that
these operations are self-sufficient, which should allow senior management more
freedom to focus on growing our Nuclear operations, while benefiting from the
cash flow and growth prospects of these three facilities and the fact that we
were unable in the current economic climate to obtain the values for these
companies that we believe they are worth. In 2008, we completed the
sale of substantially all of the assets of three of our Industrial Segment
facilities/operations as follows: on January 8, 2008, we completed
the sale of substantially all of the assets of Perma-Fix Maryland, Inc. (“PFMD”)
for $3,825,000 in cash and the assumption by the buyer of certain liabilities of
PFMD, with a final working capital adjustment of $170,000 received by us from
the buyer in the fourth quarter of 2008; on March 14, 2008, we completed the
sale of substantially all of the assets of Perma-Fix of Dayton, Inc. (“PFD”) for
approximately $2,143,000 in cash, plus assumption by the buyer of certain of
PFD’s liabilities and obligations. In June 2008, we paid the buyer
$209,000 in final working capital adjustment; and on May 30, 2008, we completed
the sale of substantially all of the assets of Perma-Fix Treatment Services,
Inc. (“PFTS”) for approximately $1,503,000, and assumption by the buyer of
certain liabilities of PFTS. In July 2008, we paid the buyer $135,000
in final working capital adjustments.
As a
result of our Board of Directors’ approval to retain our PFFL, PFO, and PFSG
facilities/operations in September 2008, we restated the consolidated financial
statements for all periods presented to reflect the reclassification of these
three facilities/operations back into our continuing operations. In
the third quarter of 2008, we classified one of the two properties at PFO as
held for sale. In the fourth quarter of 2008, we completed the sale
of this property at PFO for $900,000 in cash. We do not expect any
impact or reduction to PFO’s operating capability from the sale of the property
at PFO.
Our goal
is to continue focus on the efficient operation of our existing facilities
within our Nuclear, Industrial, and Engineering Segments, evaluate strategic
acquisitions primarily within the Nuclear Segments, and to continue the research
and development of innovative technologies to treat nuclear waste, mixed waste,
and industrial waste. We continue to place greater attention
and resources on our nuclear
business.
Our Nuclear Segment facility, Perma-Fix Northwest Richland, Inc. (“PFNWR”)
facility, which was acquired in June 2007, had $17,325,000 in revenue, which
represented 22.9% of our consolidated revenue from continuing operations in 2008
as compared to $8,439,000 or 13.1% in 2007. PFNWR is a hazardous
waste, low level radioactive waste and mixed waste (containing both hazardous
waste and low level radioactive waste) management company based in Richland,
Washington, adjacent to the Department of Energy’s (“DOE”) Hanford
Site. This acquisition provides us with a number of strategic
benefits. Foremost, this acquisition secured PFNWR’s radioactive and
hazardous waste permits and licenses, which further solidified our position
within the mixed waste industry. Additionally, the PFNWR facility is
located adjacent to the Hanford Site, which represents one of the largest
environmental clean-up projects in the nation and is expected to be one of the
most expansive of DOE’s nuclear weapons sites to remediate. In
addition, the acquisition of PFNWR facility introduced our West Coast presence
and increases our treatment capacity for radioactive only waste.
During
the second quarter of 2008, our East Tennessee Materials and Energy Corporation
(“M&EC”) facility within our Nuclear Segment was awarded a subcontract by CH
Plateau Remediation Company (“CHPRC”) to perform a portion of facility
operations and waste management activities for the DOE Hanford, Washington
site. The general contract awarded by the DOE to CHPRC and our
subcontract provide for a transition period from August 11, 2008 through
September 30, 2008, a base period from October 1, 2008 through September 30,
2013, and an option period from October 1, 2013 through September 30,
2018. The subcontract is a cost-plus award fee
contract. On October 1, 2008, operations of this subcontract
commenced at the DOE Hanford Site. We believe full operations under
this 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 based
period. As of December 31, 2008, revenue from this subcontractor
accounted for $8,120,000 or 10.8% of total revenue from our continuing
operations. As of the date of this report, we have employed an
additional 177 employees to service this subcontract. This
subcontract, as are most, if not all, contracts involving work relating to
federal sites provide that the government or subcontractor may terminate or
renegotiate the contract with us at any time for convenience or 30 days
notice.
We
service research institutions, commercial companies, public utilities, and
governmental agencies nationwide, including the DOE and Department of Defense
(“DOD”). The distribution channels for our services are through direct sales to
customers or via intermediaries.
We were
incorporated in December of 1990. Our executive offices are located at 8302
Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
Demand
for our services has been, and we expect that demand will continue to be,
subject to significant fluctuation (including substantial reductions) due to a
variety of factors beyond our control, such as the current economic recession
and the large budget deficits of our federal government and many of our states
(see “Risk Factors” and “Management Discussion and Analysis of Financial
Condition and Results of Operations contained herein for a discussion as to
these factors that could have a significant effect on our business and
results). However, we believe that government funding made available
for DOE remediation projects under the recently enacted government stimulus plan
could have a positive impact on our government subcontracts within our Nuclear
Segment. (see “Dependence Upon a Single or Few Customers in this section for
certain subcontracts with the DOE within our Nuclear Segment), although we
continue to remain cautious of the future due to the heightened financial market
and economic turmoil and large federal/budget deficit.
Website
access to Company's reports
Our
internet website address is www.perma-fix.com. Our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to section 13(a) or
15(d) of the Exchange Act are available free of charge through our website as
soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission
(“Commission”). Additionally, we make available free of charge on our
internet website:
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·
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the
charter of our Corporate Governance and Nominating
Committee;
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·
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the
charter of our Audit Committee.
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Segment
Information and Foreign and Domestic Operations and Export Sales
During
2008, we were engaged in three operating segments. Pursuant to FAS
131, we define an operating segment as:
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a
business activity from which we may earn revenue and incur
expenses;
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·
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whose
operating results are regularly reviewed by the President and Chief
Operating Officer to make decisions about resources to be allocated and
assess its performance; and
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for
which discrete financial information is
available.
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We
therefore define our operating segments as each business line that we
operate. These segments, however, exclude the Corporate and Operation
Headquarters, which do not generate revenue; Perma-Fix of Michigan Inc. (“PFMI”)
and Perma-Fix of Pittsburgh, Inc. (“PFP”), two non-operational facilities within
our Industrial Segment which were approved as discontinued operations by our
Board of Director effective November 8, 2005, and October 4, 2004, respectively;
and PFMD, PFD, and PFTS, three Industrial Segment facilities which were divested
in January 2008, March 2008, and May 2008, respectively, as previously
discussed.
Most of
our activities are conducted nationwide. We do not own any foreign
operations and we had no export sales during 2008.
Operating
Segments
We have
three operating segments, which represent each business line that we operate.
The Nuclear Segment, which operates four facilities; the Industrial Segment,
which operates three facilities; and the Engineering Segment as described
below:
NUCLEAR
WASTE MANAGEMENT SERVICES (“Nuclear Segment”), which includes nuclear, low-level
radioactive, mixed (waste containing both hazardous and low-level radioactive
constituents) hazardous and non-hazardous waste treatment, processing and
disposal services through four uniquely licensed (Nuclear Regulatory Commission
or state equivalent) and permitted (Environmental Protection Agency (“EPA”) or
state equivalent) treatment and storage facilities. The presence of
nuclear and low-level radioactive constituents within the waste streams
processed by this segment creates different and unique operational, processing
and permitting/licensing requirements, as discussed below.
Perma-Fix
of Florida, Inc. (“PFF”), located in Gainesville, Florida, specializes in the
storage, processing, and treatment of certain types of wastes containing both
low-level radioactive and hazardous wastes, which are known in the industry as
mixed waste (“mixed waste”). PFF is one of the first facilities
nationally to operate under both a hazardous waste permit and a radioactive
materials license, from which it has built its reputation based on its ability
to treat difficult waste streams using its unique processing technologies and
its ability to provide related research and development services. PFF
has substantially increased the amount and type of mixed waste and low level
radioactive waste that it can store and treat. Its mixed waste
services have included the treatment and processing of waste Liquid
Scintillation Vials (“LSVs”) since the mid 1980's. LSVs are used for
the counting of certain radionuclides. The LSVs are generated
primarily by institutional research agencies and biotechnical
companies. The business has expanded into receiving and handling
other types of mixed waste, primarily from the nuclear utilities, commercial
generators, prominent pharmaceutical companies, the DOE and other government
facilities as well as select mixed waste field remediation
projects. PFF also continues to receive and process certain hazardous
and non-hazardous waste streams as a compliment to its expanded nuclear and
mixed waste processing activities.
Diversified
Scientific Services, Inc. (“DSSI”) located in Kingston, Tennessee, specializes
in the storage, processing, and destruction of certain types of mixed
waste. DSSI, like PFF, is one of only a few facilities nationally to
operate under both a hazardous waste permit and a radioactive materials
license. Additionally, DSSI is the only commercial facility of its
kind in the U.S. that is currently operating and licensed to destroy liquid
organic mixed waste, through such a treatment unit. DSSI provides
mixed waste disposal services for nuclear utilities, commercial generators,
prominent pharmaceutical companies, and agencies and contractors of the U.S.
government, including the DOE and the DOD. On November 26, 2008, the
U.S. Environmental Protection Agency (“EPA”) Region 4 issued a permit to DSSI to
commercially store and dispose of radioactive Polychlorinated Biphenyls
(“PCBs”). Currently, we are unaware of any other commercial
facilities authorized to store and dispose of radioactive PCB
wastes.
East
Tennessee Materials & Energy Corporation (“M&EC”), located in Oak Ridge,
Tennessee, is another mixed waste facility. M&EC also operates
under both a hazardous waste permit and radioactive materials
license. M&EC represents the largest of our four mixed waste
facilities, covering 150,000 sq. ft., and is located in leased facilities at the
DOE East Tennessee Technology Park. In 2007, M&EC completed its
facility expansion (“SouthBay”) to treat DOE special process wastes from the DOE
Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio under the
subcontract awarded by LATA/Parallax Portsmouth LLC to our Nuclear Segment in
2006. LATA/Parallax performs environmental remediation services,
including groundwater cleanup and waste management activities, under contract to
DOE at the Portsmouth site.
Perma-Fix
Northwest Richland, Inc. (“PFNWR”), which we acquired in June 2007, is located
in Richland, Washington. PFNWR is a permitted hazardous, low level
radioactive and mixed waste treatment, storage and disposal facility located at
the Hanford Site in the eastern part of the state of Washington. The
DOE’s Hanford Site is subject to one of the largest, most complex, and costliest
DOE clean up plans. The strategic addition of PFNWR facility provides
the Company with immediate access to treat some of the most complex nuclear
waste streams in the nation. PFNWR predominately provides waste
treatment services to contractors of government agencies, in addition to
commercial generators.
For 2008,
the Nuclear Segment accounted for $61,359,000 or 81.3% of total revenue from
continuing operations, as compared to $51,704,000 or 80.1% of total revenue from
continuing operations for 2007. See “ – Dependence Upon a Single or
Few Customers” and “Financial Statements and Supplementary Data” for further
details and a discussion as to our Nuclear Segment's contracts with the federal
government or with others as a subcontractor to the federal
government.
INDUSTRIAL
WASTE MANAGEMENT SERVICES (“Industrial Segment”), which includes, off-site waste
storage, treatment, processing and disposal services of hazardous and
non-hazardous waste (solids and liquids) through three permitted treatment
and/or disposal facilities, as discussed below.
Perma-Fix
of Ft. Lauderdale, Inc. (“PFFL”) is a permitted facility located in Ft.
Lauderdale, Florida. PFFL collects and treats wastewaters, oily wastewaters,
used oil and other off-specification petroleum-based products, some of which may
potentially be recycled into usable products. Key activities at PFFL
include process cleaning and material recovery, production and sales of
on-specification fuel oil, custom tailored waste management programs and
hazardous material disposal and recycling materials from generators such as the
cruise line and marine industries.
Perma-Fix
of Orlando, Inc. (“PFO”) is a permitted treatment and storage facility located
in Orlando, Florida. PFO collects, stores and treats hazardous and non-hazardous
wastes under one of our most inclusive permits. PFO is also a
transporter of hazardous waste and operates a transfer facility at the
site. PFO also collects oily waste waters, used oil, and other
off-specification petroleum based products and performs vacuum service work in
Florida.
Perma-Fix
of South Georgia, Inc. (“PFSG”) is a permitted treatment and storage facility
located in Valdosta, Georgia. PFSG provides storage, treatment and
disposal services to hazardous and non-hazardous waste generators primarily
throughout the Southeastern portion of the United States, in conjunction with
the
utilization
of the PFO facility and transportation services. PFSG operates a
hazardous waste storage facility that primarily blends and processes hazardous
and non-hazardous waste liquids, solids and sludges into substitute fuel or as a
raw material substitute in cement kilns that have been specially permitted for
the processing of hazardous and non-hazardous waste.
For 2008,
the Industrial Segment accounted for approximately $10,951,000 or 14.5% of our
total revenue from continuing operations as compared to approximately
$10,442,000 or 16.2% for 2007. See “Financial Statements and
Supplementary Data” for further details.
CONSULTING
ENGINEERING SERVICES (“Engineering Segment”), which provides environmental
engineering and regulatory compliance consulting services through one
subsidiary, as discussed below.
Schreiber,
Yonley & Associates (“SYA”) is located in Ellisville,
Missouri. SYA specializes in air, water, and hazardous waste
permitting, air, soil, and water sampling, compliance reporting, emission
reduction strategies, compliance auditing, and various compliance and training
activities to industrial and government customers, as well as, engineering and
compliance support needed by our other segments.
During
2008, environmental engineering and regulatory compliance consulting services
accounted for approximately $3,194,000 or 4.2% of our total revenue from
continuing operations, as compared to approximately $2,398,000 or 3.7% in
2007. See “Financial Statements and Supplementary Data” for further
details.
Discontinued
Operations
As stated
previously above, our discontinued operations includes the following facilities
within our Industrial Segment: Perma-Fix of Michigan Inc. (“PFMI”),
Perma-Fix of Pittsburgh, Inc. (“PFP”), two non-operational facilities which were
approved as discontinued operations by our Board of Director effective October
4, 2004, and November 8, 2005, respectively, and PFMD, PFD, and PFTS, three
Industrial Segment facilities which were divested in January 2008, March 2008,
and May 2008, respectively.
Our
discontinued operations generated $3,195,000 and $19,965,000 of revenue in 2008
and 2007, respectively.
Importance
of Patents, Trademarks and Proprietary Technology
We do not
believe we are dependent on any particular trademark in order to operate our
business or any significant segment thereof. We have received
registration to the year 2010 and 2012 for the service marks “Perma-Fix” and
“Perma-Fix Environmental Services,” respectively, by the U.S. Patent and
Trademark Office.
We are
active in the research and development (“R&D”) of technologies that allow us
to address certain of our customers' environmental needs. To date, our R&D
efforts have resulted in the granting of seven active patents and the filing of
several pending patent applications. Our flagship technology, the Perma-Fix
Process, is a proprietary, cost effective, treatment technology that converts
hazardous waste into non-hazardous material. Subsequently, we developed the
Perma-Fix II process, a multi-step treatment process that converts hazardous
organic components into non-hazardous material. The Perma-Fix II process is
particularly important to our mixed waste strategy. We believe that at least one
third of DOE mixed waste contains organic components.
The
Perma-Fix II process is designed to remove certain types of organic hazardous
constituents from soils or other solids and sludges (“Solids”) through a
water-based system. Until development of this Perma-Fix II process,
we were not aware of a relatively simple and inexpensive process that would
remove the organic hazardous constituents from Solids without elaborate and
expensive equipment or expensive treating agents. Due to the organic
hazardous constituents involved, the disposal options for such materials are
limited, resulting in high disposal cost when there is a disposal option
available. By reducing the organic hazardous waste constituents in
the Solids to a level where the Solids meet Land Disposal Requirements,
the
generator's
disposal options for such waste are substantially increased, allowing the
generator to dispose of such waste at substantially less cost. We
began commercial use of the Perma-Fix II process in 2000. However,
changes to current environmental laws and regulations could limit the use of the
Perma-Fix II process or the disposal options available to the
generator. See “—Permits and Licenses” and “—Research and
Development.”
Permits
and Licenses
Waste
management companies are subject to extensive, evolving and increasingly
stringent federal, state and local environmental laws and
regulations. Such federal, state and local environmental laws and
regulations govern our activities regarding the treatment, storage, processing,
disposal and transportation of hazardous, non-hazardous and radioactive wastes,
and require us to obtain and maintain permits, licenses and/or approvals in
order to conduct certain of our waste activities. Failure to obtain
and maintain our permits or approvals would have a material adverse effect on
us, our operations, and financial condition. The permits and licenses
have terms ranging from one to ten years, and provided that we maintain a
reasonable level of compliance, renew with minimal effort, and
cost. Historically, there have been no compelling challenges to the
permit and license renewals. Such permits and licenses, however,
represent a potential barrier to entry for possible competitors.
Nuclear
Segment:
PFF
operates its hazardous, mixed and low-level radioactive waste activities under a
RCRA Part B permit and a radioactive materials license issued by the State of
Florida.
DSSI
operates hazardous, mixed and low-level radioactive waste activities under a
RCRA Part B permit and a radioactive materials license issued by the State of
Tennessee. On November 26, 2008, the U.S. EPA Region 4 issued a
permit to DSSI to commercially store and dispose of radioactive Polychlorinated
Biphenyls (“PCBs”). DSSI began the permitting process to add Toxic
Substances Control Act (“TSCA”) regulated wastes, namely PCBs, containing
radioactive constituents to its authorization in 2004 in order to meet the
demand for the treatment of government and commercially generated radioactive
PCB wastes. Currently, we are unaware of any other commercial
facility authorized to store and dispose of radioactive PCB wastes.
M&EC
operates hazardous and low-level radioactive waste activities under a RCRA Part
B permit and a radioactive materials license issued by the State of
Tennessee.
PFNWR
operates its hazardous, mixed and low-level radioactive waste activities under a
RCRA Part B permit and a radioactive materials license issued by the State of
Washington.
The
combination of a RCRA Part B hazardous waste permit and a radioactive materials
license, as held by PFF, DSSI and M&EC, and PFNWR are very difficult to
obtain for a single facility and make these facilities unique.
Industrial
Segment:
PFFL
operates under a used oil processors license and a solid waste processing permit
issued by the Florida Department of Environmental Protection (“FDEP”), a
transporter license issued by the FDEP and a transfer facility license issued by
Broward County, Florida.
PFO
operates a hazardous and non-hazardous waste treatment and storage facility
under various permits, including a RCRA Part B permit, and a used oil processors
permit issued by the State of Florida.
PFSG
operates a hazardous waste treatment and storage facility under a RCRA Part B
permit, issued by the State of Georgia.
Seasonality
Historically,
we have experienced reduced activities and related billable hours throughout the
November and December holiday periods within our Engineering
Segment. Our Industrial Segment operations experience reduced
activities during the holiday periods; however, one key product line is the
servicing of cruise line business where operations are typically higher during
the winter months, thus offsetting the impact of the holiday
season. The DOE and DOD represent major customers for the Nuclear
Segment. In conjunction with the federal government’s September 30
fiscal year-end, the Nuclear Segment historically experienced seasonably large
shipments during the third quarter, leading up to this government fiscal
year-end, as a result of incentives and other quota
requirements. Correspondingly for a period of approximately three
months following September 30, the Nuclear Segment is generally seasonably slow,
as the government budgets are still being finalized, planning for the new year
is occurring, and we enter the holiday season. Over the
past years, due to our efforts to work with the various government customers to
smooth these shipments more evenly throughout the year, we have seen smaller
fluctuations in the quarters. Although we have seen smaller
fluctuation in the quarters in recent years, as government spending is
contingent upon its annual budget and allocation of funding, we cannot provide
assurance that we will not have larger fluctuations in the quarters in the near
future. For 2008, government agencies were operated under “Continuing
Resolution” without finalized budgets due in part to the impending change in
Administration, which had a negative impact on availability of funding for
services offered by our Nuclear Segment.
Backlog
The
Nuclear Segment of our Company maintains a backlog of stored waste, which
represents waste that has not been processed. The backlog is
principally a result of the timing and complexity of the waste being brought
into the facilities and the selling price per container. As of
December 31, 2008, our Nuclear Segment had a backlog of approximately
$10,244,000, as compared to approximately $14,600,000, as of December 31,
2007. Additionally, the time it takes to process mixed waste from the
time it arrives may increase due to the types and complexities of the waste we
are currently receiving. We typically process our backlog during
periods of low waste receipts, which historically has been in the first or
fourth quarter.
Dependence
Upon a Single or Few Customers
Our
Nuclear Segment has a significant relationship with the federal government, and
continues to enter into, contracts with (directly or indirectly as a
subcontractor) the federal government. The contracts that we are a
party to with the federal government or with others as a subcontractor to the
federal government generally provide that the government may terminate or
renegotiate the contracts in 30 days notice, at the government's
election. 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.
We
performed services relating to waste generated by the federal government, either
directly or indirectly as a subcontractor (including LATA/Parallax, Fluor
Hanford, and CHPRC as discussed below) to the federal government, representing
approximately $43,464,000 or 57.6% of our total revenue from continuing
operations during 2008, as compared to $30,000,000 or 46.5% of our total revenue
from continuing operations during 2007, and $33,226,000 or 48.7% of our total
revenue from continuing operations during 2006.
Included
in the amounts discussed above, are revenues from LATA/Parallax Portsmouth LLC
(“LATA/Parallax”). LATA/Parallax manages DOE environmental
programs. Our revenues from LATA/Parallax contributed $4,841,000 or
6.4%, $8,784,000 or 13.6%, and 10,341,000 or 15.2% of our revenues from
continuing operations for 2008, 2007, and 2006,
respectively. In 2006, our M&EC facility was awarded a
subcontract by LATA/Parallax to treat DOE special process wastes from the DOE
Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio. This
subcontract has been extended through September 30, 2009. We
currently have two other subcontracts with LATA/Parallax to treat wastes which
are set to expire on September 30, 2009. As with most contracts
relating to the federal government,
LATA/Parallax
can terminate the contract with us at any time for convenience, which could have
a material adverse effect on our operations.
