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)
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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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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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the
charter of our Corporate Governance and Nominating
Committee;
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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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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:
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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
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claims
of employees, customers, or third parties for personal injury or property
damage occurring in the course of our operations;
and
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claims
alleging negligence or professional errors or omissions in the planning or
performance of our services.
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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.
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UNRESOLVED
STAFF COMMENTS
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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
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.
Economic Conditions. With
much of our Nuclear Segment customer base being government or prime contractors
treating government waste, economic upturns or downturns do not usually have a
significant impact on the demand for our services. With our
Industrial Segment, economic downturns or recessionary conditions can adversely
affect the demand for our industrial services. However, with the
recent high prices of oil, this economic condition has worked favorably for our
oil sale revenues in our Industrial Segment. Our Engineering Segment
relies more on commercial customers though this segment makes up a very small
percentage of our revenue.
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. 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.
Certain
Legal Matters:
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.
Significant Customers. Our
revenues are principally derived from numerous and varied customers. However, we
have a significant relationship with the federal government within our Nuclear
Segment, and have continued 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 on 30
days notice or renegotiate the contracts, 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 (who acts 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, 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.
Insurance. We maintain
insurance coverage similar to, or greater than, the coverage maintained by other
companies of the same size and industry, which complies with the requirements
under applicable environmental laws. We evaluate our insurance policies annually
to determine adequacy, cost effectiveness and desired deductible levels. Due to
the downturn in the economy, changes within the environmental insurance market,
and the financial difficulties of AIG, the provider of our financial assurance
policies, we have no guarantees as to continued coverage by AIG, that we will be
able to obtain similar insurance in future years, or that the cost of such
insurance will not increase materially.
Profit
Sharing Plan
The
Company adopted its 401(k) Plan in 1992, which is intended to comply with
Section 401 of the Internal Revenue Code and the provisions of the Employee
Retirement Income Security Act of 1974. All full-time employees who
have attained the age of 18 are eligible to participate in the 401(k)
Plan. Eligibility is immediate upon employment but enrollment is only
allowed during two yearly open periods of January 1 and July
1. Participating employees may make annual pretax contributions to
their accounts up to 100% of their compensation, up to a maximum amount as
limited by law. We, at our discretion, may make matching
contributions based on the employee’s elective contributions. Company
contributions vest over a period of five years. We matched 25% of our
employees’ contributions. We contributed $401,000 in matching funds
during 2008. Effective March 1, 2009, the Company suspended its
matching contribution in an effort to reduce costs in light of the recent
economic environment. The Company will evaluate the reversal of this
suspension as the economic environment improves.
Environmental
Contingencies
We are
engaged in the waste management services segment of the pollution control
industry. As a participant in the on-site treatment, storage and
disposal market and the off-site treatment and services market, we are subject
to rigorous federal, state and local regulations. These regulations
mandate strict compliance and therefore are a cost and concern to
us. Because of their integral role in providing quality environmental
services, we make every reasonable attempt to maintain complete compliance with
these regulations; however, even with a diligent commitment, we, along with many
of our competitors, may be required to pay fines for violations or investigate
and potentially remediate our waste management facilities.
We
routinely use third party disposal companies, who ultimately destroy or secure
landfill residual materials generated at our facilities or at a client's
site. We, compared to certain of our competitors, dispose of
significantly less hazardous or industrial by-products from our operations due
to rendering material non-hazardous, discharging treated wastewaters to
publicly-owned treatment works and/or processing wastes into saleable
products. In the past, numerous third party disposal sites have
improperly managed wastes and consequently require remedial action;
consequently, any party utilizing these sites may be liable for some or all of
the remedial costs. Despite our aggressive compliance and auditing
procedures for disposal of wastes, we could further be notified, in the future,
that we are a PRP at a remedial action site, which could have a material adverse
effect.
We have
budgeted for 2009, $776,000 in environmental remediation expenditures to comply
with federal, state and local regulations in connection with remediation of
certain contaminates at our facilities. Our facilities where the
remediation expenditures will be made are the Leased Property in Dayton, Ohio
(EPS), a
former
RCRA storage facility as operated by the former owners of PFD, PFM's facility in
Memphis, Tennessee, PFSG's facility in Valdosta, Georgia, and PFMI's facility in
Detroit, Michigan. The environmental liability of PFD (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. While no assurances can be made that we
will be able to do so, we expect to fund the expenses to remediate these sites
from funds generated internally.