Since
2004, our Nuclear Segment has treated mixed low-level waste, as a subcontractor,
for Fluor Hanford, who acts as a general contractor for the
DOE. However, with the acquisition of our PFNWR facility in 2007, a
significant amount of our revenues is derived from Fluor Hanford, a DOE general
contractor since 1996. Fluor Hanford manages several major activities
at the DOE’s Hanford Site, including dismantling former nuclear processing
facilities, monitoring and cleaning up the site’s contaminated groundwater, and
retrieving and processing transuranic waste for off-site
shipment. The Hanford Site is one of DOE’s largest nuclear weapon
environmental remediation projects. Our PFNWR facility is located
adjacent to the Hanford Site and treats low level radioactive and mixed
wastes. We have three subcontracts with Fluor Hanford (as the general
contractor at the DOE Site) at our PFNWR facility, with the initial contract
dating back to 2003. Fluor Hanford’s successor, CHPRC, was awarded
the Plateau Remediation Contract for the Hanford Site in the second quarter of
2008 and has begun management of the waste activities previously managed by
Fluor Hanford under these three subcontracts, effective October 1,
2008. CHPRC has extended these subcontracts to March 31, 2009 and we
expect these subcontracts will be renegotiated by CHPRC beyond March 31,
2009. Revenue from Fluor Hanford has been transitioned to CHPRC and
we expect these revenues to remain constant or possibly increase, dependent upon
DOE funding, in fiscal year 2009. Revenues from Fluor Hanford
totaled $7,974,000 or 10.6% (approximately $5,160,000 from PFNWR), $6,985,000
(approximately $3,100,000 from PFNWR) or 10.8%, and $1,229,000 or 1.8% of our
consolidated revenue from continuing operations for 2008, 2007, and 2006,
respectively.
In
connection with the CHPRC obligations under its DOE general contract as
discussed above, our M&EC facility was awarded a subcontract by CHPRC to
participate in the cleanup of the central portion of the Hanford Site, which
once housed certain chemical separation buildings and other facilities that
separated and recovered plutonium and other materials for use in nuclear
weapons. This subcontract became effective on June 19, 2008, the date
DOE awarded CHPRC the general contract. DOE’s general
contract and M&EC’s subcontract provided a transition period from August 11,
2008 through September 30, 2008, a base period from October 1, 2008 through
September 30, 2013, and an option period from October 1, 2013 through September
30, 2018. M&EC’s subcontract is a cost plus award fee
contract. On October 1, 2008, operations of this subcontract
commenced at the DOE Hanford Site. We believe full operations under
this 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. As of December 31, 2008, revenue from this subcontractor
accounted for $8,120,000 or 10.8% of total revenue from our continuing
operations. As of the date of this report, we have employed an
additional 177 employees to service this subcontract.
Competitive
Conditions
The
Nuclear Segment’s largest competitor is EnergySolutions, which provides
treatment and disposal capabilities at its Oak Ridge, Tennessee and Clive, Utah
facilities. EnergySolutions presents the largest competitive
challenge in the market. At present, EnergySolutions’ Clive, Utah
facility is one of the few radioactive disposal sites for commercially generated
wastes in the country in which our Nuclear Segment can dispose of its nuclear
waste. If EnergySolutions should refuse to accept our waste or cease
operations at its Clive, Utah facility, such would have a material adverse
effect on us for commercial wastes. The Nuclear Segment treats and
disposes of DOE generated wastes largely at DOE owned sites. Smaller
competitors are also present in the market place; however, they do not present a
significant challenge at this time. Our Nuclear Segment
solicits business on a nationwide basis with both government and commercial
clients.
The
permitting and licensing requirements, and the cost to obtain such permits, are
barriers to the entry of hazardous waste treatment, storage, and diposal (“TSD”)
facilities and radioactive and mixed waste activities as presently operated by
our subsidiaries. We believe that there are no formidable barriers to
entry into certain of the on-site treatment businesses, and certain of the
non-hazardous waste operations, which do not require such permits. If
the permit requirements for hazardous waste storage, treatment, and disposal
activities and/or the licensing requirements for the handling of low level
radioactive matters are eliminated
or if
such licenses or permits were made less rigorous to obtain, such would allow
companies to enter into these markets and provide greater
competition.
Engineering
Segment consulting services provided by us through SYA involve competition with
larger engineering and consulting firms. We believe that we are able
to compete with these firms based on our established reputation in these market
areas and our expertise in several specific elements of environmental
engineering and consulting such as environmental applications in the cement
industry, emission reduction strategies, and Maximum Available Control
Technology (“MACT”) compliance.
Within
our Industrial Segment we solicit business primarily in the Southeastern portion
of the United States. We believe that we are a significant
provider in the delivery of off-site waste treatment services in the Southeast
portion of the United States. We compete with facilities operated by
national, regional and independent environmental services firms located within a
several hundred-mile radius of our facilities.
Capital
Spending, Certain Environmental Expenditures and Potential Environmental
Liabilities
Capital
Spending
During
2008, our purchases of capital equipment totaled approximately $1,158,000 of
which $1,129,000 and $29,000 was for our continuing and discontinued operations,
respectively. Of the total capital spending, $148,000 was financed
for our continuing operations, resulting in total net purchases of $1,010,000
funded out of cash flow ($981,000 for continuing operations and $29,000 for our
discontinued operations). These expenditures were for compliance,
sustenance, expansion, and improvements to the operations principally within the
Nuclear Segment. These capital expenditures were funded by the cash
provided by operations and from cash provided by financing activities. We have
budgeted approximately $1,300,000 for 2009 capital expenditures for our segments
to expand our operations into new markets, reduce the cost of waste processing
and handling, expand the range of wastes that can be accepted for treatment and
processing, and to maintain permit compliance requirements. Certain
of these budgeted projects are discretionary and may either be delayed until
later in the year or deferred altogether. We have traditionally
incurred actual capital spending totals for a given year less than the initial
budget amount. The initiation and timing of projects are also
determined by financing alternatives or funds available for such capital
projects.
Environmental
Liabilities
We have
four remediation projects, which are currently in progress at certain of our
continuing and discontinued facilities. These remediation projects principally
entail the removal/remediation of contaminated soil and, in some cases, the
remediation of surrounding ground water.
In June
1994, we acquired PFD, which we divested in March 2008. Prior to us
acquiring PFD in 1994, the former owners of PFD had merged Environmental
Processing Services, Inc. (“EPS”) with PFD. The party that sold PFD
to us in 1994 agreed to indemnify us for costs associated with remediating the
property leased by EPS (“Leased Property”). Such remediation involves
soil and/or groundwater restoration. The Leased Property used by EPS
to operate its facility is separate and apart from the property on which PFD's
facility was located. The contamination of the Leased Property
occurred prior to PFD being acquired by us. During 1995, in
conjunction with the bankruptcy filing by the selling party, we recognized an
environmental liability of approximately $1,200,000 for remedial activities at
the Leased Property. Upon the sale of PFD in March 2008 by Perma-Fix,
we retained the environmental liability of PFD as it related only to the
remediation of the EPS site. In 2008, we performed a field
investigation to gather additional information required to close certain soil
contamination issues and to support development of the final groundwater
remediation approach. We have accrued approximately $489,000, at
December 31, 2008, for the estimated, remaining costs of remediating the Leased
Property used by EPS, which will extend over the next seven years.
In
conjunction with the acquisition of Perma-Fix of Memphis, Inc. (“PFM”), we
assumed and recorded certain liabilities to remediate gasoline contaminated
groundwater and investigate, under the hazardous and solid waste amendments,
potential areas of soil contamination on PFM's property. Prior to our
ownership of PFM, the owners installed monitoring and treatment equipment to
restore the groundwater to acceptable
standards
in accordance with federal, state and local authorities. In 2008, we completed
all soil remediation with the exception of that associated with the groundwater
contamination. In addition, we installed wells and equipment
associated with groundwater remediation. We have accrued
approximately $275,000 at December 31, 2008, for the estimated, remaining costs
of remediating the groundwater contamination, which will extend over the next
five years. This environmental liability is included in our
continuing operations and will remain the financial obligation of the
Company.
In
conjunction with the acquisition of PFSG, a subsidiary within our Industrial
Segment, we initially recognized an environmental accrual of $2,200,000 for
estimated long-term costs to remove contaminated soil and to undergo ground
water remediation activities at the acquired facility in Valdosta,
Georgia. The remedial activities began in 2003. We have
accrued approximately $531,000, at December 31, 2008, to complete remediation of
the facility, which we anticipate spending over the next seven
years.
In
conjunction with an oil spill at PFTS, we accrued approximately $69,000 to
remediate the contaminated soil and ground water at this
location. Upon the sale of PFTS facility in May 2008, the remaining
environmental reserve of approximately $35,000 was recorded as a “gain on
disposal of discontinued operations, net of taxes” in the second quarter of 2008
on our “Consolidated Statement of Operations”.
In
conjunction with the acquisition of PFMD in March 2004, we accrued for long-term
environmental liabilities of $391,000 as a best estimate of the cost to
remediate the hazardous and/or non-hazardous contamination on certain properties
owned by PFMD. In connection with the sale of PFMD facility in
January 2008, the buyer assumed this liability in addition to obligations and
liabilities for environmental conditions at the Maryland facility except for
fines, assessments, or judgments to governmental authorities prior to the
closing of the transaction or third party tort claims existing prior to the
closing of the sale.
As a
result of the discontinued operations at the PFMI facility in 2004, we were
required to complete certain closure and remediation activities pursuant to our
RCRA permit, which were completed in January 2006. In September 2006,
PFMI signed a Corrective Action Consent Order with the State of Michigan,
requiring performance of studies and development and execution of plans related
to the potential clean-up of soils in portions of the property. The
level and cost of the clean-up and remediation are determined by state mandated
requirements. Upon discontinuation of operations in 2004, we engaged
our engineering firm, SYA, to perform an analysis and related estimate of the
cost to complete the RCRA portion of the closure/clean-up costs and the
potential long-term remediation costs. Based upon this analysis, we
estimated the cost of this environmental closure and remediation liability to be
$2,464,000. During 2006, based on state-mandated criteria, we
re-evaluated our required activities to close and remediate the facility, and
during the quarter ended June 30, 2006, we began implementing the modified
methodology to remediate the facility. As a result of the
reevaluation and the change in methodology, we reduced the accrual by
$1,182,000. We have spent approximately
$745,000 for closure costs since September 30, 2004, of which $26,000 was spent
during 2008 and $81,000 was spent during 2007. In the 4th quarter of 2007, we reduced
our reserve by $9,000 as a result of our reassessment of the cost of
remediation. We have $538,000 accrued for the closure,
as of December 31, 2008, and we anticipate spending $425,000 in 2009 with the
remainder over the next six years. Based on the current status of the
Corrective Action, we believe that the remaining reserve is adequate to cover
the liability.
No
insurance or third party recovery was taken into account in determining our cost
estimates or reserves, nor do our cost estimates or reserves reflect any
discount for present value purposes.
The
nature of our business exposes us to significant risk of liability for
damages. Such potential liability could involve, for example, claims
for cleanup costs, personal injury or damage to the environment in cases where
we are held responsible for the release of hazardous materials; claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of our operations; and claims alleging negligence or
professional errors or omissions in the planning or performance of our
services. In addition, we could be deemed a responsible party for the
costs of required cleanup of any property, which may be contaminated by
hazardous substances generated or transported by us to a site we
selected,
including
properties owned or leased by us (see “Legal Proceedings” in Part I, Item
3). We could also be subject to fines and civil penalties in
connection with violations of regulatory requirements.
Research
and Development
Innovation
and technical know-how by our operations is very important to the success of our
business. Our goal is to discover, develop and bring to market
innovative ways to process waste that address unmet environmental
needs. We conduct research internally, and also through
collaborations with other third parties. The majority of our research
activities are performed as we receive new and unique waste to treat; as such,
we recognize these expenses as a part of our processing costs. We
feel that our investments in research have been rewarded by the discovery of the
Perma-Fix Process and the Perma-Fix II process. Our competitors also
devote resources to research and development and many such competitors have
greater resources at their disposal than we do. We have estimated
that during 2008, 2007, and 2006, we spent approximately $1,020,000, $715,000,
and $422,000, respectively, in Company-sponsored research and development
activities.
Number
of Employees
In our
service-driven business, our employees are vital to our success. We
believe we have good relationships with our employees. As of December
31, 2008, we employed 554 full time persons, of whom 16 were assigned to our
corporate office, 20 were assigned to our Operations Headquarters, 24 were
assigned to our Engineering Segment, 42 were assigned to our Industrial Segment,
and 452 were assigned to our Nuclear Segment. Of the 452 employees at
our Nuclear Segment, 177 employees were hired in 2008 as result of our new
subcontract awarded to us by CHPRC. Of the 177 employees, 84 employees
(representing 15.2% of the Company's total number of employees) are unionized
and are covered by a collective bargaining agreement. The bargaining agreement
has a term of three years effective April 1, 2007 and expires on March 31,
2010 and is subject to a two year extension pending wage and benefit
renegotiation (see “-Company Overview and Principal Products and Services”
in this section).
Governmental
Regulation
Environmental
companies and their customers are subject to extensive and evolving
environmental laws and regulations by a number of national, state and local
environmental, safety and health agencies, the principal of which being the
EPA. These laws and regulations largely contribute to the demand for
our services. Although our customers remain responsible by law for
their environmental problems, we must also comply with the requirements of those
laws applicable to our services. We cannot predict the extent to
which our operations may be affected by future enforcement policies as applied
to existing laws or by the enactment of new environmental laws and
regulations. Moreover, any predictions regarding possible liability
are further complicated by the fact that under current environmental laws we
could be jointly and severally liable for certain activities of third parties
over whom we have little or no control. Although we believe that we
are currently in substantial compliance with applicable laws and regulations, we
could be subject to fines, penalties or other liabilities or could be adversely
affected by existing or subsequently enacted laws or regulations. The
principal environmental laws affecting our customers and us are briefly
discussed below.
The Resource Conservation and
Recovery Act of 1976, as amended (“RCRA”)
RCRA and
its associated regulations establish a strict and comprehensive permitting and
regulatory program applicable to hazardous waste. The EPA has
promulgated regulations under RCRA for new and existing treatment, storage and
disposal facilities including incinerators, storage and treatment tanks, storage
containers, storage and treatment surface impoundments, waste piles and
landfills. Every facility that treats, stores or disposes of
hazardous waste must obtain a RCRA permit or must obtain interim status from the
EPA, or a state agency, which has been authorized by the EPA to administer its
program, and must comply with certain operating, financial responsibility and
closure requirements.
The Safe Drinking Water
Act, as amended (the
“SDW Act”)
SDW Act
regulates, among other items, the underground injection of liquid wastes in
order to protect usable groundwater from contamination. The SDW Act
established the Underground Injection Control Program (“UIC Program”) that
provides for the classification of injection wells into five
classes. Class I wells are those which inject industrial, municipal,
nuclear and hazardous wastes below all underground sources of drinking water in
an area. Class I wells are divided into non-hazardous and hazardous
categories with more
stringent
regulations imposed on Class I wells which inject hazardous
wastes. PFTS' permit to operate its underground injection disposal
wells is limited to non-hazardous wastewaters.
The
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA,” also referred to as the “Superfund Act”)
CERCLA
governs the cleanup of sites at which hazardous substances are located or at
which hazardous substances have been released or are threatened to be released
into the environment. CERCLA authorizes the EPA to compel responsible
parties to clean up sites and provides for punitive damages for
noncompliance. CERCLA imposes joint and several liabilities for the
costs of clean up and damages to natural resources.
Health
and Safety Regulations
The
operation of our environmental activities is subject to the requirements of the
Occupational Safety and Health Act (“OSHA”) and comparable state
laws. Regulations promulgated under OSHA by the Department of Labor
require employers of persons in the transportation and environmental industries,
including independent contractors, to implement hazard communications, work
practices and personnel protection programs in order to protect employees from
equipment safety hazards and exposure to hazardous chemicals.
Atomic
Energy Act
The
Atomic Energy Act of 1954 governs the safe handling and use of Source, Special
Nuclear and Byproduct materials in the U.S. and its territories. This
act authorized the Atomic Energy Commission (now the Nuclear Regulatory
Commission “USNRC”) to enter into “Agreements with States to carry out those
regulatory functions in those respective states except for Nuclear Power Plants
and federal facilities like the VA hospitals and the DOE
operations.” The State of Florida (with the USNRC oversight), Office
of Radiation Control, regulates the radiological program of the PFF facility,
and the State of Tennessee (with the USNRC oversight), Tennessee Department of
Radiological Health, regulates the radiological program of the DSSI and M&EC
facilities. The State of Washington (with the USNRC oversight)
Department of Health, regulates the radiological operations of the PFNWR
facility.
Other
Laws
Our
activities are subject to other federal environmental protection and similar
laws, including, without limitation, the Clean Water Act, the Clean Air Act, the
Hazardous Materials Transportation Act and the Toxic Substances Control
Act. Many states have also adopted laws for the protection of the
environment which may affect us, including laws governing the generation,
handling, transportation and disposition of hazardous substances and laws
governing the investigation and cleanup of, and liability for, contaminated
sites. Some of these state provisions are broader and more stringent
than existing federal law and regulations. Our failure to conform our
services to the requirements of any of these other applicable federal or state
laws could subject us to substantial liabilities which could have a material
adverse effect on us, our operations and financial condition. In
addition to various federal, state and local environmental regulations, our
hazardous waste transportation activities are regulated by the U.S. Department
of Transportation, the Interstate Commerce Commission and transportation
regulatory bodies in the states in which we operate. We cannot predict the
extent to which we may be affected by any law or rule that may be enacted or
enforced in the future, or any new or different interpretations of existing laws
or rules.
Insurance
We
believe we maintain insurance coverage adequate for our needs and similar to, or
greater than, the coverage maintained by other companies of our size in the
industry. There can be no assurances, however, that liabilities,
which we may incur will be covered by our insurance or that the dollar amount of
such liabilities, which are covered will not exceed our policy
limits. Under our insurance contracts, we usually accept self-insured
retentions, which we believe is appropriate for our specific business
risks. We are required by EPA regulations to carry environmental
impairment liability insurance providing coverage for damages on a claims-made
basis in amounts of at least $1,000,000 per occurrence and $2,000,000 per year
in the aggregate. To meet the requirements of customers, we have
exceeded these coverage amounts.
In June
2003, we entered into a 25-year finite risk insurance policy with AIG (see “Part
I, Item 1A. - Risk Factors” for certain potential risk related to 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
provides a maximum $35,000,000 of financial assurance coverage, and thus far has
provided $32,515,000 in financial assurance as of December 31,
2008. In March 2009, we increased our maximum policy coverage to
$39,000,000 in order to secure additional financial assurance coverage
requirement for our DSSI subsidiary to commercially store and dispose of PCB
wastes under a permit issued by theEPA on November 26, 2008. As a
result of this additional financial assurance requirement for our DSSI permit,
our coverage under this policy totals approximately $37,936,000.
In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility, which we acquired in June 2007, with AIG (see “Part I, Item 1A. - Risk
Factors” for certain potential risk related to AIG). The policy
provides an initial $7,800,000 of financial assurance coverage with 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 will renew automatically
on an annual basis at the end of the four year term and will not be subject to
any renewal fees.
The
following are certain risk factors that could affect our business, financial
performance, and results of operations. These risk factors should be considered
in connection with evaluating the forward-looking statements contained in this
Form 10-K, as the forward-looking statements are based on current expectations,
and actual results and conditions could differ materially from the current
expectations. Investing in our securities involves a high degree of
risk, and before making an investment decision, you should carefully consider
these risk factors as well as other information we include or incorporate by
reference in the other reports we file with the Securities and Exchange
Commission (“SEC”).
Risks
Relating to our Operations
Our
insurer that provides our financial assurance that we are required to have in
order to operate our permitted treatment, storage and disposal facility has
experienced financial difficulties.
It has
been publicly reported that American International Group, Inc. (“AIG”), has
experienced significant financial difficulties and is continuing to experience
significant financial difficulties. A subsidiary of AIG provides our
finite risk insurance policies which provide financial assurance to the
applicable states for our permitted facilities in the event of unforeseen
closure. We are required to provide and to maintain financial
assurance that guarantees to the state that in the event of closure of our
permitted facilities will be closed in accordance with the
regulations. The policies provide a maximum of $35,000,000 of
financial assurance coverage of which the coverage amount totals $32,515,000 at
December 31, 2008. In March 2009, the policies were increased to
provide a maximum of $39,000,000 of financial assurance coverage of which the
coverage amounts totals $37,936,000. This additional increase was the
result of additional financial assurance coverage requirement for our DSSI
subsidiary to commercially store and dispose of PCB wastes under a permit issued
by theEPA on November 26, 2008. The AIG subsidiary also provides
other operating insurance policies for the Company and our
subsidiaries. In the event of a failure of AIG, this could materially
impact our operations and our permits which we are required to have in order to
operate our treatment, storage, and disposal facilities.
If
we cannot maintain adequate insurance coverage, we will be unable to continue
certain operations.
Our
business exposes us to various risks, including claims for causing damage to
property and injuries to persons that may involve allegations of negligence or
professional errors or omissions in the performance of our
services. Such claims could be substantial. We believe
that our insurance coverage is presently adequate and similar to, or greater
than, the coverage maintained by other companies in the industry of our
size. If we are unable to obtain adequate or required insurance
coverage in the future, or if our insurance is not available at affordable
rates, we would violate our permit conditions and other requirements of
the
environmental
laws, rules, and regulations under which we operate. Such violations
would render us unable to continue certain of our operations. These
events would have a material adverse effect on our financial
condition.
The
inability to maintain existing government contracts or win new government
contracts over an extended period could have a material adverse effect on our
operations and adversely affect our future revenues.
A
material amount of our Nuclear Segment's revenues are generated through various
U.S. government contracts or subcontracts involving the U.S.
government. Our revenues from governmental contracts and subcontracts
relating to governmental facilities within our Nuclear Segment were
approximately $43,464,000 and $30,000,000, representing 57.6% and 46.5%,
respectively, of our consolidated operating revenues from continuing operations
for 2008 and 2007. Most of our government contracts or our
subcontracts granted under government contracts are awarded through a regulated
competitive bidding process. Some government contracts are awarded to multiple
competitors, which increase overall competition and pricing pressure and may
require us to make sustained post-award efforts to realize revenues under these
government contracts. All contracts with, or subcontracts involving, the federal
government are terminable, or subject to renegotiation, by the applicable
governmental agency on 30 days notice, at the option of the governmental
agency. If we fail to maintain or replace these relationships, or if
a material contract is terminated or renegotiated in a manner that is materially
adverse to us, our revenues and future operations could be materially adversely
affected.
Failure
of our Nuclear Segment to be profitable could have a material adverse
effect.
Our
Nuclear Segment has historically been profitable. With the
divestitures of certain facilities within our Industrial Segment and the
acquisition of our Perma-Fix Northwest Richland, Inc. (“PFNWR”) within our
Nuclear Segment in June 2007, the Nuclear Segment represents the Company’s
largest revenue segment. The Company’s main objectives are to increase focus on
the efficient operation of our existing facilities within our Nuclear Segment
and to further evaluate strategic acquisitions within the Nuclear
Segment. If our Nuclear Segment fails to continue to be profitable in
the future, this could have a material adverse effect on the Company’s results
of operations, liquidity and our potential growth.
Our
existing and future customers may reduce or halt their spending on nuclear
services with outside vendors, including us.
A variety
of factors may cause our existing or future customers (including the federal
government) to reduce or halt their spending on nuclear services from outside
vendors, including us. These factors include, but are not limited
to:
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accidents,
terrorism, natural disasters or other incidents occurring at nuclear
facilities or involving shipments of nuclear
materials;
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failure
of the federal government to approve necessary budgets, or to reduce the
amount of the budget necessary, to fund remediation of DOE and DOD
sites;
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civic
opposition to or changes in government policies regarding nuclear
operations; or
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a
reduction in demand for nuclear generating
capacity.
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These
events could result in or cause the federal government to terminate or cancel
its existing contracts involving us to treat, store or dispose of contaminated
waste at one or more of the federal sites since all contracts with, or
subcontracts involving, the federal government are terminable upon or subject to
renegotiation at the option of the government on 30 days
notice. These events also could adversely affect us to the extent
that they result in the reduction or elimination of contractual requirements,
lower demand for nuclear services, burdensome regulation, disruptions of
shipments or production, increased operational costs or difficulties or
increased liability for actual or threatened property damage or personal
injury.
Economic
downturns (ie: the current economic recession) and/or reductions in government
funding could have a material negative impact on our businesses.
Demand
for our services has been, and we expect that demand will continue to be,
subject to significant fluctuations due to a variety of factors beyond our
control, including the current economic recession and conditions, inability of
the federal government to adopt its budget or reductions in the budget for
spending to remediate federal sites due to numerous reasons, including, without
limitation, the substantial deficits that the federal government has and is
continuing to incur. During economic downturns, such as the current
economic recession, and large budget deficits that the federal government and
many states are experiencing, the ability of private and government entities to
spend on nuclear services may decline significantly. Although the
recently adopted economic stimulus package provides for substantial funds to
remediate federal nuclear sites, we cannot be certain that economic or political
conditions will be generally favorable or that there will not be significant
fluctuations adversely affecting our industry as a whole. In
addition, our operations depend, in large part, upon governmental funding,
particularly funding levels at the DOE. Significant reductions in the
level of governmental funding (for example, the annual budget of the DOE) 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.
The
loss of one or a few customers could have an adverse effect on us.
One or a
few governmental customers or governmental related customers have in the past,
and may in the future, account for a significant portion of our revenue in any
one year or over a period of several consecutive years. Because
customers generally contract with us for specific projects, we may lose these
significant customers from year to year as their projects with us are completed.
Our inability to replace the business with other projects could have an adverse
effect on our business and results of operations.
As
a government contractor, we are subject to extensive government regulation, and
our failure to comply with applicable regulations could subject us to penalties
that may restrict our ability to conduct our business.
Our
governmental contracts, which are primarily with the DOE or subcontracts
relating to DOE sites, are a significant part of our
business. Allowable costs under U.S. government contracts are subject
to audit by the U.S. government. If these audits result in
determinations that costs claimed as reimbursable are not allowed costs or were
not allocated in accordance with applicable regulations, we could be required to
reimburse the U.S. government for amounts previously received.
Governmental
contracts or subcontracts involving governmental facilities are often subject to
specific procurement regulations, contract provisions and a variety of other
requirements relating to the formation, administration, performance and
accounting of these contracts. Many of these contracts include
express or implied certifications of compliance with applicable regulations and
contractual provisions. If we fail to comply with any regulations,
requirements or statutes, our existing governmental contracts or subcontracts
involving governmental facilities could be terminated or we could be suspended
from government contracting or subcontracting. If one or more of our
governmental contracts or subcontracts are terminated for any reason, or if we
are suspended or debarred from government work, we could suffer a significant
reduction in expected revenues and profits. Furthermore, as a result of our
governmental contracts or subcontracts involving governmental facilities, claims
for civil or criminal fraud may be brought by the government or violations of
these regulations, requirements or statutes.
Loss
of certain key personnel could have a material adverse effect on
us.
Our
success depends on the contributions of our key management, environmental and
engineering personnel, especially Dr. Louis F. Centofanti, Chairman, President,
and Chief Executive Officer. The loss of Dr. Centofanti could have a
material adverse effect on our operations, revenues, prospects, and our ability
to raise additional funds. Our future success depends on our ability
to retain and expand our staff of qualified personnel, including environmental
specialists and technicians, sales personnel, and engineers. Without qualified
personnel, we may incur delays in rendering our services or be unable to render
certain services. We cannot be certain that we will be successful in
our efforts to attract and retain qualified personnel as their availability is
limited due to the demand for hazardous waste management services
and
the
highly competitive nature of the hazardous waste management
industry. We do not maintain key person insurance on any of our
employees, officers, or directors.
Changes
in environmental regulations and enforcement policies could subject us to
additional liability and adversely affect our ability to continue certain
operations.
We cannot
predict the extent to which our operations may be affected by future
governmental enforcement policies as applied to existing laws, by changes to
current environmental laws and regulations, or by the enactment of new
environmental laws and regulations. Any predictions regarding
possible liability under such laws are complicated further by current
environmental laws which provide that we could be liable, jointly and severally,
for certain activities of third parties over whom we have limited or no
control.
The
refusal to accept our waste for disposal by, or a closure of, the end disposal
site that our Nuclear Segment utilizes to dispose of its waste could subject us
to significant risk and limit our operations.
Our
Nuclear Segment has limited options available for disposal of its waste. If this
disposal site ceases to accept waste or closes for any reason or refuses to
accept the waste of our Nuclear Segment, for any reason, we could have nowhere
to dispose of our nuclear waste or have significantly increased costs from
disposal alternatives. With nowhere to dispose of our nuclear waste, we would be
subject to significant risk from the implications of storing the waste on our
site, and we would have to limit our operations to accept only waste that we can
dispose of.
Our
businesses subject us to substantial potential environmental
liability.
Our
business of rendering services in connection with management of waste, including
certain types of hazardous waste, low-level radioactive waste, and mixed waste
(waste containing both hazardous and low-level radioactive waste), subjects us
to risks of liability for damages. Such liability could involve, without
limitation:
|
·
|
claims
for clean-up costs, personal injury or damage to the environment in cases
in which we are held responsible for the release of hazardous or
radioactive materials; and
|
|
·
|
claims
of employees, customers, or third parties for personal injury or property
damage occurring in the course of our operations;
and
|
|
·
|
claims
alleging negligence or professional errors or omissions in the planning or
performance of our services.
|
Our
operations are subject to numerous environmental laws and regulations. We have
in the past, and could in the future, be subject to substantial fines,
penalties, and sanctions for violations of environmental laws and substantial
expenditures as a responsible party for the cost of remediating any property
which may be contaminated by hazardous substances generated by us and disposed
at such property, or transported by us to a site selected by us, including
properties we own or lease.
As
our operations expand, we may be subject to increased litigation, which could
have a negative impact on our future financial results.
Our
operations are highly regulated and we are subject to numerous laws and
regulations regarding procedures for waste treatment, storage, recycling,
transportation, and disposal activities, all of which may provide the basis for
litigation against us. In recent years, the waste treatment industry has
experienced a significant increase in so-called “toxic-tort” litigation as those
injured by contamination seek to recover for personal injuries or property
damage. We believe that, as our operations and activities expand,
there will be a similar increase in the potential for litigation alleging that
we have violated environmental laws or regulations or are responsible for
contamination or pollution caused by our normal operations, negligence or other
misconduct, or for accidents, which occur in the course of our business
activities. Such litigation, if significant and not adequately
insured against, could adversely affect our financial condition and our ability
to fund
our operations. Protracted litigation would likely cause us to spend
significant amounts of our time, effort, and money. This could prevent our
management from focusing on our operations and expansion.
Our
operations are subject to seasonal factors, which cause our revenues to
fluctuate.
We have
historically experienced reduced revenues and losses during the first and fourth
quarters of our fiscal years due to a seasonal slowdown in operations from poor
weather conditions, overall reduced activities during these periods resulting
from holiday periods, and finalization of government budgets during the fourth
quarter of each year. During our second and third fiscal quarters
there has historically been an increase in revenues and operating
profits. If we do not continue to have increased revenues and
profitability during the second and third fiscal quarters, this will have a
material adverse effect on our results of operations and liquidity.
If
environmental regulation or enforcement is relaxed, the demand for our services
will decrease.
The
demand for our services is substantially dependent upon the public's concern
with, and the continuation and proliferation of, the laws and regulations
governing the treatment, storage, recycling, and disposal of hazardous,
non-hazardous, and low-level radioactive waste. A decrease in the
level of public concern, the repeal or modification of these laws, or any
significant relaxation of regulations relating to the treatment, storage,
recycling, and disposal of hazardous waste and low-level radioactive waste would
significantly reduce the demand for our services and could have a material
adverse effect on our operations and financial condition. We are not aware of
any current federal or state government or agency efforts in which a moratorium
or limitation has been, or will be, placed upon the creation of new hazardous or
radioactive waste regulations that would have a material adverse effect on us;
however, no assurance can be made that such a moratorium or limitation will not
be implemented in the future.
We
and our customers operate in a politically sensitive environment, and the public
perception of nuclear power and radioactive materials can affect our customers
and us.
We and
our customers operate in a politically sensitive environment. Opposition by
third parties to particular projects can limit the handling and disposal of
radioactive materials. Adverse public reaction to developments in the
disposal of radioactive materials, including any high profile incident involving
the discharge of radioactive materials, could directly affect our customers and
indirectly affect our business. Adverse public reaction also could lead to
increased regulation or outright prohibition, limitations on the activities of
our customers, more onerous operating requirements or other conditions that
could have a material adverse impact on our customers’ and our
business.
We
may not be successful in winning new business mandates from our government and
commercial customers.
We must
be successful in winning mandates from our government and commercial customers
to replace revenues from projects that are nearing completion and to increase
our revenues. Our business and operating results can be adversely affected by
the size and timing of a single material contract.
The
elimination or any modification of the Price-Anderson Acts indemnification
authority could have adverse consequences for our business.
The
Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates the
manufacture, use, and storage of radioactive materials. The
Price-Anderson Act supports the nuclear services industry by offering broad
indemnification to DOE contractors for liabilities arising out of nuclear
incidents at DOE nuclear facilities. That indemnification protects
DOE prime contractor, but also similar companies that work under contract or
subcontract for a DOE prime contract or transporting radioactive material to or
from a site. The indemnification authority of the DOE under the
Price-Anderson Act was extended through 2025 by the Energy Policy Act of
2005.
The
Price-Anderson Act’s indemnification provisions generally do not apply to our
processing of radioactive waste at governmental facilities, and do not apply to
liabilities that we might incur while performing services as a contractor for
the DOE and the nuclear energy industry. If an incident or evacuation
is not covered under Price-Anderson Act indemnification, we could be held liable
for damages, regardless
of fault, which could have an adverse effect on our results of operations and
financial condition. If such indemnification authority is not applicable in the
future, our business could be adversely affected if the owners and operators of
new facilities fail to retain our services in the absence of commercial adequate
insurance and indemnification.
We
are engaged in highly competitive businesses and typically must bid against
other competitors to obtain major contracts.
We are
engaged in highly competitive business in which most of our government contracts
and some of our commercial contracts are awarded through competitive bidding
processes. We compete with national and regional firms with nuclear
services practices, as well as small or local contractors. Some of
our competitors have greater financial and other resources than we do, which can
give them a competitive advantage. In addition, even if we are
qualified to work on a new government contract, we might not be awarded the
contract because of existing government policies designed to protect certain
types of businesses and underrepresented minority
contractors. Competition also places downward pressure on our
contract prices and profit margins. Intense competition is expected
to continue for nuclear service contracts. If we are unable to meet
these competitive challenges, we could lose market share and experience on
overall reduction in our profits.
Our
failure to maintain our safety record could have an adverse effect on our
business.
Our
safety record is critical to our reputation. In addition, many of our government
and commercial customers require that we maintain certain specified safety
record guidelines to be eligible to bid for contracts with these
customers. Furthermore, contract terms may provide for automatic
termination in the event that our safety record fails to adhere to agreed-upon
guidelines during performance of the contract. As a result, our
failure to maintain our safety record could have a material adverse effect on
our business, financial condition and results of operations.
We
continue to have material weaknesses in our Internal Control over Financial
Reporting (“ICFR”).
During
our evaluation of our ICFR, we noted that the monitoring of invoicing process
controls and the corresponding transportation and disposal process controls at
our Industrial Segment subsidiaries were ineffective and were not
being applied consistently. In addition, we noted that the monitoring
of quote to invoicing control was ineffective at certain of our Nuclear Segment
subsidiaries. These deficiencies resulted in material weaknesses to
our ICFR, and could result in sales being priced and invoiced at amounts which
were not approved by the customer, or the appropriate level of management, and
recognition of revenue in incorrect financial reporting period. These
deficiencies have resulted in our disclosure that our ICFR was ineffective as of
the end of 2008 and 2007. Although these material weaknesses did not
result in a material adjustment to our quarterly or annual financial statements,
if we are unable to remediate these material weaknesses, there is a reasonable
possibility that a misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
We
may be unable to utilize loss carryforwards in the future.
We have
approximately $26,589,000 in net operating loss carryforwards which will expire
from 2009 to 2028 if not used against future federal income tax
liabilities. Our net loss carryforwards are subject to various
limitations. Our ability to use the net loss carryforwards depends on
whether we are able to generate sufficient income in the future
years. Further, our net loss carryforwards have not been audited or
approved by the Internal Revenue Service.
Risks
Relating to our Intellectual Property
If
we cannot maintain our governmental permits or cannot obtain required permits,
we may not be able to continue or expand our operations.
We are a
waste management company. Our business is subject to extensive, evolving, and
increasingly stringent federal, state, and local environmental laws and
regulations. Such federal, state, and local environmental laws and regulations
govern our activities regarding the treatment, storage, recycling, disposal, and
transportation of hazardous and non-hazardous waste and low-level radioactive
waste. We must obtain and maintain permits or licenses to conduct
these activities in compliance with such laws and regulations. Failure
to obtain and maintain the required permits or licenses would have a material
adverse effect on our operations and financial condition. If any of
our facilities are unable to maintain currently held permits or licenses or
obtain any additional permits or licenses which may be required to conduct its
operations, we may not be able to continue those operations at these facilities,
which could have a material adverse effect on us.
We
believe our proprietary technology is important to us.
We
believe that it is important that we maintain our proprietary technologies.
There can be no assurance that the steps taken by us to protect our proprietary
technologies will be adequate to prevent misappropriation of these technologies
by third parties. Misappropriation of our proprietary technology
could have an adverse effect on our operations and financial
condition. Changes to current environmental laws and regulations also
could limit the use of our proprietary technology.
Risks
Relating to our Financial Position and Need for Financing
Breach
of financial covenants in existing credit facility could result in a default,
triggering repayment of outstanding debt under the credit facility.
Our
credit facility with our bank contains financial covenants. A breach of any of
these covenants could result in a default under our credit facility triggering
our lender to immediately require the repayment of all outstanding debt under
our credit facility and terminate all commitments to extend further credit. In
the past, none of our covenants have been restrictive to our
operations. If we fail to meet our loan covenants in the future and
our lender does not waive the non-compliance or revise our covenant so that we
are in compliance, our lender could accelerate the repayment of borrowings under
our credit facility. In the event that our lender accelerates the
payment of our borrowing, we may not have sufficient liquidity to repay our debt
under our credit facility and other indebtedness.
Our
amount of debt and floating rates of interest could adversely affect our
operations.
At
December 31, 2008, our aggregate consolidated debt was approximately
$16,203,000. If our floating rates of interest experienced an upward increase of
1%, our debt service would increase by approximately $162,000
annually. Our secured revolving credit facility (the “Credit
Facility”) provides for an aggregate commitment of $25,000,000, consisting of an
$18,000,000 revolving line of credit and a term loan of
$7,000,000. The maximum we can borrow under the revolving part of the
Credit Facility is based on a percentage of the amount of our eligible
receivables outstanding at any one time. As of December 31, 2008, we
had borrowings under the revolving part of our Credit Facility of $6,500,000 and
borrowing availability of up to an additional $5,400,000 based on our
outstanding eligible receivables. A lack of operating results
could have material adverse consequences on our ability to operate our
business. Our ability to make principal and interest payments, or to
refinance indebtedness, will depend on both our and our subsidiaries' future
operating performance and cash flow. Prevailing economic conditions, interest
rate levels, and financial, competitive, business, and other factors affect
us. Many of these factors are beyond our control.
Risks
Relating to our Common Stock
Issuance
of substantial amounts of our Common Stock could depress our stock
price.
Any sales
of substantial amounts of our Common Stock in the public market could cause an
adverse effect on the market price of our Common Stock and could impair our
ability to raise capital through the sale of additional equity
securities. The issuance of our Common Stock will result in the
dilution in the percentage membership interest of our stockholders and the
dilution in ownership value. As of December 31, 2008, we had
53,934,560 shares of Common Stock outstanding.
In
addition, as of December 31, 2008, we had outstanding options to purchase
3,417,347 shares of Common Stock at exercise prices from $1.22 to $2.98 per
share. Further, we have adopted a preferred share rights plan, and if
such is triggered, could result in the issuance of a substantial amount of our
Common Stock. The existence of this quantity of rights to
purchase our Common Stock could result in a significant dilution in the
percentage ownership interest of our stockholders and the dilution in ownership
value. Future sales of the shares issuable could also depress the
market price of our Common Stock.
We
do not intend to pay dividends on our Common Stock in the foreseeable
future.
Since our
inception, we have not paid cash dividends on our Common Stock, and we do not
anticipate paying any cash dividends in the foreseeable future. Our
Credit Facility prohibits us from paying cash dividends on our Common
Stock.
The
price of our Common Stock may fluctuate significantly, which may make it
difficult for our stockholders to resell our Common Stock when a stockholder
wants or at prices a stockholder finds attractive.
The price
of our Common Stock on the Nasdaq Capital Markets constantly changes. We expect
that the market price of our Common Stock will continue to fluctuate. This may
make it difficult for our stockholders to resell the Common Stock when a
stockholder wants or at prices a stockholder finds attractive.
Future
issuance or potential issuance of our Common Stock could adversely affect the
price of our Common Stock, our ability to raise funds in new stock offerings,
and dilute our shareholders percentage interest in our Common
Stock.
Future
sales of substantial amounts of our Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing
trading prices of our Common Stock, and impair our ability to raise capital
through future offerings of equity. No prediction can be made as to
the effect, if any, that future issuances or sales of shares of Common Stock or
the availability of shares of Common Stock for future issuance, will have on the
trading price of our Common Stock. Such future issuances could also
significantly reduce the percentage ownership and dilute the ownership value of
our existing common stockholders.
Delaware
law, certain of our charter provisions, our stock option plans, outstanding
warrants and our Preferred Stock may inhibit a change of control under
circumstances that could give you an opportunity to realize a premium over
prevailing market prices.
We are a
Delaware corporation governed, in part, by the provisions of Section 203 of the
General Corporation Law of Delaware, an anti-takeover law. In general, Section
203 prohibits a Delaware public corporation from engaging in a “business
combination” with an “interested stockholder” for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
As a result of Section 203, potential acquirers may be discouraged from
attempting to effect acquisition transactions with us, thereby possibly
depriving our security holders of certain opportunities to sell, or otherwise
dispose of, such securities at above-market prices pursuant to such
transactions. Further, certain of our option plans provide for the immediate
acceleration of, and removal of restrictions from, options and other awards
under such plans upon a “change of control” (as defined in the respective
plans). Such provisions may also have the result of discouraging acquisition of
us.
We have
authorized and unissued 17,648,093 (which include outstanding options to
purchase 3,417,347 shares of our Common Stock) shares of Common Stock and
2,000,000 shares of Preferred Stock as of December 31, 2008 (which includes
600,000 shares of our Preferred Stock reserved for issuance under our preferred
share rights plan). These unissued shares could be used by our
management to make it more difficult, and thereby discourage an attempt to
acquire control of us.