At
December 31, 2008, we had total accrued environmental remediation liabilities of
$1,833,000 of which $776,000 is recorded as a current liability, which reflects
a decrease of $1,040,000 from the December 31, 2007, balance of
$2,873,000. The decrease represents payments of approximately
$614,000 on remediation projects, approximately $391,000 in environmental
reserve which was assumed by the buyer upon the sale of substantially all of the
assets of PFMD in January 2008, and reduction of approximately $35,000 in
reserve which we recorded as “gain on disposal of continued operations, net of
taxes” in the second quarter of 2008 upon the sale of substantially all of the
assets of PFTS in May 2008 as the buyer has assumed any future on-going
environmental monitoring. In connection with the sale of
substantially all of the assets of PFMD in January 2008, the buyer assumed all
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. The December 31, 2008, current and
long-term accrued environmental balance is recorded as follows (in
thousands):
|
|
|
Current
|
|
|
Long-term
|
|
|
|
|
|
|
|
Accrual
|
|
|
Accrual
|
|
|
Total
|
|
|
PFD
|
|
$ |
165 |
|
|
$ |
324 |
|
|
$ |
489 |
|
|
PFM
|
|
|
74 |
|
|
|
201 |
|
|
|
275 |
|
|
PFSG
|
|
|
112 |
|
|
|
419 |
|
|
|
531 |
|
|
PFMI
|
|
|
425 |
|
|
|
113 |
|
|
|
538 |
|
|
Total
Liability
|
|
$ |
776 |
|
|
$ |
1,057 |
|
|
$ |
1,833 |
|
|
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
For the
year 2008, we were exposed to certain market risks arising from adverse changes
in interest rates, primarily due to the potential effect of such changes on our
variable rate loan arrangements with PNC and variable rate promissory note
agreement with KeyBank National Association. The interest rates
payable to PNC and KeyBank National Association are based on a spread over prime
rate. If our floating rates of interest experienced an upward increase of 1%,
our debt service would have increased by approximately $110,000 for the year
ended December 31, 2008. As of December 31, 2008, we had no interest
swap agreement outstanding.
Certain
statements contained within this report may be deemed “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(collectively, the “Private Securities Litigation Reform Act of
1995”). All statements in this report other than a statement of
historical fact are forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors, which could cause actual results
and performance of the Company to differ materially from such
statements. The words “believe,” “expect,” “anticipate,” “intend,”
“will,” and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to,
among other things,
|
·
|
ability
or inability to continue and improve operations and achieve profitability
on an annualized basis;
|
|
·
|
ability
to comply with our general working capital
requirements;
|
|
·
|
ability
to retain or receive certain permits, licenses, or
patents;
|
|
·
|
ability
to renew permits and licenses with minimal effort and
costs;
|
|
·
|
ability
to be able to continue to borrow under our revolving line of
credit;
|
|
·
|
ability
to meet our fixed charge coverage ratio in the future;
|
|
·
|
we
anticipate meeting our fixed charge ratio in 2009;
|
|
·
|
ability
to generate sufficient cash flow from operations to fund all costs of
operations;
|
|
·
|
ability
to close and remediate certain contaminated sites for projected
amounts;
|
|
·
|
our
ability to develop or adopt new and existing technologies in the conduct
of our operations;
|
|
·
|
ability
to fund budgeted capital expenditures during 2009 through our operations
and lease financing;
|
|
·
|
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;
|
|
·
|
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;
|
|
·
|
we
believe that we are able to compete in the market 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;
|
|
·
|
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
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;
|
|
·
|
we
anticipate paying the promissory note to PDC and the principal and
interests due in 2009 on our shareholder note from our working
capital;
|
|
·
|
funding
and timing of the financial assurance related to the PCB permit at DSSI
has yet to be finalized;
|
|
·
|
under
our insurance contracts, we usually accept self-insured retentions, which
we believe is appropriate for our specific business
risks;
|
|
·
|
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;
|
|
·
|
due
to the downturn in the economy and changes within the environmental
insurance market, we have no guarantee that we will be able to obtain
similar insurance in future years, or that the cost of such insurance will
not increase materially;
|
|
·
|
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;
|
|
·
|
as
with most contracts relating to the federal government, LATA/Parallax
and/or CHPRC can terminate the contract with us at any time for
convenience, which could have a material adverse effect on our
operations;
|
|
·
|
CHPRC
has extended these contracts to March 31, 2009 and we expect these
contracts 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;
|
|
·
|
we
believe full operations under the CHPRC subcontract will result in