Our
Preferred Share Rights Plan may adversely affect our stockholders.
In May
2008, we adopted a preferred share rights plan (the “Rights Plan”), designed to
ensure that all of our stockholders receive fair and equal treatment in the
event of a proposed takeover or abusive tender offer. However,
the Rights Plan may also have the effect of deterring, delaying, or preventing a
change in control that might otherwise be in the best interests of our
stockholders.
In
general, under the terms of the Rights Plan, subject to certain limited
exceptions, if a person or group acquires 20% or more of our Common Stock or a
tender offer or exchange offer for 20% or more of our Common Stock is announced
or commenced, our other stockholders may receive upon exercise of the rights
(the “Rights”) issued under the Rights Plan the number of shares our Common
Stock or of one-one hundredths of a share of our Series A Junior Participating
Preferred Stock, par value $.001 per share, having a value equal to two times
the purchase price of the Right. In addition, if we are acquired in a
merger or other business combination transaction in which we are not the
survivor or more than 50% of our assets or earning power is sold or transferred,
then each holder of a Right (other than the acquirer) will thereafter have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the purchase price of the Right. The
purchase price of each Right is $13, subject to adjustment.
The
Rights will cause substantial dilution to a person or group that attempts to
acquire us on terms not approved by our board of directors. The Rights may be
redeemed by us at $0.001 per Right at any time before any person or group
acquires 20% or more of our outstanding common stock. The rights
should not interfere with any merger or other business combination approved by
our board of directors. The Rights expire on May 2, 2018.
|
UNRESOLVED
STAFF COMMENTS
|
None
Our
principal executive office is in Atlanta, Georgia. Our Operations
Headquarters is located in Oak Ridge, Tennessee. Our Nuclear Segment
facilities are located in Gainesville, Florida; Kingston, Tennessee; Oak Ridge,
Tennessee, and in Richland, Washington. Our Consulting Engineering
Services is located in Ellisville, Missouri. Our Industrial Segment
facilities are located in Orlando and Ft. Lauderdale, Florida; and Valdosta,
Georgia. Our Industrial Segment also has two non-operational
facilities: Brownstown, Michigan, where we still maintain the property; and
Pittsburgh, Pennsylvania, for which the leased property was released back to the
owner in 2006 upon final remediation of the leased property.
We
operate eight facilities. All of the facilities are in the United
States. Five of our facilities are subject to mortgages as granted to
our senior lender (Kingston, Tennessee; Gainesville, Florida; Richland,
Washington; Fort Lauderdale, Florida; and Orlando, Florida).
We also
lease properties for office space, all of which are located in the United States
as described above. Included in our leased properties is M&EC's
150,000 square-foot facility, located on the grounds of the DOE East Tennessee
Technology Park located in Oak Ridge, Tennessee.
We
believe that the above facilities currently provide adequate capacity for our
operations and that additional facilities are readily available in the regions
in which we operate, which could support and supplement our existing
facilities.
Perma-Fix
of Dayton (“PFD”), Perma-Fix of Florida (“PFF”), Perma-Fix of Orlando (“PFO”),
Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of Memphis
(“PFM”)
In May
2007, the above facilities were named Partially Responsible Parties (“PRPs”) at
the Marine Shale Superfund site in St. Mary Parish, Louisiana
(“Site”). Information provided by the EPA indicates that from 1985
through 1996, the Perma-Fix facilities above were responsible for shipping 2.8%
of the total waste volume received by Marine Shale. Subject to
finalization of this estimate by the PRP group, PFF, PFO and PFD could be
considered de-minimus at .06%, .07% and .28% respectively. PFSG and
PFM would be major at
1.12% and 1.27% respectively. However, at this time the contributions
of all facilities are consolidated.
As of the
date of this report, Louisiana DEQ (“LDEQ”) has collected approximately
$8,400,000 for the remediation of the site and has completed removal of above
ground waste from the site. The EPA’s unofficial estimate to complete
remediation of the site is between $9,000,000 and $12,000,000; however, based on
preliminary outside consulting work hired by the PRP group, which we are a party
to, the remediation costs can be below EPA’s estimation. The PRP
Group has established a cooperative relationship with LDEQ and EPA, and is
working closely with these agencies to assure that the funds held by LDEQ are
used cost-effective. As a result of recent negotiations with LDEQ and
EPA, further remediation work by LDEQ has been put on hold pending completion of
a site assessment by the PRP Group. This site assessment could result
in remediation activities to be completed within the funds held by
LDEQ. As part of the PRP Group, we have paid an initial assessment of
$10,000 in the fourth quarter of 2007, which was allocated among the facilities.
In addition, we accrued approximately $27,000 in the third quarter of 2008 for
our estimated portion of the cost of the site assessment, which was allocated
among the facilities. Approximately $9,000 of the accrued amount was
paid to the PRP Group in the fourth quarter of 2008. As of the date
of this report, we cannot accurately access our total liability. The
Company records its environmental liabilities when they are probable of payment
and can be estimated within a reasonable range. Since this
contingency currently does not meet this criteria, a liability has not been
established.
Notice
of Violation - Perma-Fix Treatment Services, Inc. (“PFTS”)
In July
2008, PFTS received a notice of violation (“NOV”) from the Oklahoma Department
of Environmental Quality (“ODEQ”) alleging that eight loads of waste materials
received by PFTS between January 2007 and July 2007 were improperly analyzed to
assure that the treatment process rendered the waste non-hazardous before
disposition in PFTS’ non-hazardous injection well. The ODEQ alleges the
handling of these waste materials violated regulations regarding hazardous
waste. The ODEQ did not assert any penalties against PFTS in the NOV and
requested PFTS to respond within 30 days from receipt of the letter. PFTS
responded on August
22, 2008 and is currently in settlement discussions with the ODEQ. PFTS
sold most all of its assets to a non-affiliated third party on May 30,
2008.
Industrial
Segment Divested Facilities/Operations
We sold
substantially all of the assets of PFTS pursuant to an Asset Purchase Agreement
on May 30, 2008. Under this Agreement the buyer assumed certain debts
and obligations of PFTS, including, but not limited to, certain debts and
obligations of PFTS to regulatory authorities under certain consent agreements
entered into by PFTS with the appropriate regulatory authority to remediate
portions of the facility sold to the buyer. If any of these
liabilities/obligations are not paid or preformed by the buyer, the buyer would
be in breach of the Asset Purchase Agreement and we may assert claims against
the buyer for such breach. We currently are discussing with the buyer
of the PFTS’ assets regarding certain liabilities which the buyer assumed and
agreed to pay but which the buyer has refused to satisfy as of the date of this
report. In addition, the buyer of the PFTS assets is required
to replace our financial assurance bond with its own financial assurance
mechanism for facility closures. Our financial assurance bond of
$685,000 for PFTS was required to remain in place until the buyer has provided
replacement coverage. The respective regulatory authority will not
release us from our financial assurance obligations until the buyer complies
with the appropriate financial assurance regulations. On March
24, 2009, the respective regulatory authority authorized the release of our
financial assurance bond of $685,000 for PFTS. The buyer of PFTS’
assets has provided its own financial assurance bond which was approved by the
respective regulatory authority.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None
|
EXECUTIVE
OFFICERS OF THE
REGISTRANT
|
The
following table sets forth, as of the date hereof, information concerning our
executive officers:
NAME
|
|
AGE
|
|
POSITION
|
Dr.
Louis F. Centofanti
|
|
65
|
|
Chairman
of the Board, President and Chief Executive Officer
|
Mr.
Larry McNamara
|
|
59
|
|
Chief
Operating Officer
|
Mr.
Robert Schreiber, Jr.
|
|
58
|
|
President
of SYA, Schreiber, Yonley & Associates, a subsidiary of the Company,
and Principal Engineer
|
Mr.
Ben Naccarato
|
|
46
|
|
Chief
Financial Officer, Vice President, and
Secretary
|
Dr.
Louis F. Centofanti
Dr.
Centofanti has served as Chairman of the Board since he joined the Company in
February 1991. Dr. Centofanti also served as President and Chief
Executive Officer of the Company from February 1991 until September 1995 and
again in March 1996 was elected to serve as President and Chief Executive
Officer of the Company. From 1985 until joining the Company, Dr.
Centofanti served as Senior Vice President of USPCI, Inc., a large hazardous
waste management company, where he was responsible for managing the treatment,
reclamation and technical groups within USPCI. In 1981 he founded
PPM, Inc., a hazardous waste management company specializing in the treatment of
PCB contaminated oils, which was subsequently sold to USPCI. From
1978 to 1981, Dr. Centofanti served as Regional Administrator of the U.S.
Department of Energy for the southeastern region of the United
States. Dr. Centofanti has a Ph.D. and a M.S. in Chemistry from the
University of Michigan, and a B.S. in Chemistry from Youngstown State
University.
Mr.
Larry McNamara
Mr.
McNamara has served as Chief Operating Officer since October
2005. From October 2000 to October 2005, he served as President of
the Nuclear Waste Management Services Segment. From December 1998 to
October 2000, he served as Vice President of the Company's Nuclear Waste
Management Services Segment. Between 1997 and 1998, he served as
Mixed Waste Program Manager for Waste Control Specialists (WCS) developing plans
for the WCS mixed waste processing facilities, identifying markets and directing
proposal activities. Between 1995 and 1996, Mr. McNamara was the
single point of contact for the DOD to all state and federal regulators for
issues related to disposal of Low Level Radioactive Waste and served on various
National Committees and advisory groups. Mr. McNamara served, from 1992 to 1995,
as Chief of the Department of Defense Low Level Radioactive Waste
office. Between 1986 and 1992, he served as the Chief of Planning for
the Department of Army overseeing project management and program policy for the
Army program. Mr. McNamara has a B.S. from the University of
Iowa.
Mr.
Robert Schreiber, Jr.
Mr.
Schreiber has served as President of SYA since the Company acquired the
environmental engineering firm in 1992. Mr. Schreiber co-founded the predecessor
of SYA, Lafser & Schreiber in 1985, and served in several executive roles in
the firm until our acquisition of SYA. From 1978 to 1985, Mr.
Schreiber served as Director of Air programs and all environmental programs for
the Missouri Department of Natural Resources. Mr. Schreiber provides technical
expertise in wide range of areas including the cement industry, environmental
regulations and air pollution control. Mr. Schreiber has a B.S. in
Chemical Engineering from the University of Missouri – Columbia.
Mr.
Ben Naccarato
Mr.
Naccarato was named Chief Financial Officer by the Company’s Board of Directors
on February 26, 2009. Mr. Naccarato was appointed on October 24, 2008
by the Company’s Board of Directors as the Interim Chief Financial Officer,
effective November 1, 2008. Mr. Naccarato has been with the Company
since September 2004 and has served as Vice President, Corporate
Controller/Treasurer since May 2006. Previous to serving as the
Vice President, Corporate Controller/Treasurer, Mr. Naccarato served as Vice
President, Finance of the Company’s Industrial Segment. Prior to
joining the Company in September 2004, Mr. Naccarato served as the CFO of Culp
Petroleum Company, Inc., a privately held company in the fuel distribution and
used waste oil industry from December 2002 to September 2004. Mr.
Naccarato is a
graduate
of University of Toronto having received a Bachelor of Commerce and Finance
Degree and is a Certified Management Accountant.
Resignation
of Chief Financial Officer
On
October 22, 2008, Mr. Steven Baughman, tendered his resignation as Chief
Financial Officer, Vice President, and Secretary of the Board of Directors of
the Company. Mr. Baughman’s resignation from his positions and as an
executive officer became effective October 31, 2008.
Certain
Relationships
There are
no family relationships between any of our Directors or executive officers. Dr.
Centofanti is the only Director who is our employee.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
Our
Common Stock, is traded on the NASDAQ Capital Markets (“NASDAQ”) under the
symbol “PESI”. The following table sets forth the high and low market trade
prices quoted for the Common Stock during the periods shown. The
source of such quotations and information is the NASDAQ online trading history
reports.
|
|
2008
|
|
|
2007
|
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
Common
Stock
|
1st
Quarter
|
|
$ |
1.49 |
|
|
$ |
2.48 |
|
|
$ |
2.07 |
|
|
$ |
2.57 |
|
|
2nd
Quarter
|
|
|
1.50 |
|
|
|
3.18 |
|
|
|
2.13 |
|
|
|
3.25 |
|
|
3rd
Quarter
|
|
|
1.75 |
|
|
|
2.99 |
|
|
|
1.74 |
|
|
|
3.40 |
|
|
4th
Quarter
|
|
|
.63 |
|
|
|
2.09 |
|
|
|
2.25 |
|
|
|
3.05 |
|
As of
March 9, 2009, there were approximately 265 stockholders of record of our Common
Stock, including brokerage firms and/or clearing houses holding shares of our
Common Stock for their clientele (with each brokerage house and/or clearing
house being considered as one holder). However, the total number of
beneficial stockholders as of March 9, 2009, was approximately
3,249.
Since our
inception, we have not paid any cash dividends on our Common Stock and have no
dividend policy. Our loan agreement prohibits paying any cash
dividends on our Common Stock without prior approval from the
lender. We do not anticipate paying cash dividends on our outstanding
Common Stock in the foreseeable future.
No sales
of unregistered securities, other than the securities sold by us during 2008, as
reported in our Forms 10-Q for the quarters ended March 31, 2008, June 30, 2008,
and September 30, 2008, which were not registered under the
Securities Act of 1933, as amended, were issued during 2007. There
were no purchases made by us or on behalf of us or any of our affiliated members
of shares of our Common Stock during the last quarter of 2008.
Preferred
Share Rights Plan
In May
2008, we adopted a shareholder rights plan which will impact a potential
acquirer unless the acquirer negotiates with our Board of Directors and the
Board of Directors approves the transaction. The rights plan has a 10
year term. Pursuant to this plan, one preferred share purchase right
(a “Right”) is attached to each currently outstanding or subsequently issued
share of our Common Stock. Prior to becoming exercisable, the Rights
trade together with our Common Stock. In general, the Rights will
become exercisable if a person or group (other than the acquirer) acquires or
announces a tender or exchange offer for 20% or more of our Common
Stock. Each Right entitles the holder to purchase from us one
one-hundredth of a share of Series A Junior Participating Preferred Stock,
par value $0.001 per share (the “Preferred Stock”), at an exercise price of $13
per one one-hundredth of a share, subject to adjustment. If a person
or group acquires 20% or more of our Common Stock, each Right will entitle the
holder (other than the acquirer) to purchase shares of our Common Stock (or, in
certain circumstances, cash or other securities) having a market value of twice
the exercise price of a Right at such time. Under certain
circumstances, each Right will entitle the holder (other than the acquirer) to
purchase the common stock of the acquirer having a market value of twice the
exercise price of a Right at such time. In addition, under certain
circumstances, our Board of Directors may exchange each Right (other than those
held by the acquirer) for one share of our Common Stock, subject to
adjustment. If the Rights become exercisable, holders of our Common
Stock (other than the acquirer), will receive the number of Rights they would
have received if their units had been redeemed and the purchase price paid in
our Common Stock. Our Board of Directors may redeem the Rights at a
price of $0.001 per Right generally at any time before 10 days after the Rights
become exercisable.
Common
Stock Price Performance Graph
The
following Common Stock price performance graph compares the yearly change in the
Company’s cumulative total stockholders’ returns on the Common Stock during the
years 2004 through 2008, with the cumulative total return of the NASDAQ Market
Index and the published industry index prepared by Hemscott and known as
Hemscott Industry Group 637-Waste Management Index (“Industry Index”) assuming
the investment of $100 on January 1, 2004.
The
stockholder returns shown on the graph below are not necessarily indicative of
future performance, and we will not make or endorse any predications as to
future stockholder returns.
Assumes
$100 invested in the Company on January 1, 2004, the Industry Index and the
NASDAQ Market Index, and the reinvestment of dividends. The above five-year
Cumulative Total Return Graph shall not be deemed to be “soliciting material” or
to be filed with the Securities and Exchange Commission, nor shall such
information be incorporated by reference by any general statement incorporating
by reference this Form 10-K into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934 (collectively, the “Acts”) or be subject to
the liabilities under Section 18 of the Securities Exchange Act of 1934, except
to the extent that the Company specifically incorporates this information by
reference, and shall not be deemed to be soliciting material or to be filed
under such Acts.
The
financial data included in this table has been derived from our audited
consolidated financial statements, which have been audited by BDO Seidman,
LLP. In 2007, as a result of the Company’s decision to divest the
facilities within our Industrial Segment, our Industrial Segment facilities were
reclassified (with the exception of PFMI and PFP which were already reclassified
as discontinued operations in 2004 and 2005, respectively) in our discontinued
operations, in accordance with Statement of Financial Accounting Standard
(“SFAS”) No. 144. As a result of the Company’s decision to retain
PFFL, PFSG, and PFO within the Industrial Segment in September 2008, the
Company’s previously reported Consolidated Statement of Operations data for the
years noted below have been restated to reflect the reclassification of these
three facilities/operations back into our continuing operations from
discontinued operations, in accordance with SFAS No. 144. Certain
prior year amounts have been reclassified to conform with current year
presentations. Amounts are in thousands, except for per share
amounts. The information set forth below should be read in
conjunction with “Management’s Discussion Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements of the Company
and the notes thereto included elsewhere herein.
Statement
of Operations Data:
|
|
2008(1)
|
|
|
2007(1)(2)
|
|
|
2006(1)
|
|
|
2005
|
|
|
2004(3)
|
|
Revenues
|
|
$ |
75,504 |
|
|
$ |
64,544 |
|
|
$ |
68,205 |
|
|
$ |
68,833 |
|
|
$ |
61,912 |
|
Income
(loss) from continuing operations
|
|
|
920 |
|
|
|
(2,380 |
) |
|
|
5,422 |
|
|
|
4,067 |
|
|
|
(3,170 |
) |
Loss
from discontinued operations, net of taxes
|
|
|
(1,332 |
) |
|
|
(6,830 |
) |
|
|
(711 |
) |
|
|
(328 |
) |
|
|
(16,191 |
) |
Gain
on disposal of discontinued operations, net of taxes
|
|
|
2,323 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Net
income (loss)
|
|
|
1,911 |
|
|
|
(9,210 |
) |
|
|
4,711 |
|
|
|
3,739 |
|
|
|
(19,361 |
) |
Preferred
stock dividends
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
(156 |
) |
|
|
(190 |
) |
Net
income (loss) applicable to Common Stockholders
|
|
|
1,911 |
|
|
|
(9,210 |
) |
|
|
4,711 |
|
|
|
3,583 |
|
|
|
(19,551 |
) |
Income
(loss) per common share - Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
.02 |
|
|
|
(.05 |
) |
|
|
.11 |
|
|
|
.09 |
|
|
|
(.08 |
) |
Discontinued
operations
|
|
|
(.02 |
) |
|
|
(.13 |
) |
|
|
(.01 |
) |
|
|
(.01 |
) |
|
|
(.40 |
) |
Disposal
of discontinued operations
|
|
|
.04 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Net
income (loss) per share
|
|
|
.04 |
|
|
|
(.18 |
) |
|
|
.10 |
|
|
|
.08 |
|
|
|
(.48 |
) |
Income
(loss) per common share - Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
.02 |
|
|
|
(.05 |
) |
|
|
.11 |
|
|
|
.09 |
|
|
|
(.08 |
) |
Discontinued
operations
|
|
|
(.02 |
) |
|
|
(.13 |
) |
|
|
(.01 |
) |
|
|
(.01 |
) |
|
|
(.40 |
) |
Disposal
of discontinued operations
|
|
|
.04 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Net
income (loss) per share
|
|
|
.04 |
|
|
|
(.18 |
) |
|
|
.10 |
|
|
|
.08 |
|
|
|
(.48 |
) |
Basic
number of shares used in computing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
income (loss) per share
|
|
|
53,803 |
|
|
|
52,549 |
|
|
|
48,157 |
|
|
|
42,605 |
|
|
|
40,478 |
|
Diluted
number of shares and potential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares used in computing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
income (loss) per share
|
|
|
54,003 |
|
|
|
52,549 |
|
|
|
48,768 |
|
|
|
44,804 |
|
|
|
40,478 |
|
Balance
Sheet Data:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Working
capital (deficit)
|
|
$ |
(3,886 |
) |
|
$ |
(17,154 |
) |
|
$ |
12,810 |
|
|
$ |
5,916 |
|
|
$ |
(497 |
) |
Total
assets
|
|
|
123,712 |
|
|
|
126,048 |
|
|
|
106,355 |
|
|
|
98,457 |
|
|
|
100,304 |
|
Current
and long-term debt
|
|
|
16,203 |
|
|
|
18,836 |
|
|
|
8,329 |
|
|
|
13,375 |
|
|
|
18,956 |
|
Total
liabilities
|
|
|
60,791 |
|
|
|
66,035 |
|
|
|
40,617 |
|
|
|
50,019 |
|
|
|
56,771 |
|
Preferred
Stock of subsidiary
|
|
|
1,285 |
|
|
|
1,285 |
|
|
|
1,285 |
|
|
|
1,285 |
|
|
|
1,285 |
|
Stockholders'
equity
|
|
|
61,636 |
|
|
|
58,728 |
|
|
|
64,453 |
|
|
|
47,153 |
|
|
|
42,248 |
|
|
(1)
|
Includes
recognized stock based compensation expense of $531,000, $457,000 and
$338,000 for 2008, 2007 and 2006, respectively, pursuant to the adoption
of SFAS 123R which became effective January 1,
2006.
|
|
(2)
|
Includes
financial data of PFNWR acquired during 2007 and accounted for using the
purchase method of accounting in which the results of operations are
reported from the date of acquisition, June 13,
2007.
|
|
(3)
|
Includes
financial data of PFMD and PFP acquired during 2004 and accounted for
using the purchase method of accounting in which the results of operations
are reported from the date of acquisition, March 23,
2004.
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Certain
statements contained within this “Management's Discussion and Analysis of
Financial Condition and Results of Operations” 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”). See “Special Note regarding Forward-Looking Statements”
contained in this report.
Management's
discussion and analysis is based, among other things, upon our audited
consolidated financial statements and includes our accounts and the accounts of
our wholly-owned subsidiaries, after elimination of all significant intercompany
balances and transactions.
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes thereto included in Item 8 of
this report.
Review
2008 was
a turbulent year throughout the U.S economy, with the domestic recessionary
environment which became evident during the latter part of 2008. This
turbulence impacted our results in 2008. Demand for our services has
been, and we expect that demand will continue to be, subject to significant
fluctuations due to a variety of factors beyond our control, including the
current economic recession and conditions, inability of the federal government
to adopt its budget or reductions in the budget for spending to remediate
federal sites due to numerous reasons, including, without limitation, the
substantial deficits that the federal government has and is continuing to
incur. During economic downturns, such as the current economic
recession, and large budget deficits that the federal government and many states
are experiencing, the ability of private and government entities to spend on
nuclear services may decline significantly. Although the recently
adopted economic stimulus package provides for substantial funds to remediate
federal nuclear sites, we cannot be certain that economic or political
conditions will be generally favorable or that there will not be significant
fluctuations adversely affecting our industry as a whole. In
addition, our operations depend, in large part, upon governmental funding,
particularly funding levels at the Department of Energy (“DOE”). 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 (for example, the annual budget of the DOE) 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.
Within
our Nuclear Segment, we generated revenue of $61,359,000, which included revenue
of approximately $17,325,000 at our Perma-Fix Northwest Richland, Inc. (“PFNWR”)
facility acquired in June of 2007 and $7,095,000 of revenue generated from a
subcontract awarded to us by the DOE’s general contractor CH Plateau Remediation
Compay (“CHPRC”) to treat wastes at the Hanford Site. This CHPRC
subcontract became effective October 1, 2008. In 2007, revenue from
PFNWR accounted for $8,439,000 of our revenue within our Nuclear
Segment. Excluding revenue of PFNWR and CHPRC, our Nuclear Segment’s
revenue decreased $6,326,000 or 14.6% due primarily to reduced receipts offset
in part by higher priced wastes. Our Industrial Segment generated
$10,951,000 in revenue in 2008 as compared to $10,442,000 in 2007 or 4.9%
increase. This increase was primarily the result of oil sales which
paralled the high price of oil globally in 2008. Revenue in our
Industrial Segment includes revenue of Perma-Fix of Fort Lauderdale, Inc.
(“PFFL”), Perma-Fix of South Georgia, Inc. (“PFSG”), and Perma-Fix of Orlando,
Inc. (“PFO”). In May 2007, our Board of Directors authorized the
divestiture of our Industrial Segment. In September 2008, our Board
of Directors approved retaining the three facilities/operations at PFFL, PFSG,
and PFO, which resulted in the reclassification of these three
facilities/operations back into our continuing operations. The
subsequent decision to retain these operations within our Industrial Segment is
based on our belief that these operations are self sufficient, which should
allow senior management the freedom to focus on growing our nuclear operations,
while benefiting from the cash flow and growth prospects of these three
facilities and the fact that we were unable in the current economic climate to
obtain the values for
these
companies that we believe they are worth. In the fourth quarter of
2008, we sold one of the two properties at our PFO facility for $900,000 in
cash, which was used for our working capital. We do not expect any
impact or reduction to PFO’s operating capability from the sale of the property
at PFO. Revenue in our Engineering Segment was up 33.2% in 2008 from
2007 due primarily to increase in billable hours. The backlog of
stored waste within the Nuclear Segment was reduced to $10,244,000, at December
31, 2008, down from $14,646,000 in 2007, reflecting the reduced waste receipts
in the year.
In 2008,
we completed the sale of substantially all of the assets of three of our
Industrial Segment facilities/operations which was reclassified into our
discontinued operations in May 2007 as follows: on January 8, 2008,
we completed the sale of substantially all of the assets of Perma-Fix Maryland,
Inc. (“PFMD”) for $3,825,000 in cash and the assumption by the buyer of certain
liabilities of PFMD, with a final working capital adjustment of $170,000
received by Perma-Fix from the buyer in the fourth quarter of 2008; on March 14,
2008, we completed the sale of substantially all of the assets of Perma-Fix of
Dayton, Inc. (“PFD”) for approximately $2,143,000 in cash, plus assumption by
the buyer of certain of PFD’s liabilities and obligations. In June
2008, we paid the buyer $209,000 in final working capital adjustment; and on May
30, 2008, we completed the sale of substantially all of the assets of Perma-Fix
Treatment Services, Inc. (“PFTS”) for approximately $1,503,000, and assumption
by the buyer of certain liabilities of PFTS. In July 2008, we paid
the buyer $135,000 in final working capital adjustments. Proceeds received from
the sale of these three facilities were used to pay off our term note and pay
down our revolver. In August 2008, we reloaded our term note back to
$7,000,000 with the revolving line of credit remaining at
$18,000,000. The due date of the $25,000,000 credit facility was
extended through July 31, 2012.
We have
taken steps to improve our working capital in 2008. Our working
capital position at December 31, 2008 is a negative $3,886,000, which includes
working capital of our discontinued operations, as compared to a negative
working capital of $17,154,000 as of December 31, 2007. The
improvement in our working capital is the result of the reclassification of our
indebtedness to certain of our lenders from current (less current maturities) to
long term in the first quarter of 2008 due to the Company meeting its fixed
charge coverage ratio, pursuant to our loan agreement, as amended, in the first
quarter of 2008. In 2007, the Company failed to meet its fixed charge
coverage ratio as of December 31, 2007 and as a result we were required under
generally accepted accounting principles to reclassify approximately $11,403,000
in debt under our credit facility with PNC and debt payable to KeyBank National
Association, due to a cross default provision from long term to current as of
December 31, 2007. We met our fixed charge coverage ratio in
each quarter in 2008 and we anticipate meeting this ratio in
2009. Our working capital in 2008 was also impacted by the annual
cash payment to the finite risk sinking fund of $1,004,000, our payments of
approximately $4,274,000 in financial assurance coverage for our PFNWR facility,
capital spending of approximately $1,158,000, the reclassification of
approximately $833,000 in principal balance on the shareholder note resulting
from the acquisition of PFNWR in June from long term to current, payment of
approximately $3,039,000 on the KeyBank debt from the PFNWR acquisition, and the
payments against the long term portion of our term note of approximately
$4,100,000 in proceeds received from sale of PFMD, PFD, and
PFTS.
Outlook
We
believe that government funding that will be available for DOE projects under
the recently enacted government stimulus plan as it relates to our existing
government contracts within our Nuclear Segment should positively impact our
Nuclear Segment since the stimulus plan provides for a substantial amount for
remediation of DOE sites. However, declining consumer confidence
continues to impact the U.S. economy. Turmoil in the financial
markets continues to strain the availability of credit which could limit our
customers’ ability to obtain adequate financing which could decrease the demand
for our services, thereby negatively impacting our results of operations into
2009. A significant amount of our revenues within our Nuclear
Segment stem from U.S. government contracts or subcontracts involving the U.S.
government. Our government contracts and subcontracts relating to
activities at governmental sites are subject to termination or renegotiation on
30 days notice at the government’s option. With government deficits
at an all time high, in light of the uncertainty in the current economy, funding
for certain governmental remediation projects at DOE and DOD sites could be cut
off or curtailed thereby negatively impacting our results of operations and
liquidity. The Company continues to remain cautious of the future due
to the heightened financial market turmoil and the large government
deficit.
Results
of Operations
The
reporting of financial results and pertinent discussions are tailored to three
reportable segments: Nuclear Waste Management Services (“Nuclear”), Industrial
Waste Management Services (“Industrial”), and Consulting Engineering Services
(“Engineering”).
Below are
the results of continuing operations for our years ended December 31, 2008,
2007, and 2006 (amounts in thousands):
(Consolidated)
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
2006
|
|
|
%
|
|
Net
Revenues
|
|
$ |
75,504 |
|
|
|
100.0 |
|
|
$ |
64,544 |
|
|
|
100.0 |
|
|
$ |
68,205 |
|
|
|
100.0 |
|
Cost
of goods sold
|
|
|
55,310 |
|
|
|
73.3 |
|
|
|
45,544 |
|
|
|
70.6 |
|
|
|
43,160 |
|
|
|
63.3 |
|
Gross
Profit
|
|
|
20,194 |
|
|
|
26.7 |
|
|
|
19,000 |
|
|
|
29.4 |
|
|
|
25,045 |
|
|
|
36.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
18,832 |
|
|
|
24.9 |
|
|
|
18,082 |
|
|
|
28.0 |
|
|
|
17,803 |
|
|
|
26.1 |
|
Asset
impairment (recovery) loss
|
|
|
(507 |
) |
|
|
(.7 |
) |
|
|
1,836 |
|
|
|
2.8 |
|
|
|
¾ |
|
|
|
¾ |
|
(Gain)
loss on disposal of property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
equipment
|
|
|
(295 |
) |
|
|
(.4 |
) |
|
|
172 |
|
|
|
.3 |
|
|
|
27 |
|
|
|
¾ |
|
Income
(loss) from operations
|
|
|
2,164 |
|
|
|
2.9 |
|
|
|
(1,090 |
) |
|
|
(1.7 |
) |
|
|
7,215 |
|
|
|
10.6 |
|
Interest
income
|
|
|
226 |
|
|
|
.3 |
|
|
|
312 |
|
|
|
.4 |
|
|
|
280 |
|
|
|
.4 |
|
Interest
expense
|
|
|
(1,317 |
) |
|
|
(1.7 |
) |
|
|
(1,321 |
) |
|
|
(2.0 |
) |
|
|
(1,255 |
) |
|
|
(1.8 |
) |
Interest
expense – financing fees
|
|
|
(137 |
) |
|
|
(.2 |
) |
|
|
(196 |
) |
|
|
(.3 |
) |
|
|
(192 |
) |
|
|
(.3 |
) |
Other
|
|
|
(6 |
) |
|
|
¾ |
|
|
|
(85 |
) |
|
|
(.1 |
) |
|
|
(119 |
) |
|
|
(.2 |
) |
Income
(loss) from continuing operations before taxes
|
|
|
930 |
|
|
|
1.3 |
|
|
|
(2,380 |
) |
|
|
(3.7 |
) |
|
|
5,929 |
|
|
|
8.7 |
|
Income
tax expense
|
|
|
10 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
507 |
|
|
|
.8 |
|
Income
(loss) from continuing operations
|
|
|
920 |
|
|
|
1.3 |
|
|
|
(2,380 |
) |
|
|
(3.7 |
) |
|
|
5,422 |
|
|
|
7.9 |
|
Preferred
Stock dividends
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Summary - Years Ended
December 31, 2008 and 2007
Net
Revenue
Consolidated
revenues from continuing operations increased $10,960,000 for the year ended
December 31, 2008, compared to the year ended December 31, 2007, as
follows:
(In
thousands)
|
|
2008
|
|
|
%
Revenue
|
|
|
2007
|
|
|
%
Revenue
|
|
|
Change
|
|
|
%
Change
|
|
Nuclear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
waste
|
|
$ |
14,209 |
|
|
|
18.9 |
|
|
$ |
11,763 |
|
|
|
18.2 |
|
|
$ |
2,446 |
|
|
|
20.8 |
|
LATA/Parallax
|
|
|
4,841 |
|
|
|
6.4 |
|
|
|
8,784 |
|
|
|
13.6 |
|
|
|
(3,943 |
) |
|
|
(44.9 |
) |
Fluor
Hanford
|
|
|
2,814 |
(1) |
|
|
3.7 |
|
|
|
3,885 |
(2) |
|
|
6.0 |
|
|
|
(1,071 |
) |
|
|
(27.6 |
) |
CHPRC
|
|
|
7,095 |
(1) |
|
|
9.4 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
7,095 |
|
|
|
100.0 |
|
Hazardous/non-hazardous
|
|
|
3,973 |
|
|
|
5.3 |
|
|
|
5,068 |
|
|
|
7.9 |
|
|
|
(1,095 |
) |
|
|
(21.6 |
) |
Other
nuclear waste
|
|
|
11,102 |
|
|
|
14.7 |
|
|
|
13,765 |
|
|
|
21.3 |
|
|
|
(2,663 |
) |
|
|
(19.3 |
) |
Acquisition
6/07 (PFNWR)
|
|
|
17,325 |
(1) |
|
|
22.9 |
|
|
|
8,439 |
(2) |
|
|
13.1 |
|
|
|
8,886 |
|
|
|
105.3 |
|
Total
|
|
|
61,359 |
|
|
|
81.3 |
|
|
|
51,704 |
|
|
|
80.1 |
|
|
|
9,655 |
|
|
|
18.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
waste
|
|
|
5,495 |
|
|
|
7.3 |
|
|
|
5,699 |
|
|
|
8.8 |
|
|
|
(204 |
) |
|
|
(3.6 |
) |
Government
services
|
|
|
814 |
|
|
|
1.1 |
|
|
|
1,653 |
|
|
|
2.6 |
|
|
|
(839 |
) |
|
|
(50.8 |
) |
Oil
sales
|
|
|
4,642 |
|
|
|
6.1 |
|
|
|
3,090 |
|
|
|
4.8 |
|
|
|
1,552 |
|
|
|
50.2 |
|
Total
|
|
|
10,951 |
|
|
|
14.5 |
|
|
|
10,442 |
|
|
|
16.2 |
|
|
|
509 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
3,194 |
|
|
|
4.2 |
|
|
|
2,398 |
|
|
|
3.7 |
|
|
|
796 |
|
|
|
33.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
75,504 |
|
|
|
100.0 |
|
|
$ |
64,544 |
|
|
|
100.0 |
|
|
$ |
10,960 |
|
|
|
17.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Revenue
of $17,325,000 from PFNWR for 2008 includes approximately $14,505,000 relating
to wastes generated by the federal government, either directly or indirectly as
a subcontractor to the federal government. Of the $14,505,000 in
revenue, approximately $5,160,000 was from Fluor Hanford, a contractor to the
federal government and approximately $1,025,000 was from CHPRC, a contractor to
the federal government. Revenue in 2008 from Fluor Hanford totaled
approximately $7,974,000 or 10.6% of total consolidated
revenue. Revenue in 2008 from CHPRC totaled approximately $8,120,000
or 10.8% of total consolidated revenue.
(2) Revenue of $8,439,000 from PFNWR for
2007 includes approximately $5,568,000 relating to wastes generated by the
federal government, either directly or indirectly as a subcontractor to the
federal government. Of the $5,568,000 in revenue, approximately
$3,100,000 was from Fluor Hanford, a contractor to the federal
government. Revenue in 2007 from Fluor Hanford totaled approximately
$6,985,000 or 10.8 % of total consolidated revenue.
The
Nuclear Segment experienced a $9,655,000 increase in revenue for the year ended
December 31, 2008 over the same period in 2007. Total revenue within
the Nuclear Segment included $17,325,000 of revenue at our PFNWR facility for
the full year of 2008 as compared to $8,439,000 after the facility was acquired
on June 13, 2007. In addition, our revenue for the Nuclear Segment
included revenue of $7,095,000 for our new subcontract awarded to us from
CHPRC. In the second quarter of 2008, we were awarded a subcontract
by CHPRC to perform a portion of facility operations and waste management
activities for the DOE Hanford, Washington Site. The general contract
awarded by the DOE to CHPRC and our subcontract provide for a transition period
from August 11, 2008 through September 30, 2008, a base period from October 1,
2008 through September 30, 2013 and an option period from October 1, 2013
through September 30, 2018. On October 1, 2008, operations of this
subcontract commenced at the DOE Hanford Site. Excluding our revenue
from PFNWR and CHPRC, revenue within our Nuclear Segment decreased approximately
$6,326,000 or 14.6% as compared to the same period of 2007. Excluding
revenue from PFNWR and CHPRC, revenue from government generators (which includes
our subcontrtacts with LATA/Parallax and Fluor Hanford) decreased $2,568,000 or
10.5% due primarily to overall lower government receipts. For 2008,
government agencies were operated under “Continuing Resolution” without
finalized budgets due in part to the impending change in Administration, which
had a negative impact on availability of funding for services offered by our
Nuclear Segment. We saw a decrease of $3,943,000 or 44.9% under our
subcontracts with LATA/Parallax due to significant progress made by
LATA/Parallax in completing legacy waste removal actions as part of their
clean-up project at Portsmouth for the DOE. We saw a decrease of
approximately $1,071,000 or 27.6% in revenue from Fluor Hanford due to lower
overall
receipts
and transition of revenue from Fluor Hanford to CHPRC effective October 1, 2008
(see “known Trends and Uncertainties – significant customers” in this
section). Revenue from remaining government wastes increased
approximately $2,446,000 or 20.8% due to higher priced waste with reduced
volume. Revenue from hazardous and non-hazardous waste was down
$1,095,000 or 21.6% due to lower volume of waste received offset by higher
average prices per drum which increase approximately 38.5%. The price
change is primarily due to waste mix. We also had three large event
projects in 2007, while none occurred in 2008. Other nuclear waste
revenue decreased $2,663,000 or 19.3% as packaging and field service related
revenue from LATA/Parallax Portsmouth contract from 2007 did not occur in
2008. Revenue in our Industrial Segment increased $509,000 or 4.9%
due primarily to higher oil sale revenue. We saw an increase of
approximately 52.6% in average price per gallon while volume only decreased
2.1%. The increase in average price per gallon was attributed to the
high global oil costs throughout most of 2008. This increase in oil
sale revenue was partially offset by lower government revenue resulting from
termination of a government contract in July 2007. Revenue in our
Engineering Segment increased approximately $796,000 or 33.2% due primarily
to the increase of billable hours of 29.0% caused by increase in external
business, with the billability rate remaining fairly constant, a slight decrease
of .3% from 2007 to 2008.
Cost
of Goods Sold
Cost of
goods sold increased $9,766,000 for the year ended December 31, 2008, as
compared to the year ended December 31, 2007, as follows:
(In
thousands)
|
|
2008
|
|
|
%
Revenue
|
|
|
2007
|
|
|
%
Revenue
|
|
|
Change
|
|
Nuclear
|
|
$ |
35,143 |
|
|
|
79.8 |
|
|
$ |
30,261 |
|
|
|
69.9 |
|
|
$ |
4,882 |
|
Acquisition
6/07 (PFNWR)
|
|
|
10,606 |
|
|
|
61.2 |
|
|
|
4,938 |
|
|
|
58.5 |
|
|
$ |
5,668 |
|
Industrial
|
|
|
7,439 |
|
|
|
67.9 |
|
|
|
8,707 |
|
|
|
83.4 |
|
|
|
(1,268 |
) |
Engineering
|
|
|
2,122 |
|
|
|
66.4 |
|
|
|
1,638 |
|
|
|
68.3 |
|
|
|
484 |
|
Total
|
|
$ |
55,310 |
|
|
|
73.3 |
|
|
$ |
45,544 |
|
|
|
70.6 |
|
|
$ |
9,766 |
|
Excluding
the cost of goods sold of approximately $10,606,000 for the PFNWR facility, the
Nuclear Segment’s cost of goods sold for the year ending December 31, 2008 were
up approximately $4,882,000. The $35,143,000 in cost of good sold in
the Nuclear Segment (excluding PFNWR) includes cost of good sold of
approximately $5,584,000 related to the CHPRC subcontract. Excluding
this $5,584,000 in cost of good sold, our remaining Nuclear Segment cost of
goods sold decreased $702,000 or 2.3%. Although receipts were down
41.6% as compared to prior year, cost as a percentage of revenue (excluding the
CHPRC subcontract and PFNWR) increased to 80.0% from 69.9%. This reflects the
mix of wastes received which was costlier to dispose. In the
Industrial Segment, cost of goods sold decreased $1,268,000 or 14.6% due
primarily to reduced revenue from a government contract which terminated in July
2007. This decrease was offset by higher cost of good sold related to
material and supply purchases, especially raw oil purchases, the result of the
increase in the global cost of oil throughout 2008. Cost as a
percentage of revenue decreased from 83.4% in 2007 to 67.9% due primarily to
reduction in government receipts processed. Total cost of good sold
for the Industrial Segment decreased despite depreciation expenses of
approximately $244,000 incurred as result of the reclassification of PFFL, PFO,
and PFSG facilities as continuing operations. The Engineering Segment
costs increased $484,000 or 29.5% due primarily to increased revenue of
33.2%. Included within cost of goods sold is depreciation and
amortization expense of $4,612,000 and $3,918,000 for the year ended December
31, 2008 and 2007, respectively.
Gross
Profit
Gross
profit for the year ended December 31, 2008, was $1,194,000 higher than 2007, as
follows:
(In
thousands)
|
|
2008
|
|
|
%
Revenue
|
|
|
2007
|
|
|
%
Revenue
|
|
|
Change
|
|
Nuclear
|
|
$ |
8,891 |
|
|
|
20.2 |
|
|
$ |
13,004 |
|
|
|
30.1 |
|
|
$ |
(4,113 |
) |
Acquisition
6/07 (PFNWR)
|
|
|
6,719 |
|
|
|
38.8 |
|
|
|
3,501 |
|
|
|
41.5 |
|
|
|
3,218 |
|
Industrial
|
|
|
3,512 |
|
|
|
32.1 |
|
|
|
1,735 |
|
|
|
16.6 |
|
|
|
1,777 |
|
Engineering
|
|
|
1,072 |
|
|
|
33.6 |
|
|
|
760 |
|
|
|
31.7 |
|
|
|
312 |
|
Total
|
|
$ |
20,194 |
|
|
|
26.7 |
|
|
$ |
19,000 |
|
|
|
29.4 |
|
|
$ |
1,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Nuclear Segment gross profit, excluding gross profit of our PFNWR facility,
decreased $4,113,000 from 2007 to 2008. Gross profit of the Nuclear
Segment (excluding PFNWR) includes the gross profit of our CHPRC subcontract of
approximately $1,511,000. Excluding this gross profit, our Nuclear
Segment gross profit decreased $5,624,000 or 43.2% from 2007 to 2008 due
primarily to lower volume of waste received. Gross margin decreased
from 30.1% to 20.0% which reflects the receipt of lower margin waste streams in
2008. The Industrial Segment gross profit increased $1,777,000 or
102.4% due primarily to the improved revenue mix resulting from higher margin
oil revenue which displaced lower margin hazardous waste disposal
revenue. Gross margin increased to 32.1% in 2008 from 16.6% in 2007
which reflects the favorable increase in oil price throughout much of
2008. The Engineering Segment gross profit increased $312,000 or
41.1% due to increased revenue resulting from a 29.0% increase in billable hours
in 2008 as compared to 2007. Gross margin remained fairly constant,
with an increase of 1.9% in 2008 as compared to 2007.