revenues for on-site and off-site work of approximately $200,000,000 to
$250,000,000 over the five year base period;
|
|
·
|
we
do not expect any impact or reduction to PFO’s operating capability from
the sale of the property at PFO;
|
|
·
|
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 Nucelar
Segment;
|
|
·
|
we
believe that at least one third of DOE mixed waste contains organic
components;
|
|
·
|
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;
|
|
·
|
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;
|
|
·
|
we
believe that the range of waste management and environmental consulting,
treatment, processing, and remediation services we provide affords us a
competitive advantage with respect to certain of our more specialized
competitors;
|
|
·
|
we
believe that the treatment processes we utilize offer a cost saving
alternative to more traditional remediation and disposal methods offered
by certain of our competitors;
|
|
·
|
no
further impairment to intangible assets;
|
|
·
|
no
expectation of material future inflationary changes;
|
|
·
|
waste
backlog will continue to fluctuate in 2009 depending on the complexity of
waste streams and the timing of receipts and processing
materials;
|
|
·
|
we
do not believe we are dependent on any particular trademark in order to
operate our business or any significant segment
thereof;
|
|
·
|
based
on the current status of Corrective Action for the PFMI facility, we
believe that the remaining reserve is adequate to cover the
liability;
|
|
·
|
despite
our aggressive compliance and auditing procedure for disposal of wastes,
we could further be notified, in the future, that we are a PRP at a
remedial action site, which could have a material adverse
effect;
|
|
·
|
we
do not believe that any adverse changes to our estimates in environmental
accrual would be material;
|
|
·
|
the
Company will evaluate the reversal of the 401k match contribution
suspension as the economic environment improves;
|
|
·
|
placing
the first $1,000,000 of the escrow amount we may be required to pay in
connection with the acquisition of PFNWR and PFNW in an escrow account
during the later part of 2009;
|
|
·
|
we
plan to fund any repurchases under our common stock repurchase plan
through our internal cash flow and/or borrowing under our line of
credit;
|
|
·
|
the
acquisition of our PFNWR facility positions the Nuclear Segment future
revenue stream well as the facility is located adjacent to the Hanford
site, which represents one of the most expansive of DOE’s nuclear weapons’
facilities to remediate;
|
|
·
|
we
do not expect SFAS No. 160, 162, SAB No. 110, EITF 08-3, and EITF Issue
No. 08-06 to have a material impact on our financial position or result of
operations;
|
|
·
|
the
Company expects SFAS No. 141R will have an impact on its consolidated
financial statements when effective, but the nature and magnitude of the
specific effects will depend upon the nature, terms and size of
acquisitions it consummates after the effect date;
|
|
·
|
goal
to improve our balance sheet, pay down debt and improve our liquidity;
and
|
|
·
|
we
anticipate that employment agreement will be finalized during the second
quarter of 2009 for eachof our CEO, CFO, and COO, subject to review of our
Audit Committee and approval by the Board of
Directors.
|
While the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance such expectations will prove to be
correct. There are a variety of factors which could cause future
outcomes to differ materially from those described in this report, including,
but not limited to:
|
·
|
general
economic conditions;
|
|
·
|
material
reduction in revenues;
|
|
·
|
inability
to collect in a timely manner a material amount of
receivables;
|
|
·
|
increased
competitive pressures;
|
|
·
|
the
ability to maintain and obtain required permits and approvals to conduct
operations;
|
|
·
|
the
ability to develop new and existing technologies in the conduct of
operations;
|
|
·
|
ability
to retain or renew certain required permits;
|
|
·
|
discovery
of additional contamination or expanded contamination at any of the sites
or facilities leased or owned by us or our subsidiaries which would result
in a material increase in remediation expenditures;
|
|
·
|
changes
in federal, state and local laws and regulations, especially environmental
laws and regulations, or in interpretation of such;
|
|
·
|
potential
increases in equipment, maintenance, operating or labor
costs;
|
|
·
|
management
retention and development;
|
|
·
|
financial
valuation of intangible assets is substantially more/less than
expected;
|
|
·
|
the
requirement to use internally generated funds for purposes not presently
anticipated;
|
|
·
|
the
inability to maintain the listing of our Common Stock on the
NASDAQ;
|
|
·
|
terminations
of contracts with federal agencies or subcontracts involving federal
agencies, or reduction in amount of waste delivered to us under these
contracts or subcontracts;
|
|
·
|
disposal
expense accrual could prove to be inadequate in the event the waste
requires retreatment; and
|
|
·
|
Risk
Factors contained in Item 1A of this
report.
|
We
undertake no obligations to update publicly any forward-looking statement,
whether as a result of new information, future events or otherwise.
|
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
|
Index
to Consolidated Financial Statements
|
|
|
|
|
|
|
|
Consolidated
Financial Statements
|
|
Page
No.
|
| |
|
|
|
60
|
|
|
|
|
|
61
|
|
|
|
|
|
63
|
|
|
|
|
|
64
|
|
|
|
|
|
65
|
|
|
|
|
|
66
|
|
|
|
|
Financial
Statement Schedule
|
|
|
| |
|
|
|
134
|
Schedules
Omitted
In
accordance with the rules of Regulation S-X, other schedules are not submitted
because (a) they are not applicable to or required by the Company, or (b) the
information required to be set forth therein is included in the consolidated
financial statements or notes thereto.
Board of
Directors and Stockholders
Perma-Fix
Environmental Services, Inc.
We have
audited the accompanying consolidated balance sheets of Perma-Fix Environmental
Services, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31,
2008. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
listed in the accompanying index. These consolidated financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and schedule
based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Perma-Fix Environmental
Services, Inc. and subsidiaries at December 31, 2008 and 2007, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of
America.
Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Perma-fix Environmental Services, Inc. and
subsidiaries’ internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 30, 2009,
expressed an adverse opinion thereon.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
As
of December 31,
|
(Amount
in Thousands, Except for Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$ |
129 |
|
|
$ |
118 |
|
|
Restricted
cash
|
|
|
55 |
|
|
|
55 |
|
|
Accounts
receivable, net of allowance for doubtful
|
|
|
|
|
|
|
|
|
|
accounts
of $333 and $203, respectively
|
|
|
13,416 |
|
|
|
14,961 |
|
|
Unbilled
receivables - current
|
|
|
13,104 |
|
|
|
10,433 |
|
|
Inventories
|
|
|
344 |
|
|
|
332 |
|
|
Prepaid
and other assets
|
|
|
2,565 |
|
|
|
3,206 |
|
|
Current
assets related to discontinued operations
|
|
|
110 |
|
|
|
3,505 |
|
|
Total
current assets
|
|
|
29,723 |
|
|
|
32,610 |
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
|
|
Buildings
and land
|
|
|
24,726 |
|
|
|
23,929 |
|
|
Equipment
|
|
|
31,315 |
|
|
|
32,240 |
|
|
Vehicles
|
|
|
637 |
|
|
|
1,302 |
|
|
Leasehold
improvements
|
|
|
11,455 |
|
|
|
11,462 |
|
|
Office
furniture and equipment
|
|
|
1,904 |
|
|
|
2,349 |
|
|
Construction-in-progress
|
|
|
1,159 |
|
|
|
1,673 |
|
|
|
|
|
71,196 |
|
|
|
72,955 |
|
|
Less
accumulated depreciation and amortization
|
|
|
(23,762 |
) |
|
|
(23,161 |
) |
|
Net
property and equipment
|
|
|
47,434 |
|
|
|
49,794 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
property and equipment held for sale
|
|
|
— |
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment related to discontinued operations
|
|
|
651 |
|
|
|
3,942 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
and other long term assets:
|
|
|
|
|
|
|
|
|
|
Permits
|
|
|
17,125 |
|
|
|
16,826 |
|
|
Goodwill
|
|
|
11,320 |
|
|
|
9,046 |
|
|
Unbilled
receivables – non-current
|
|
|
3,858 |
|
|
|
3,772 |
|
|
Finite
Risk Sinking Fund
|
|
|
11,345 |
|
|
|
6,034 |
|
|
Other
assets
|
|
|
2,256 |
|
|
|
2,496 |
|
|
Intangible
and other assets related to discontinued operations
|
|
|
— |
|
|
|
1,179 |
|
|
Total
assets
|
|
$ |
123,712 |
|
|
$ |