Selling,
General and Administrative
Selling,
general and administrative (“SG&A”) expenses increased $750,000 for the year
ended December 31, 2008, as compared to the corresponding period for 2007, as
follows:
(In
thousands)
|
|
2008
|
|
|
%
Revenue
|
|
|
2007
|
|
|
%
Revenue
|
|
|
Change
|
|
Administrative
|
|
$ |
5,679 |
|
|
|
¾ |
|
|
$ |
5,457 |
|
|
|
¾ |
|
|
$ |
222 |
|
Nuclear
|
|
|
6,924 |
|
|
|
15.7 |
|
|
|
7,520 |
|
|
|
17.4 |
|
|
|
(596 |
) |
Acquisition
06/07 (PFNWR)
|
|
|
2,878 |
|
|
|
16.6 |
|
|
|
1,678 |
|
|
|
19.9 |
|
|
|
1,200 |
|
Industrial
|
|
|
2,686 |
|
|
|
24.5 |
|
|
|
2,910 |
|
|
|
27.9 |
|
|
|
(224 |
) |
Engineering
|
|
|
665 |
|
|
|
20.8 |
|
|
|
517 |
|
|
|
21.6 |
|
|
|
148 |
|
Total
|
|
$ |
18,832 |
|
|
|
24.9 |
|
|
$ |
18,082 |
|
|
|
28.0 |
|
|
$ |
750 |
|
Excluding
the SG&A of our PFNWR facility, our Nuclear SG&A expenses decreased
$596,000 or 7.9% in 2008 as compared to 2007. The decrease within the
Nuclear Segment (excluding PFNWR) was due to lower payroll, commission, travel
related expenses, and general expenses due to headcount reduction resulting from
decreased revenue. The increase in administrative SG&A was
primarily the result of higher stock option expenses as we granted 1,083,000
options to certain company officers and employees. Such options were
not granted in 2007. In addition, legal fees were higher in 2008 due
to the Company’s daily legal corporate matters and public corporate
filings. These increases were offset by lower director fees in 2008
as we had a one time fee payment of $160,000 to a member of our Board of
Directors in 2007 as compensation for his service in negotiating the agreement
in principal to resolve a certain legal matter with the EPA against our former
PFD facility. The decrease in SG&A in our Industrial Segment is
due to lower payroll related expenses as we continue to streamline costs within
the segment. This decrease was offset by incremental depreciation
expense incurred in 2008 of approximately $128,000 as a result of the
reclassification of PFO, PFFL, and PFSG into continuing operations and higher
bonus/commission expenses at PFFL due to higher revenue in 2008 as compared to
2007. The Engineering Segment increase was the result of an increase
in payroll related expenses but this increase was offset by a significant
decrease in bad
debt
expense. Included in SG&A expense is depreciation and
amortization expense of $254,000 and $174,000 for the years ended December 31,
2008 and 2007, respectively.
Loss
(Gain) on Disposal of Property and Equipment
The gain
on disposal of property and equipment in 2008 is primarily due to the sale of
one of the properties at our PFO for $900,000 which resulted in gain of
approximately $483,000. The proceeds were used for our working
capital. This gain was offset by disposal of idle equipment at our
DSSI and M&EC facilities. The loss on disposal of property and
equipment for 2007 was attributed mainly to the disposal of idle equipment at
our M&EC, DSSI, and PFFL facilities.
Asset
Impairment Recovery
In May
2007, our PFSG, PFO, and PFFL facilities met the held for sale criteria under
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets as
a result of our Board of Directors approving the divestiture of these
facilities, which resulted in impairment losses of $1,329,000 and $507,000 for
PFSG and PFO, respectively. In September 2008, these facilities
were reclassified back into continuing operations as a result of our Board of
Directors approving the retention of these facilities. In the third
quarter of 2008, we reclassified one of the two properties at PFO as “net
property and equipment held for sale” within our continuing operations in
accordance with SFAS No. 144. We evaluated the fair value of PFO’s
assets and as a result, recorded the $507,000 previously impairment loss as an
asset impairment recovery.
Interest
Income
Interest
income decreased $86,000 for the year ended December 31, 2008, as compared to
2007. The decrease is primarily due to interest earned from excess cash in
a sweep account which the Company had in the first six months of 2007 but did
not have in the same period of 2008. The excess cash the Company had
in 2007 was the result of warrants and option exercises from the latter part of
2006.
Interest
Expense
Interest
expense decreased $4,000 for the year ended December 31, 2008, as compared to
the corresponding period of 2007.
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
%
|
|
PNC
interest
|
|
$ |
508 |
|
|
$ |
702 |
|
|
$ |
(194 |
) |
|
|
(27.6 |
) |
Other
|
|
|
809 |
|
|
|
619 |
|
|
|
190 |
|
|
|
30.7 |
|
Total
|
|
$ |
1,317 |
|
|
$ |
1,321 |
|
|
$ |
(4 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
decrease in 2008 is due primarily to the reduction in term loan balance and the
payoff of our term note from proceeds received from the sale of our three
Industrial Segment facilities, PFTS, PFD, and PFMD, in addition to lower
interest rate in 2008. This decrease was offset by higher interest
due to capitalized interest of approximately $144,000 in 2007 resulting from the
completion of the “SouthBay” project in 2007 at our M&EC
facility. Additionally, this decrease was offset by external debt
incurred resulting from the acquisition of our PFNWR facility in June
2007.
Interest
Expense - Financing Fees
Interest
expense-financing fees decreased approximately $59,000 from 2007 to 2008 due
primarily to monthly amortized financing fees associated with PNC revolving
credit and term note for our original debt and subsequent amendments which
became fully amortized in May 2008. This decrease was offset by
financing fees paid to PNC for Amendment No. 12 which is amortized over the term
of the amendment, starting from August 2008 and ending July 2012.
Income
Tax
We have
provided a valuation allowance on substantially all of our deferred tax
assets. We will continue to monitor the realizability of these net
deferred tax assets and will reverse some or all of the valuation allowance as
appropriate. In making this determination, we consider a number of
factors including whether
there is
a historical pattern of consistent and significant profitability in combination
with our assessment of forecasted profitability in the future
periods. Such patterns and forecasts allow us to determine whether
our most significant deferred tax assets such as net operating losses will be
realizable in future years, in whole or in part. These deferred tax
assets in particular will require us to generate taxable income in the
applicable jurisdictions in future years in order to recognize their economic
benefits. We do not believe that we have sufficient evidence to
conclude that some or all of the valuation allowance on deferred tax assets
should be reversed. However, facts and circumstances could change in
future years and at such point we may reverse the allowance as
appropriate. For the years ended December 31, 2008 and 2007, we had
$0 and $0, respectively, in federal income tax expense, as a result of a 100%
valuation allowance against the deferred tax asset and our alternative minimum
tax liability at December 31, 2008, and $10 and $0, respectively, in state
income taxes. Our net operating loss carryforwards have not
been audited or approved by the Internal Revenue Service.
Summary - Years Ended
December 31, 2007 and 2006
Net
Revenue
Consolidated
revenues from continuing operations decreased $3,661,000 for the year ended
December 31, 2007, compared to the year ended December 31, 2006, as
follows:
(In
thousands)
|
|
2007
|
|
|
%
Revenue
|
|
|
2006
|
|
|
%
Revenue
|
|
|
Change
|
|
|
%
Change
|
|
Nuclear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
waste
|
|
$ |
11,763 |
|
|
|
18.2 |
|
|
$ |
21,656 |
|
|
|
31.8 |
|
|
$ |
(9,893 |
) |
|
|
(45.7 |
) |
LATA/Parallax
|
|
|
8,784 |
|
|
|
13.6 |
|
|
|
10,341 |
|
|
|
15.2 |
|
|
|
(1,557 |
) |
|
|
(15.1 |
) |
Fluor
Hanford
|
|
|
3,885 |
(1) |
|
|
6.0 |
|
|
|
1,229 |
|
|
|
1.8 |
|
|
|
2,656 |
|
|
|
216.1 |
|
CHPRC
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Hazardous/non-hazardous
|
|
|
5,068 |
|
|
|
7.9 |
|
|
|
3,343 |
|
|
|
4.9 |
|
|
|
1,725 |
|
|
|
51.6 |
|
Other
nuclear waste
|
|
|
13,765 |
|
|
|
21.3 |
|
|
|
12,854 |
|
|
|
18.8 |
|
|
|
911 |
|
|
|
7.1 |
|
Recent
acquisition 6/07 (PFNWR)
|
|
|
8,439 |
(1) |
|
|
13.1 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
8,439 |
|
|
|
100.0 |
|
Total
|
|
|
51,704 |
|
|
|
80.1 |
|
|
|
49,423 |
|
|
|
72.5 |
|
|
|
2,281 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
waste
|
|
|
5,699 |
|
|
|
8.8 |
|
|
|
8,679 |
|
|
|
12.7 |
|
|
|
(2,980 |
) |
|
|
(34.3 |
) |
Government
services
|
|
|
1,653 |
|
|
|
2.6 |
|
|
|
3,594 |
|
|
|
5.3 |
|
|
|
(1,941 |
) |
|
|
(54.0 |
) |
Oil
sales
|
|
|
3,090 |
|
|
|
4.8 |
|
|
|
3,151 |
|
|
|
4.6 |
|
|
|
(61 |
) |
|
|
(1.9 |
) |
Total
|
|
|
10,442 |
|
|
|
16.2 |
|
|
|
15,424 |
|
|
|
22.6 |
|
|
|
(4,982 |
) |
|
|
(32.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
2,398 |
|
|
|
3.7 |
|
|
|
3,358 |
|
|
|
4.9 |
|
|
|
(960 |
) |
|
|
(28.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
64,544 |
|
|
|
100.0 |
|
|
$ |
68,205 |
|
|
|
100.0 |
|
|
$ |
(3,661 |
) |
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Revenue
of $8,439,000 from PFNWR for 2007 includes approximately $5,568,000 relating to
wastes generated by the federal government, either directly or indirectly as a
subcontractor to the federal government. Of the $5,568,000 in
revenue, approximately $3,100,000 was from Fluor Hanford, a contractor to the
federal government. Revenue in 2007 from Fluor Hanford totaled
approximately $6,985,000 or 10.8 % of total consolidated revenue.
The
Nuclear Segment experienced a $2,281,000 increase in revenue for the year ended
December 31, 2007 over the same period in 2006. Total revenue within
the Nuclear Segment included $8,439,000 of revenue from our PFNWR facility,
which was acquired on June 13, 2007. Excluding the revenue of our
PFNWR facility, revenue from our Nuclear Segment decreased approximately
$6,158,000 or 12.5% as compared to the same period of 2006. Revenue
from government generators (which includes LATA/Parallax and Fluor Hanford)
decreased $8,794,000 (excluding government revenue of $5,568,000 from our PFNWR
facility) or 26.5% due to overall lower government receipts. The
decrease in government waste revenue included a significant decrease in revenue
of approximately $4,893,000 or 73.0% from 2006 for Bechtel
Jacobs. The Bechtel Jacobs contract in Oak Ridge is continuing at
reduced waste volumes due to the large legacy waste
clean-up
project completion in 2005. 2006 revenues of our Nuclear Segment
include approximately $1.1 million recognized from Bechtel Jacobs as a result of
a settlement of a lawsuit in connection with a dispute over surcharges from
waste treated in 2003. Due to varying waste constituencies, waste
received and its related pricing can vary. 2007 saw a decline in
average pricing of 21.6% while volume increased 7.9%. Although our
receipts were down, the increase in volume was the result of the Company’s
continued effort to process and dispose more of its backlog. The
backlog of stored waste within the Nuclear Segment was reduced to $9,964,000,
excluding the backlog of our PFNWR facility of $4,683,000 at December 31, 2007,
down from $12,492,000 in 2006, which reflects increases in processing and
disposal for the year. The decrease for LATA/Parallax is due to
significant progress made by LATA/Parallax in completing legacy waste removal
actions as part of their clean-up project at Portsmouth for the Department of
Energy. Fluor Hanford revenue increased approximately $2,656,000
(excluding approximately $3,100,000 from PFNWR) or 216.1% due mainly to
increased receipts at our DSSI facility. Hazardous and non-hazardous
revenue increased approximately $1,725,000 or 51.6% as compared to the same
period of 2006 due to a combination of increased volume of 19.6% and price
increases of 26.7% in per drum equivalent of waste processed. Revenue
from the Industrial Segment decreased $4,982,000 or 32.3% from
2006. Revenue from government decreased 54.0% due to termination of a
government contract in November 2006. Commercial waste revenue was
down primarily due to our efforts to eliminate non-profitable revenue streams
and pursue more profitable ones. Revenue from the Engineering Segment
decreased $960,000 or 28.6% due to less billable hours and related reimbursable
costs in part to a large event project in 2006 which did not repeat in 2007 and
more hours spent supporting the divestiture of the Industrial Segment facilities
that are for sale.
Cost
of Goods Sold
Cost of
goods sold increased $2,384,000 for the year ended December 31, 2007, as
compared to the year ended December 31, 2006, as follows:
(In
thousands)
|
|
2007
|
|
|
%
Revenue
|
|
|
2006
|
|
|
%
Revenue
|
|
|
Change
|
|
Nuclear
|
|
$ |
30,261 |
|
|
|
69.9 |
|
|
$ |
28,493 |
|
|
|
57.7 |
|
|
$ |
1,768 |
|
Acquisition
6/07 (PFNWR)
|
|
|
4,938 |
|
|
|
58.5 |
|
|
|
— |
|
|
|
— |
|
|
|
4,938 |
|
Industrial
|
|
|
8,707 |
|
|
|
83.4 |
|
|
|
12,106 |
|
|
|
78.5 |
|
|
|
(3,399 |
) |
Engineering
|
|
|
1,638 |
|
|
|
68.3 |
|
|
|
2,561 |
|
|
|
76.3 |
|
|
|
(923 |
) |
Total
|
|
$ |
45,544 |
|
|
|
70.6 |
|
|
$ |
43,160 |
|
|
|
63.3 |
|
|
$ |
2,384 |
|
Excluding
the cost of goods sold of approximately $4,938,000 for the PFNWR facility, the
Nuclear Segment’s cost of goods sold for the year ending December 31, 2007 were
up approximately $1,768,000. Processing and disposal costs increased
due to increased volume as well as different mix of waste. In
addition, costs related to the new “SouthBay” area at M&EC increased due to
labor and analytical expenses. In 2007, M&EC completed its
facility expansion (“SouthBay”) to treat DOE special process wastes from the DOE
Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio under the
subcontract awarded by LATA/Parallax Portsmouth LLC to our Nuclear Segment in
2006. The Industrial Segment costs decreased $3,399,000 or 28.1% due
primarily to lower revenue as efforts were made during the year to streamline
and reorganize operations to focus on more profitable revenue streams and to
operate more efficiently. In addition, depreciation in 2007 was
reduced by approximately seven months due to classification of PFFL, PFO, and
PFSG to discontinued operations in May 2007. The Engineering Segment
costs fell due to lower reimbursable expenses related to a large event project
in 2006. Included within cost of goods sold is depreciation and
amortization expense of $3,918,000 and $3,341,000 for the year ended December
31, 2007 and 2006, respectively, reflecting an increase of $577,000 over
2006 resulting primarily from the completion of the “SouthBay” area and the
acquisition of PFNWR offset by the decrease in depreciation resulting from the
classification of PFFL, PFO, and PFSG to discontinued operations in
2007.
Gross
Profit
Gross
profit for the year ended December 31, 2007, decreased $6,045,000 over 2006, as
follows:
(In
thousands)
|
|
2007
|
|
|
%
Revenue
|
|
|
2006
|
|
|
%
Revenue
|
|
|
Change
|
|
Nuclear
|
|
$ |
13,004 |
|
|
|
30.1 |
|
|
$ |
20,930 |
|
|
|
42.3 |
|
|
$ |
(7,926 |
) |
Acquisition
(PFNWR)
|
|
|
3,501 |
|
|
|
41.5 |
|
|
|
— |
|
|
|
— |
|
|
|
3,501 |
|
Industrial
|
|
|
1,735 |
|
|
|
16.6 |
|
|
|
3,318 |
|
|
|
21.5 |
|
|
|
(1,583 |
) |
Engineering
|
|
|
760 |
|
|
|
31.7 |
|
|
|
797 |
|
|
|
23.7 |
|
|
|
(37 |
) |
Total
|
|
$ |
19,000 |
|
|
|
29.4 |
|
|
$ |
25,045 |
|
|
|
36.7 |
|
|
$ |
(6,045 |
) |
The
Nuclear Segment gross profit, excluding approximately $3,501,000 from PFNWR
facility, saw a decrease of 37.9% from 2006 primarily due to lower volume of
waste received. In addition, revenue mix shifted to processing and
disposal of higher volumes of lower price waste resulting in higher costs of
sales. In addition, surcharges were
significantly lower in 2007 which impacted gross profit and gross
margin. The Bechtel Jacobs surcharge of $1.1 million in 2006 had no
associated costs which increased prior year’s gross profit. The
Industrial Segment gross profit decreased due primarily to lower
revenue. The Engineering Segment gross profit decreased though its
gross profit percentage increased. The sizable portion of the large
event project in 2006 included low margin pass through expenses, resulting in
higher gross profit and lower margins in 2006.
Selling,
General and Administrative
Selling,
general and administrative (“SG&A”) expenses increased $279,000 for the year
ended December 31, 2007, as compared to the corresponding period for 2006, as
follows:
(In
thousands)
|
|
2007
|
|
|
%
Revenue
|
|
|
2006
|
|
|
%
Revenue
|
|
|
Change
|
|
Administrative
|
|
$ |
5,457 |
|
|
|
¾ |
|
|
$ |
5,627 |
|
|
|
¾ |
|
|
$ |
(170 |
) |
Nuclear
|
|
|
7,520 |
|
|
|
17.4 |
|
|
|
7,467 |
|
|
|
15.1 |
|
|
|
53 |
|
Acquisition
06/07 (PFNWR)
|
|
|
1,678 |
|
|
|
19.9 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
1,678 |
|
Industrial
|
|
|
2,910 |
|
|
|
27.9 |
|
|
|
4,163 |
|
|
|
27.0 |
|
|
|
(1,253 |
) |
Engineering
|
|
|
517 |
|
|
|
21.6 |
|
|
|
546 |
|
|
|
16.3 |
|
|
|
(29 |
) |
Total
|
|
$ |
18,082 |
|
|
|
28.0 |
|
|
$ |
17,803 |
|
|
|
26.1 |
|
|
$ |
279 |
|
Excluding
the SG&A of our PFNWR facility, our 2007 SG&A expenses decreased
$1,399,000 or 7.9% over 2006. The decrease in administrative SG&A
was the result of lower payroll related expense totaling approximately $688,000
related to a reduction in general labor and bonus
expenses. This decrease was offset by higher public company
expense totaling approximately $250,000 due to an increase in director fees for
our Board of Director services and payment of a one time fee to a member of our
Board of Directors as compensation for his service in negotiating the agreement
in principal to resolve a certain legal matter with the EPA against our PFD
facility. In addition, we had higher outside service fees of
approximately $268,000 related to consulting and the adoption of FASB
Interpretation 48, “Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB No.109” (“FIN 48”) and other tax related
issues. The Nuclear Segment’s SG&A small decrease is due to lower
payroll related expenses as commissions were down consistent with reduced
revenues and severance expense was down from 2006. The decrease in
SG&A in the Industrial Segment is due to the reduction of headcount,
specifically the restructuring of the sales force to streamline
costs. The Engineering Segment decrease was the result of a decrease
in payroll related expenses as commissions and headcount were down but were
offset by an increase in bad debt expense. Included in SG&A
expenses is depreciation and amortization expense of $174,000 and $288,000 for
the years ended December 31, 2007 and 2006, respectively, reflecting the
decrease in depreciation resulting from the classification of PFFL, PFO, and
PFSG to discontinued operations in May of 2007.
Asset
Impairment loss
In May
2007, our PFSG, PFO, and PFFL facilities met the held for sale criteria under
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets as
a result of our Board of Directors approving the divestiture of these
facilities. We therefore compared the offered sale price less cost to
sell to the carrying value of the investment for each of these facilities which
resulted in impairment loss of $1,329,000 and $507,000 for PFSG and PFO,
respectively.
Loss
(Gain) on Disposal of Property and Equipment
The loss
on fixed asset disposal for the year ended December 31, 2007, was $172,000, as
compared to a loss of $27,000 for the same period in 2006. The loss
for 2007 was attributed mainly to the disposal of idle equipment at our
M&EC, DSSI, and PFFL facilities and the loss for 2006 was attributed mainly
to the disposal of idle equipment at our DSSI and PFSG facilities, offset by
gain from the sale of equipment at our PFO
facility.
Interest
Income
Interest
income increased $32,000 for the year ended December 31, 2007, as compared to
2006. The increase is attributable to interest on the finite risk sinking
fund which was increased by $1,000,000 in February of 2007, as well as an
additional increase of $258,000 for our PFNWR facility closure
policy. In addition, the increase in 2007 is also attributed to
interest earned from additional cash in the Company’s sweep account during the
first six months of 2007.
Interest
Expense
Interest
expense increased $66,000 for the year ended December 31, 2007, as compared to
the corresponding period of 2006.
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
%
|
|
PNC
interest
|
|
$ |
702 |
|
|
$ |
728 |
|
|
$ |
(26 |
) |
|
|
(3.6 |
) |
Other
|
|
|
619 |
|
|
|
527 |
|
|
|
92 |
|
|
|
17.5 |
|
Total
|
|
$ |
1,321 |
|
|
$ |
1,255 |
|
|
$ |
66 |
|
|
|
5.3 |
|
The
increase in 2007 is due primarily to increased external debt related to the
Nuvotec acquisition of approximately $272,000. In addition, revolver
debt at PNC increased due to increased borrowings made necessary for the
acquisition, resulting in approximately $59,000 in additional interest
expense. Offsetting these increases were reduced interest expense of
approximately $85,000 on term note, capitalized interest of approximately
$144,000 related to the “SouthBay” construction completed in 2007, and reduced
interest expense from diminishing principal on other equipment related
loans.
Interest
Expense - Financing Fees
Interest
expense-financing fees remained fairly constant for the year ended December 31,
2007, as compared to the corresponding period of 2006.
Income
Tax
For the
years ended December 31, 2007 and 2006, we had $0 and approximately $83,000,
respectively, in federal income tax expense, as a result of a 100% valuation
allowance against the deferred tax asset and our alternative minimum tax
liability at December 31, 2007, and $0 and $424,000, respectively, in state
income taxes primarily for our subsidiary, M&EC, in Oak Ridge,
Tennessee.
Discontinued
Operations and Divestitures
Our
discontinued operations encompass our PFMD, PFD, and PFTS facilities within our
Industrial Segment, as well as two previously shut down locations, Perma-Fix of
Pittsburgh, Inc. (“PFP”), and Perma-Fix of Michigan, Inc. (“PFMI”), two
facilities which were approved as discontinued operations by our Board of
Directors effective November 8, 2005, and October 4, 2004,
respectively.
In 2008,
we completed the sale of substantially all of the assets of PFMD, PFD, and PFTS
as follows: on January 8, 2008, we completed the sale of
substantially all of the assets of PFMD for $3,825,000 in cash (cash received
was $3,811,000, which was net of closing closts) and the assumption by the buyer
of certain liabilities of PFMD, with a final working capital adjustment of
$170,000 received by Perma-Fix from the buyer in the fourth quarter of 2008; on
March 14, 2008, we completed the sale of substantially all of the assets of PFD
for approximately $2,143,000 in cash (cash received was $2,139,000, which was
net of certain closing costs), plus assumption by the buyer of certain of PFD’s
liabilities and obligations. In June 2008, we paid the buyer $209,000
in final working capital adjustment; and on May 30, 2008, we completed the sale
of substantially all of the assets of PFTS for approximately $1,503,000 (cash
received was $1,468,000, which was net of certain closing/settlement costs), and
assumption by the buyer of certain liabilities of PFTS. In July 2008,
we paid the buyer $135,000 in final working capital adjustments. Proceeds
received from the sale of these three facilities were used to pay off our term
note and pay down our revolver.
Our
discontinued Industrial Segment facilities generated revenues of $3,195,000,
$19,965,000, and $19,724,000 for the years ended December 31, 2008, 2007, and
2006, respectively, and had net operating losses of $1,332,000, $6,830,000 and
$711,000 for the same periods, respectively. Our operating loss in
2007 included impairment loss of $2,727,000 and $1,804,000 for PFD and PFTS,
respectively.
Assets
related to discontinued operations total $761,000 and $8,626,000 as of December
31, 2008, and 2007, respectively, and liabilities related to discontinued
operations total $2,994,000 and $9,037,000 as of December 31, 2008 and 2007,
respectively.
Non
Operational Facilities
The
Industrial Segment includes two previously shut-down facilities which were
presented as discontinued operations in prior years. These facilities
include Perma-Fix of Pittsburgh (PFP) and Perma-Fix of Michigan
(PFMI). Our decision to discontinue operations at PFP was due to our
reevaluation of the facility and our inability to achieve profitability at the
facility. During February 2006, we completed the remediation of the
leased property and the equipment at PFP, and released the property back to the
owner. Our decision to discontinue operations at PFMI was principally
a result of two fires that significantly disrupted operations at the facility in
2003, and the facility’s continued drain on the financial resources of our
Industrial Segment. As a result of the discontinued operations at the
PFMI facility, we were required to complete certain closure and remediation
activities pursuant to our RCRA permit, which were completed in January
2006. In September 2006, PFMI signed a Corrective Action Consent
Order with the State of Michigan, requiring performance of studies and
development and execution of plans related to the potential clean-up of soils in
portions of the property. The level and cost of the clean-up and
remediation are determined by state mandated requirements. Upon
discontinuation of operations in 2004, we engaged our engineering firm, SYA, to
perform an analysis and related estimate of the cost to complete the RCRA
portion of the closure/clean-up costs and the potential long-term remediation
costs. Based upon this analysis, we estimated the cost of this
environmental closure and remediation liability to be
$2,464,000. During 2006, based on state-mandated criteria, we
re-evaluated our required activities to close and remediate the facility, and
during the quarter ended June 30, 2006, we began implementing the modified
methodology to remediate the facility. As a result of the
reevaluation and the change in methodology, we reduced the accrual by
$1,182,000. We have spent approximately
$745,000 for closure costs since September 30, 2004, of which $26,000 was spent
during 2008 and $81,000 was spent during 2007. In the 4th quarter of 2007, we reduced
our reserve by $9,000 as a result of our reassessment of the cost of
remediation. We have $538,000 accrued for the closure,
as of December 31, 2008, and we anticipate spending $425,000 in 2009 with the
remainder over the next six years. Based on the current status of the
Corrective Action, we believe that the remaining reserve is adequate to cover
the liability.
As of December 31, 2008, PFMI has a pension
payable of
$1,129,000. The pension plan withdrawal liability is a result
of the termination of the union employees of PFMI. The PFMI union
employees participate 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 $181,000 that we expect to pay
over the next year.
Liquidity
and Capital Resources
Our
capital requirements consist of general working capital needs, scheduled
principal payments on our debt obligations and capital leases, remediation
projects and planned capital expenditures. Our capital resources
consist primarily of cash generated from operations, funds available under our
revolving credit facility and proceeds from issuance of our Common
Stock. Our capital resources are impacted by changes in accounts
receivable as a result of revenue fluctuation, economic trends, collection
activities, and the profitability of the segments.
At
December 31, 2008, we had cash of $129,000. The following table
reflects the cash flow activities during 2008.
(In
thousands)
|
|
2008
|
|
Cash
provided by continuing operations
|
|
$ |
4,210 |
|
Gain
on disposal of discontinued operations
|
|
|
(2,323 |
) |
Cash
used in discontinued operations
|
|
|
(1,422 |
) |
Cash
used in investing activities of continuing operations
|
|
|
(5,057 |
) |
Proceeds
from sale of discontinued operations
|
|
|
6,734 |
|
Cash
provided by investing activities of discontinued
operations
|
|
|
75 |
|
Cash
used in financing activities of continuing operations
|
|
|
(1,968 |
) |
Principal
repayment of long-term debt for discontinued operations
|
|
|
(238 |
) |
increase
in cash
|
|
$ |
11 |
|
We are in
a net borrowing position and therefore attempt to move all excess cash balances
immediately to the revolving credit facility, so as to reduce debt and interest
expense. We utilize a centralized cash management system, which
includes remittance lock boxes and is structured to accelerate collection
activities and reduce cash balances, as idle cash is moved without delay to the
revolving credit facility or the Money Market account, if
applicable. The cash balance at December 31, 2008, primarily
represents minor petty cash and local account balances used for miscellaneous
services and supplies.
Operating
Activities
Accounts
receivable, net of allowances for doubtful accounts, totaled $13,416,000, a
decrease of $1,545,000 over the December 31, 2007, balance of
$14,961,000. Our account receivable balance as of December 31, 2008
included approximately $1,503,000 in receivables resulting from the subcontract
awarded to us by CHPRC in the second quarter of 2008. Excluding this
account receivable from CHPRC, our Nuclear Segment experienced a decrease of
approximately $3,515,000 as a result of improved collection
efforts. The Engineering Segment experienced a decrease of
approximately $50,000 due also mainly to improved collection
efforts. The Industrial Segment experienced an increase of
approximately $517,000 due mainly to combination of increase in revenue and
reduced collection.
Unbilled
receivables are generated by differences between invoicing timing and the
percentage of completion methodology used for revenue recognition
purposes. As major processing phases are completed and the costs
incurred, we recognize the corresponding percentage of revenue. We
experience delays in processing invoices due to the complexity of the
documentation that is required for invoicing, as well as, the difference between
completion of revenue recognition milestones and agreed upon invoicing terms,
which results in unbilled receivables. The timing differences occur
for several reasons: partially from delays in the final processing of
all wastes associated with certain work orders and partially from delays for
analytical testing that is required after we have processed waste but prior to
our release of waste for disposal. The difference also occurs
due to our end disposal sites requirement of pre-approval prior to our shipping
waste for disposal and our contract terms with the customer that we dispose of
the waste prior to invoicing. These delays
usually take several months to complete. As of December 31, 2008,
unbilled receivables totaled
$16,962,000,
an increase of $2,757,000 from the December 31, 2007, balance of
$14,205,000. The delays in processing invoices, as
mentioned above, usually take several months to complete but are normally
considered collectible within twelve months. However, as we now have
historical data to review the timing of these delays, we realize that certain
issues, including but not limited to delays at our third party disposal site,
can exacerbate collection of some of these receivables greater than twelve
months. Therefore, we have segregated the unbilled receivables
between current and long term. The current portion of the unbilled
receivables as of December 31, 2008 is $13,104,000, an increase of $2,671,000
from the balance of $10,433,000 as of December 31, 2007. The long
term portion as of December 31, 2008 is $3,858,000, an increase of $86,000 from
the balance of $3,772,000 as of December 31, 2007.
As of
December 31, 2008, total consolidated accounts payable was $11,076,000, an
increase of $5,169,000 from the December 31, 2007, balance of
$5,907,000. The increase is the result of higher cost of sales
related to receipt of lower margin waste streams within our Nuclear Segment,
higher costs related to the disposal of our legacy wastes as well as our
continued efforts to manage payment terms with our vendors to maximize our cash
position throughout all segments. Accounts payable can increase
in conjunction with decreases in accrued expenses depending on the timing of
vendor invoices.
Accrued
expenses as of December 31, 2008, totaled $8,896,000, a decrease of $1,086,000
over the December 31, 2007, balance of $9,982,000. Accrued expenses
are made up of accrued compensation, interest payable, insurance payable,
certain tax accruals, and other miscellaneous accruals. The decrease
is primarily due to reduction in insurance payable due to the divestiture of our
three Industrial facilities, PFMD, PFD, and PFTS, which resulted in lower
insurance premium. This decrease was offset by higher bonus accrual at our
Engineering Segment due to increased revenue for the year.
Disposal/transportation
accrual as of December 31, 2008, totaled $5,847,000, a decrease of $1,003,000
over the December 31, 2007 balance of $6,850,000. The decrease is
mainly attributed to the reduction of the legacy waste accrual at PFNWR
facility. In addition, revenue reduction at our PFF, DSSI, and
M&EC facilities attributed to this reduction in disposal/transportation
accrual.
Our
working capital position at December 31, 2008 was a negative $3,886,000, which
includes working capital of our discontinued operations, as compared to a
negative working capital of $17,154,000 as of December 31, 2007. The
improvement in our working capital is primarily the result of the
reclassification of our indebtedness to certain of our lenders from current
(less current maturities) to long term in the first quarter of 2008 due to the
Company meeting its fixed charge coverage ratio, pursuant to our loan agreement,
as amended, in the first quarter of 2008. We have met our fixed
charge coverage ratio in each of the quarters in 2008 and we anticipate meeting
this ratio in 2009. In 2007, the Company failed to meet its fixed
charge coverage ratio as of December 31, 2007 and as a result we were required
under generally accepted accounting principles to reclassify debt under our
credit facility with PNC and debt payable to KeyBank National Association, due
to a cross default provision from long term to current as of December 31,
2007. Our working capital in 2008 was also impacted by the
annual cash payment to the finite risk sinking fund of $1,004,000, our payments
of approximately $4,274,000 in financial assurance coverage for our PFNWR
facility, capital spending of approximately $1,158,000, the reclassification of
approximately $833,000 in principal balance on the shareholder note resulting
from the acquisition of PFNWR in June from long term to current, payment of
approximately $3,039,000 on the KeyBank debt from the PFNWR acquisition and the
payments against the long term portion of our term note of approximately
$4,100,000 in proceeds received from sale of PFMD, PFD, and PFTS.
Investing
Activities
During
2008, our purchases of capital equipment totaled approximately $1,158,000 of
which $1,129,000 and $29,000 was for our continuing and discontinued operations,
respectively. Of the total capital spending, $148,000 was financed
for our continuing operations, resulting in total net purchases of $1,010,000
funded out of cash flow ($981,000 for continuing operations and $29,000 for our
discontinued operations). These expenditures were for compliance,
sustenance, expansion, and improvements to the operations principally
within
the Nuclear Segment. These capital expenditures were funded by the
cash provided by operations
and cash
provided by financing activities. We have budgeted approximately $1,300,000 for
2009 capital expenditures for our segments to expand our operations into new
markets, reduce the cost of waste processing and handling, expand the range of
wastes that can be accepted for treatment and processing, and to maintain permit
compliance requirements. Certain of these budgeted projects are
discretionary and may either be delayed until later in the year or deferred
altogether. We have traditionally incurred actual capital spending
totals for a given year less than the initial budget amount. The
initiation and timing of projects are also determined by financing alternatives
or funds available for such capital projects. We anticipate funding
these capital expenditures by a combination of lease financing and internally
generated funds.
In June
2003, we entered into a 25-year finite risk insurance policy with American
International Group, Inc. (“AIG”) (see “Part I, Item 1A. - Risk Factors” for
certain potential risk related to 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 provides a maximum $35,000,000 of
financial assurance coverage of which the coverage amount totals $32,515,000 at
December 31, 2008, and has available capacity to allow for annual inflation and
other performance and surety bond requirements. In 2008, we increased
our assurance coverage by $1,697,000 due to a revision to our DSSI facility
closure estimate. Our finite risk insurance policy required an
upfront payment of $4,000,000, of which $2,766,000 represented the full premium
for the 25-year term of the policy, and the remaining $1,234,000, was deposited
in a sinking fund account representing a restricted cash account. In
February 2008, we paid our fifth of nine required annual installments of
$1,004,000, of which $991,000 was deposited in the sinking fund account, the
remaining $13,000 represents a terrorism premium. As of December 31,
2008, we have recorded $6,918,000 in our sinking fund related to this policy on
the balance sheet, which includes interest earned of $730,000 on the sinking
fund as of December 31, 2008. We recorded $155,000 of interest income
on the sinking fund for 2008. On the fourth and subsequent
anniversaries of the contract inception, we may elect to terminate this
contract. If we so elect, the Insurer will 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, which we acquired in June 2007, with AIG (see “Part I, Item 1A. - Risk
Factors” for certain potential risk related to AIG). The policy
provides an initial $7,800,000 of financial assurance coverage with 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 will renew automatically
on an annual basis at the end of the four year term and will not be subject to
any renewal fees. The policy requires total payment of $7,158,000,
consisting of an annual payment of $1,363,000, two annual payments of
$1,520,000, starting July 31, 2007 and an additional $2,755,000 to be paid in
five quarterly payments of $551,000 beginning September 2007. In July
2007, we paid the $1,363,000, of which $1,106,000 represented premium on the
policy and the remaining was deposited into a sinking fund
account. In July 2008, we paid the first of the two $1,520,000
payments, with $1,344,000 deposited into a sinking fund account and the
remaining representing premium. As of December 31, 2008, we
have made all of the five quarterly payments which were deposited into a sinking
fund. As of December 31, 2008, we have recorded $4,427,000 in our
sinking fund related to this policy on the balance sheet, which includes
interest earned of $71,000 on the sinking fund as of December 31,
2008. Interest income for 2008 totaled $68,000.
On
November 26, 2008, the U.S. EPA Region 4 issued a permit to our DSSI facility to
commercially store and dispose of PCBs. DSSI began the permitting
process to add TSCA regulated wastes, namely PCBs, containing radioactive
constituents to its authorization in 2004 in order to meet the demand for the
treatment of government and commercially generated radioactive PCB
wastes. In March 2009, we secured financial assurance coverage with
AIG which will enable DSSI to receive and process wastes under this
permit. We secured this financial assurance coverage requirement by
increasing our initial 25-year finite risk insurance policy with AIG from
maximum policy coverage of $35,000,000 to $39,000,000. Our coverage
under this policy
increased approximately $5,421,000 from $32,515,000 to approximately $37,936,000
as result of this
additional
financial assurance coverage requirement for the DSSI permit. Payment
for this financial assurance coverage requires a total payment of approximately
$5,219,000, consisting of an upfront payment of $2,000,000, of which
approximately $1,655,000 will be deposited into a sinking fund account, with the
remaining representing fee payable to AIG. In addition, we are
required to make three yearly payments of approximately $1,073,000 starting
December 31, 2009, of which $888,000 will be deposited into a sinking fund
account, with the remaining to represent fee payable to AIG. We made
our initial $2,000,000 payment to AIG on March 6, 2009 from funds made available
from an Amendment to our loan Agreement entered between us, our subsidiary, and
PNC Bank, National Association, on March 5, 2009 (see “Financing Activities” in
this section for the Amendment made with PNC Bank and see “Risk Factors” for a
discussion as to the potential risks relating to AIG).
On July
28, 2006, our Board of Directors has authorized a common stock repurchase
program to purchase up to $2,000,000 of our Common Stock, through open market
and privately negotiated transactions, with the timing, the amount of repurchase
transactions and the prices paid under the program as deemed appropriate by
management and dependent on market conditions and corporate and regulatory
considerations. We plan to fund any repurchases under this
program through our internal cash flow and/or borrowing under our line of
credit. As of the date of this report, we have not repurchased any of
our Common Stock under the program as we continue to evaluate this repurchase
program within our internal cash flow and/or borrowings under our line of
credit.
Financing
Activities
We
entered into a Revolving Credit, Term Loan and Security Agreement (“Agreement”)
with PNC Bank, National Association, a national banking association (“PNC”)
acting as agent (“Agent”) for lenders, and as issuing bank. The
Agreement provided for a term loan (“Term Loan”) in the amount of $7,000,000,
which requires principal repayments based upon a seven-year amortization,
payable over five years, with monthly installments of $83,000 and the remaining
unpaid principal balance due on November 27, 2008, as amended. 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. 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 December 31, 2008, the
excess availability under our revolving credit was $5,394,000 based on our
eligible receivables.
During
2008, we entered into various Amendments to the PNC Agreement. Under
these Amendments, the due date of the credit facility with PNC was extended to
July 31, 2012, the method of calculating the fixed charge coverage ratio
covenant contained in the loan agreement in each quarter of 2008 was modified,
and our Term Loan was increased back up to $7,000,000 from the principal
outstanding balance of $0, with the revolving line of credit remaining at
$18,000,000. The Term Loan continues to be payable in monthly
installments of approximately $83,000, plus accrued interest, with the remaining
unpaid principal balance and accrued interest, payable by July 31,
2012. We agreed to pay PNC 1.0% of the total financing in the event
we pay off our obligations on or prior to August 4, 2009 and 1/2% of the total
financing if we pay off our obligations on or after August 5, 2009, but prior to
August 4, 2010. No early termination fee shall apply if we pay off
our obligation after August 5, 2010. We agreed to grant mortgages to
PNC as to certain of our facilities not previously granted to PNC under the
Agreement. The $7,000,000 in loan proceeds was used to reduce our
revolver balance and our current liabilities.
On March
5, 2009, we entered into another Amendment with PNC Bank to our
Agreement. This Amendment increased our borrowing availability by
approximately an additional $2,200,000. In addition, pursuant to the
Amendment, monthly interest due on our revolving line of credit was amended from
prime plus 1/2% to prime plus 2.0% and monthly interest due on our Term Loan was
amended from prime plus 1.0% to prime plus 2.5%. The Company also has
the option to pay monthly interest due on the revolving line of
credit by using the London Interbank Offer Rate (“LIBOR”), with the minimum
floor base LIBOR
rate of
2.5%, plus 3.0% and to pay monthly interest due on the Term Loan using the
minimum floor base LIBOR rate of 2.5%, plus 3.5%. In addition,
pursuant to the Amendment, the fixed charge coverage ratio was amended to reduce
the availability monthly by $48,000. The Amendment also allowed us to
retain funds received from the sale of our PFO property. All other
terms and conditions to the credit facility remain principally
unchanged. We utilized approximately $2,000,000 of the additional
availability in connection with AIG’s financial assurance bond relating to our
new permit to store and dispose of radioactive PCB waste as discussed
above.
In
connection with our acquisition of M&EC, M&EC issued a promissory note
in the principal amount of $3,700,000, together with interest at an annual rate
equal to the applicable law rate pursuant to Section 6621 of the Internal
Revenue Code, to Performance Development Corporation (“PDC”), dated June 25,
2001, for monies advanced to M&EC by PDC and certain services performed by
PDC on behalf of M&EC prior to our acquisition of M&EC. The
principal amount of the promissory note was payable over eight years on a
semiannual basis on June 30 and December 31, with a final principal payment to
be made by December 31, 2008. All accrued and unpaid interest on the
promissory note was payable in one lump sum on December 31, 2008. PDC
directed M&EC to make all payments under the promissory note directly to the
IRS to be applied to PDC’s obligations to the IRS. On December 29,
2008, M&EC and PDC entered into an amendment to the promissory note, whereby
the outstanding principal and accrued interest due under the promissory note
totaling approximately $3,066,000 is to be paid in the following
installments: $500,000 payment to be made by December 31, 2008 and
five monthly payment of $100,000 to be made starting January 27, 2009, with the
balance consisting of accrued and unpaid interest due on June 30,
2009. We made the $500,000 payment on December 31,
2008. Interest is to continue to accrue at the applicable law rate
pursuant to the provisions of section 6621 of the Internal Revenue Code of 1986,
as amended. We have been directed by PDC to make all payments under
the promissory note, as amended, directly to the IRS to be applied to PDC’s
obligations under its obligations with the IRS. As of December 31,
2008, and after payment of the $500,000 installment, the outstanding balance due
under the promissory note to PDC, as amended, was approximately $2,566,000,
which consists of interest only. We anticipate paying the balance
from our working capital.
Additionally,
M&EC entered into an installment agreement, effective June 25, 2001, with
the IRS for a principal amount of $923,000, plus accrued and unpaid interest,
for certain withholding taxes owed by M&EC for periods prior to our
acquisition of M&EC. Although the M&EC installment agreement
was payable over eight years, we were advised by the IRS that due to the method
that the IRS utilized to apply the previous payments made by us in connection
with the PDC promissory note discussed above, the M&EC installment agreement
has been paid in full.
In
conjunction with our acquisition of Nuvotec (n/k/a Perma-Fix of Northwest, Inc.)
and PEcoS (n/k/a Perma-Fix of Northwest Richland, Inc.), (collectively called
“PFNWR”) which was completed on June 13, 2007, we entered into a promissory note
for a principal amount of $4,000,000 to KeyBank National Association, dated June
13, 2007, which represents debt assumed by us as result of the
acquisition. The promissory note is payable over a two year period
with monthly principal repayment of $160,000 starting July 2007 and $173,000
starting July 2008, along with accrued interest. Interest is accrued
at prime rate plus 1.125%. As of December 31, 2008, we have no
outstanding balance on the note.
Additionally,
in conjunction with our acquisition of PFNWR, we agreed to pay shareholders of
Nuvotec that qualified as accredited investors pursuant to Rule 501 of
Regulation D promulgated under the Securities Act of 1933, $2,500,000, with
principal payable in equal installment of $833,333 on June 30, 2009, June 30,
2010, and June 30, 2011. Interest is accrued on 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. Interest paid as of December
31, 2008 totaled $216,000. Interest accrued as of December 31, 2008
totaled $103,000. We anticipate paying the principal and interests
due in 2009 from our working capital.
During
2008, we issued 111,179 shares of our Common Stock upon exercise of 106,179
employee stock options, at exercise prices ranging from $1.25 to $1.86 and 5,000
director stock options, at an exercise price of $1.75. Total proceeds
received during 2008 related to option exercises totaled approximately
$184,000. In addition, we received the remaining $25,000 from
repayment of stock subscription resulting from exercise of warrants to purchase
60,000 shares of our Common Stock on a loan by the Company at an arms length
basis in 2006 in the first six months of 2008.
In
summary, the reclassification of debts (less current maturities) due to certain
of our lenders resulting from our compliance of our fixed charge coverage ratio
in the first quarter of 2008 back to long term from current has improved our
working capital position as of December 31, 2008. In addition, cash
received from the sale of substantially all of the assets of PFMD and PFD (net
of collateralized portion held by our credit facility) in the first quarter of
2008 and the sale of substantially all of the assets of PFTS in the second
quarter of 2008, was used to pay off our term note and reduce our revolver
balance. The acquisition of PFNW and PFNWR in June 2007 continues to
negatively impact our working capital as we continue to draw funds from our
revolver to make payments on debt that we assumed as well as financial assurance
payments requirement resulting from legacy wastes assumed from the
acquisition. In connection with the acquisition of PFNW and PFNWR, we
could be required to pay an earn-out amount not to exceed $4,552,000 over a four
year period. The earn-out amounts will be earned if certain annual
revenue targets are met by the Company’s consolidated Nuclear
Segment. We anticipate that all or a portion of the first $1,000,000
of the earn-out amount could be placed in an escrow account during the later
part of 2009 to satisfy certain indemnification obligations under the
Agreement. We continue to take steps to improve our operations and
liquidity and to invest working capital into our facilities to fund capital
additions in the Nuclear Segment. We restructured our credit facility
with our lender in the third quarter of 2008 to better support the future needs
of the Company. Although there are no assurances, we believe that
our cash flows from operations and our available liquidity from our line of
credit are sufficient to service the Company’s current obligations.
Contractual
Obligations
The
following table summarizes our contractual obligations at December 31, 2008, and
the effect such obligations are expected to have on our liquidity and cash flow
in future periods, (in thousands):
|
|
|
|
|
Payments
due by period
|
|
Contractual
Obligations
|
|
Total
|
|
|
2009
|
|
|
|
2010-2012
|
|
|
|
2013-2014
|
|
|
After 2014
|
|
Long-term
debt
|
|
$ |
16,203 |
|
|
$ |
2,022 |
|
|
$ |
14,172 |
|
|
$ |
9 |
|
|
$ |
— |
|
Interest
on long-term debt (1)
|
|
|
3,077 |
|
|
|
2,871 |
|
|
|
206 |
|
|
|
¾ |
|
|
|
¾ |
|
Interest
on variable rate debt (2)
|
|
|
2,532 |
|
|
|
824 |
|
|
|
1,708 |
|
|
|
¾ |
|
|
|
¾ |
|
Operating
leases
|
|
|
2,097 |
|
|
|
744 |
|
|
|
1,300 |
|
|
|
53 |
|
|
|
¾ |
|
Finite
risk policy (3)
|
|
|
10,756 |
|
|
|
4,525 |
|
|
|
6,231 |
|
|
|
¾ |
|
|
|
¾ |
|
Pension
withdrawal liability (4)
|
|
|
1,129 |
|
|
|
181 |
|
|
|
625 |
|
|
|
323 |
|
|
|
¾ |
|
Environmental
contingencies (5)
|
|
|
1,833 |
|
|
|
776 |
|
|
|
559 |
|
|
|
386 |
|
|
|
112 |
|
Purchase
obligations (6)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
contractual obligations
|
|
$ |
37,627 |
|
|
$ |
11,943 |
|
|
$ |
24,801 |
|
|
$ |
771 |
|
|
$ |
112 |
|
(1)
|
Our
PDC Note agreements dated June 2001, as amended on December 29, 2008, call
for the remaining balance of $2,566,000 which consists of interest, to be
paid by June 30, 2009. Monthly payment of $100,000 is to be
made starting January 27, 2009. Interest is to be accrued
at the applicable rate pursuant to the term of the original
note. In conjunction with our acquisition of PFNWR, which was
completed on June 13, 2007, we agreed to pay shareholders of Nuvotec that
qualified as accredited investors pursuant to Rule 501 of Regulation D
promulgated under the Securities Act of 1933, $2,500,000, with principal
payable in equal installment of $833,333 on June 30, 2009, June 30,
2010,
|
|
and
June 30, 2011. Interest is accrued on 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.
|
(2) |
We
have variable interest rates on our Term Loan and Revolving Credit of 2.5%
and 2.0% over the prime rate of interest, as amended, respectively, and as
such we have made certain assumptions in estimating future interest
payments on this variable interest rate debt. We assume an increase in
prime rate of 1/2% in each of the years 2009 through July
2012. |
|
|
(3)
|
Our
finite risk insurance policy provides financial assurance guarantees to
the states in the event of unforeseen closure of our permitted
facilities. See Liquidity and Capital Resources – Investing
activities earlier in this Management’s Discussion and Analysis for
further discussion on our finite risk
policy.
|
(4)
|
The
pension withdrawal liability is the estimated liability to us upon
termination of our union employees at our discontinued operation,
PFMI. See Discontinued Operations earlier in this section for
discussion on our discontinued
operation.
|
(5)
|
The
environmental contingencies and related assumptions are discussed further
in the Environmental Contingencies section of this Management’s Discussion
and Analysis, and are based on estimated cash flow spending for these
liabilities. The environmental contingencies noted are for
PFMI, PFM, PFSG, and PFD, which are the financial obligations of the
Company. The environmental liability, as it relates to the
remediation of the EPS site assumed by the Company as a result of the
original acquisition of the PFD facility, was retained by the Company upon
the sale of PFD in March 2008.
|
(6)
|
We
are not a party to any significant long-term service or supply contracts
with respect to our processes. We refrain from entering into
any long-term purchase commitments in the ordinary course of
business.
|
Critical
Accounting Estimates
In
preparing the consolidated financial statements in conformity with generally
accepted accounting principles in the United States of America, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, as well as, the reported amounts of revenues and
expenses during the reporting period. We believe the following
critical accounting policies affect the more significant estimates used in
preparation of the consolidated financial statements:
Revenue Recognition
Estimates. We utilize a percentage of completion methodology
for purposes of revenue recognition in our Nuclear Segment. As we
accept more complex waste streams in this segment, the treatment of those waste
streams becomes more complicated and time consuming. We have
continued to enhance our waste tracking capabilities and systems, which has
enabled us to better match the revenue earned to the processing phases
achieved. The major processing phases are receipt,
treatment/processing and shipment/final disposition. Upon receiving
mixed waste we recognize a certain percentage (ranging from 20% to 33%) of
revenue as we incur costs for transportation, analytical and labor associated
with the receipt of mixed wastes. As the waste is processed, shipped
and disposed of we recognize the remaining revenue and the associated costs of
transportation and burial. The waste streams in our Industrial
Segment are much less complicated, and services are rendered shortly after
receipt, as such we do not use percentage of completion estimates in our
Industrial segment. We review and evaluate our revenue recognition
estimates and policies on a quarterly basis. Under our
subcontract awarded by CHPRC in 2008, we are reimbursed for costs incurred plus
a certain percentage markup for indirect costs, in accordance with contract
provision. Costs incurred on excess of contract funding may be
renegotiated for reimbursement. We also earn a fee based on the
approved costs to complete the contract. We recognize this fee using
the proportion of costs incurred to total estimated contract costs.
Allowance for Doubtful
Accounts. The carrying amount of accounts receivable is
reduced by an allowance for doubtful accounts, which is a valuation allowance
that reflects management's best estimate of the amounts that are
uncollectible. We regularly review all accounts receivable balances
that exceed 60 days from the invoice date and based on an assessment of current
credit worthiness, estimate the portion, if any, of the balances that are
uncollectible. Specific accounts that are deemed to be uncollectible
are reserved at 100% of their outstanding balance. The remaining
balances aged over 60 days have a percentage applied by aging category (5% for
balances 61-90 days, 20% for balances 91-120 days and 40% for balances over 120
days aged), based on a historical valuation, that allows us to calculate the
total reserve required. This allowance was approximately 0.4% of revenue for
2008 and 2.4%, of accounts receivable as of December 31,
2008. Additionally, this allowance was approximately 0.3% of revenue
for 2007 and 1.3% of accounts receivable as of December 31, 2007.
Intangible
Assets. Intangible assets relating to acquired businesses
consist primarily of the cost of purchased businesses in excess of the estimated
fair value of net identifiable assets acquired or goodwill and the
recognized value of the permits required to operate the business. We
continually reevaluate the propriety of the carrying amount of permits and
goodwill to determine whether current events and circumstances warrant
adjustments to the carrying value. We test each Segment’s (or
Reporting Unit’s) goodwill and permits, separately, for impairment, annually as
of October 1. Our annual impairment test as of October 1, 2008 and
2007 resulted in no impairment of goodwill and permits. The
methodology utilized in performing this test estimates the fair value of our
operating segments using a discounted cash flow valuation
approach. Those cash flow estimates incorporate assumptions that
marketplace participants would use in their estimates of fair
value. The most significant assumptions used in the discounted cash
flow valuation regarding each of the Segment’s fair value in connection with
goodwill valuations are: (1) detailed five year cash flow
projections, (2) the risk adjusted discount rate, and (3) the expected long-term
growth rate. The primary drivers of the cash flow projection in 2008
include sales revenue and projected margin which are based on our current
revenue, projected government funding as it relates to our existing government
contracts and future revenue expected as part of the government stimulus
plan. The risk adjusted discount rate represents the weighted average
cost of capital and is established based on (1) the 20 year risk-free rate,
which is impacted by events external to our business, such as investor
expectation regarding economic activity (2) our required rate of return on
equity, and (3) the current after tax rate of return on debt. In
valuing our goodwill for 2008, risk adjusted discount rate of 18% was used for
the Nuclear and Industrial Segment and 16% for our Engineering
Segment. As of December 31, 2008, the fair value of our reporting
units exceeds carrying value by approximately $6,616,000, $616,000, and
$3,329,000 above its carrying value for the Nuclear, Engineering, and Industrial
Segment, respectively.
Property
and Equipment
Property
and equipment expenditures are capitalized and depreciated using the
straight-line method over the estimated useful lives of the assets for financial
statement purposes, while accelerated depreciation methods are principally used
for income tax purposes. Generally, annual depreciation rates range
from ten to forty years for buildings (including improvements and asset
retirement costs) and three to seven years for office furniture and equipment,
vehicles, and decontamination and processing equipment. Leasehold
improvements are capitalized and amortized over the lesser of the term of the
lease or the life of the asset. Maintenance and repairs are charged
directly to expense as incurred. The cost and accumulated
depreciation of assets sold or retired are removed from the respective accounts,
and any gain or loss from sale or retirement is recognized in the accompanying
consolidated statements of operations. Renewals and improvement, which extend
the useful lives of the assets, are capitalized. We include within
buildings, asset retirement obligations, which represents our best estimates of
the cost to close, at some undetermined future date, our permitted and/or
licensed facilities. In 2008, due to change in estimate of the costs
to close our DSSI and PFNWR facility based on federal/state regulatory
guidelines, we increased our asset retirement obligation (“ARO”) by $726,000 and
$373,000 for our DSSI and PFNWR facility, respectively, which will be
depreciated prospectively over the remaining life of the asset, in accordance
with SFAS No. 143 “Accounting for Asset Retirement Obligations”.
In
accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No.
144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”,
long-lived assets, such as property, plant and equipment, and purchased
intangible assets subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized in the amount by which the
carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented in the
balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposal group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the balance
sheet. In 2007, as result of the approved divestiture of our
Industrial Segment by our Board of Directors and in accordance with SFAS No.
144, we recorded $2,727,000 and $1,804,000 in tangible asset impairment loss for
PFD and PFTS, respectively, which were included in “loss from discontinued
operations, net of taxes” on our Consolidated Statements of Operations for the
year ended December 31, 2007.
In
September 2008, our Board of Directors approved retaining our Industrial Segment
facilities/operations at PFFL, PFSG, and PFO. As a result of this
decision, we restated the condensed consolidated financial statements for all
periods presented to reflect the reclassification of these three
facilities/operations back into our continuing operations. During the
third quarter of 2008, we classified one of the two properties at PFO as “net
property and equipment held for sale” within our continued operations in the
Consolidated Balance Sheets in accordance to SFAS No. 144. We
evaluated the fair value of PFO’s assets and as a result, recorded a credit of
$507,000 related to the recovery of previous impairment charges for PFO, which
is included in “Asset Impairment Recovery” on the Consolidated Statements of
Operations for the year ended December 31, 2008. On December 23,
2008, we sold the property at PFO for $900,000 in cash resulting in a gain of
$483,000.
Accrued Closure Costs.
Accrued closure costs represent a contingent environmental liability to clean up
a facility in the event we cease operations in an existing
facility. The accrued closure costs are estimates based on guidelines
developed by federal and/or state regulatory authorities under Resource
Conservation and Recovery Act (“RCRA”). Such costs are evaluated annually and
adjusted for inflationary factors and for approved changes or expansions to the
facilities. Increases due to inflationary factors for 2008 and 2007, have been
approximately 2.7%, and 2.9%, respectively, and based on the historical
information, we do not expect future inflationary changes to differ materially
from the last three years. Increases or decreases in accrued closure
costs resulting from changes or expansions at the facilities are determined
based on specific RCRA guidelines applied to the requested
change. This calculation includes certain estimates, such as disposal
pricing, external labor, analytical costs and processing costs, which are based
on current market conditions. We have no current intention to close
any of our facilities except for the Michigan and Pittsburgh
facilities.
Accrued Environmental
Liabilities. We have four remediation projects currently in
progress. The current and long-term accrual amounts for the projects
are our best estimates based on proposed or approved processes for
clean-up. The circumstances that could affect the outcome range from
new technologies that are being developed every day to reduce our overall costs,
to increased contamination levels that could arise as we complete remediation
which could increase our costs, neither of which we anticipate at this
time. In addition, significant changes in regulations could adversely
or favorably affect our costs to remediate existing sites or potential future
sites, which cannot be reasonably quantified. Our environmental
liabilities also included $391,000 in accrued long-term environmental liability
as of December 31, 2007 for our Maryland facility acquired in March
2004. As previously disclosed, in January 2008, we sold substantially
all of the assets of the Maryland facility. In connection with this
sale, the buyer has assumed this liability, in addition to obligations and
liabilities for environmental conditions at the Maryland facility except for
fines, assessments, or judgments to governmental authorities prior to the
closing of the transaction or third party tort claims existing prior to the
closing of the sale. In connection with the sale of our PFD facility
in March 2008, the Company has retained the environmental liability for the
remediation of an independent site known as EPS. This liability was
assumed by the Company as a result of the original acquisition of
the
PFD
facility. In connection with the sale of our PFTS facility in May
2008, the remaining environmental reserve of approximately $35,000 was recorded
as a “gain on disposal of discontinued operation, net of taxes” in the second
quarter of 2008 on our “Consolidated Statement of Operations” as the buyer has
assumed any future on-going environmental monitoring. The
environmental liabilities of PFM, PFMI, PFSG, and PFD remain the financial
obligations of the Company.
Disposal/Transportation
Costs. We accrue for waste disposal based upon a physical count of the
total waste at each facility at the end of each accounting
period. Current market prices for transportation and disposal costs
are applied to the end of period waste inventories to calculate the disposal
accrual. Costs are calculated using current costs for disposal, but
economic trends could materially affect our actual costs for disposal. As there
are limited disposal sites available to us, a change in the number of available
sites or an increase or decrease in demand for the existing disposal areas could
significantly affect the actual disposal costs either positively or
negatively.
Share-Based
Compensation. On January 1, 2006, we adopted Financial
Accounting Standards Board (“FASB”) Statement No. 123 (revised)
(“SFAS 123R”), Share-Based Payment, a
revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation, superseding APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related implementation guidance. This
Statement establishes accounting standards for entity exchanges of equity
instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity’s equity instruments or that may be
settled by the issuance of those equity instruments. SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative upon adopting SFAS
123R. We adopted SFAS 123R utilizing the modified prospective
method in which compensation cost is recognized beginning with the effective
date based on SFAS 123R requirements for all (a) share-based payments
granted after the effective date and (b) awards granted to employees prior
to the effective date of SFAS 123R that remain unvested on the effective
date. In accordance with the modified prospective method, the
consolidated financial statements for prior periods have not been restated to
reflect, and do not include, the impact of SFAS 123R.
Pursuant
to the adoption of SFAS 123R, we recorded stock-based compensation expense for
the director stock options granted prior to, but not yet vested, as of
January 1, 2006, using the fair value method required under
SFAS 123R. For our employee and director stock option grants, we
have estimated compensation expense based on the fair value at grant date using
the Black-Scholes valuation model and have recognized compensation expense using
a straight-line amortization method over the vesting period. As
SFAS 123R requires that stock-based compensation expense be based on
options that are ultimately expected to vest, our stock-based compensation is
reduced for estimated forfeiture rates. When estimating forfeitures,
we considered historical trends of actual option
forfeitures. Forfeiture rates are evaluated, and revised when
necessary. For the August 2008 and December 2008 employee stock
option grants, we have estimated 5% and 0% forfeiture rates, respectively, for
the first year of vesting. Our December 2008 employee option grants
were made to employees hired resulting from the subcontract awarded to us from
CHPRC. We based our forfeiture rate for these option grants on historical
employment terms under similar type contracts. For the 2008 director stock
option grants, we have estimated 0% forfeiture rate for the first year of
vesting based on historical trend of actual forfeitures.
Our
computation of expected volatility used to calculate the fair value of options
granted using the Black-Scholes valuation model is based on historical
volatility from our traded common stock over the expected term of the option
grants. For our employee option grants made prior to 2008, we used
the simplified method, defined in the SEC’s Staff Accounting Bulletin No. 107,
to calculate the expected term. For our employee option grants made
in August 2008, we computed the expected term based on the historical exercise
and post-vesting data. For the December 2008 option grants made to
employees working under the CHPRC subcontract, we computed the expected term
based on the initial subcontract term of five years. For our director
option grants, the expected term is calculated based on historical exercise and
post-vesting
data. The
interest rate for periods within the contractual life of the award is based on
the U.S. Treasury yield curve in effect at the time of grant.
FIN
48
In July
2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxes, which attempts to set out a consistent framework for preparers to
use to determine the appropriate level of tax reserve to maintain for uncertain
tax positions. This interpretation of FASB Statement No. 109 uses a two-step
approach wherein a tax benefit is recognized if a position is
more-likely-than-not to be sustained. The amount of the benefit is then measured
to be the highest tax benefit which is greater than 50% likely to be realized.
FIN 48 also sets out disclosure requirements to enhance transparency of an
entity’s tax reserves. The Company adopted this Interpretation as of January 1,
2007. The adoption of FIN 48 did not have a material impact on our financial
statements.
Known
Trends and Uncertainties