126,048 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS, CONTINUED
As
of December 31,
|
(Amount
in Thousands, Except for Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
11,076 |
|
|
$ |
5,907 |
|
|
Current
environmental accrual
|
|
|
186 |
|
|
|
475 |
|
|
Accrued
expenses
|
|
|
8,896 |
|
|
|
9,982 |
|
|
Disposal/transportation
accrual
|
|
|
5,847 |
|
|
|
6,850 |
|
|
Unearned
revenue
|
|
|
4,371 |
|
|
|
4,978 |
|
|
Current
liabilities related to discontinued operations
|
|
|
1,211 |
|
|
|
6,220 |
|
|
Current
portion of long-term debt
|
|
|
2,022 |
|
|
|
15,352 |
|
|
Total
current liabilities
|
|
|
33,609 |
|
|
|
49,764 |
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
accruals
|
|
|
620 |
|
|
|
705 |
|
|
Accrued
closure costs
|
|
|
10,141 |
|
|
|
8,901 |
|
|
Other
long-term liabilities
|
|
|
457 |
|
|
|
968 |
|
|
Long-term
liabilities related to discontinued operations
|
|
|
1,783 |
|
|
|
2,817 |
|
|
Long-term
debt, less current portion
|
|
|
14,181 |
|
|
|
2,880 |
|
|
Total
long-term liabilities
|
|
|
27,182 |
|
|
|
16,271 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
60,791 |
|
|
|
66,035 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock of subsidiary, $1.00 par value; 1,467,396 shares
|
|
|
|
|
|
|
|
|
|
authorized,
1,284,730 shares issued and outstanding, liquidation
|
|
|
|
|
|
|
|
|
|
value
$1.00 per share
|
|
|
1,285 |
|
|
|
1,285 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, $.001 par value; 2,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
no
shares issued and outstanding
|
|
|
¾ |
|
|
|
¾ |
|
|
Common
Stock, $.001 par value; 75,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
53,934,560
and 53,704,516 shares issued and outstanding, respectively
|
|
|
54 |
|
|
|
54 |
|
|
Additional
paid-in capital
|
|
|
97,381 |
|
|
|
96,409 |
|
|
Stock
subscription receivable
|
|
|
¾ |
|
|
|
(25 |
) |
|
Accumulated
deficit
|
|
|
(35,799 |
) |
|
|
(37,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
61,636 |
|
|
|
58,728 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
123,712 |
|
|
$ |
126,048 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
For
the years ended December 31,
|
(Amounts
in Thousands, Except for per Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net
revenues
|
|
$ |
75,504 |
|
|
$ |
64,544 |
|
|
$ |
68,205 |
|
|
Cost
of goods sold
|
|
|
55,310 |
|
|
|
45,544 |
|
|
|
43,160 |
|
|
Gross
profit
|
|
|
20,194 |
|
|
|
19,000 |
|
|
|
25,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
18,832 |
|
|
|
18,082 |
|
|
|
17,803 |
|
|
Asset
(recovery) impairment loss
|
|
|
(507 |
) |
|
|
1,836 |
|
|
|
— |
|
|
(Gain)
loss on disposal of property and equipment
|
|
|
(295 |
) |
|
|
172 |
|
|
|
27 |
|
|
Income
(loss) from operations
|
|
|
2,164 |
|
|
|
(1,090 |
) |
|
|
7,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
226 |
|
|
|
312 |
|
|
|
280 |
|
|
Interest
expense
|
|
|
(1,317 |
) |
|
|
(1,321 |
) |
|
|
(1,255 |
) |
|
Interest
expense – financing fees
|
|
|
(137 |
) |
|
|
(196 |
) |
|
|
(192 |
) |
|
Other
|
|
|
(6 |
) |
|
|
(85 |
) |
|
|
(119 |
) |
|
Income
(loss) from continuing operations before income taxes
|
|
|
930 |
|
|
|
(2,380 |
) |
|
|
5,929 |
|
|
Income
tax expense
|
|
|
10 |
|
|
|
— |
|
|
|
507 |
|
|
Income
(loss) from continuing operations
|
|
|
920 |
|
|
|
(2,380 |
) |
|
|
5,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of taxes
|
|
|
(1,332 |
) |
|
|
(6,830 |
) |
|
|
(711 |
) |
|
Gain
on disposal of discontinued operations, net of taxes
|
|
|
2,323 |
|
|
|
— |
|
|
|
— |
|
|
Net
income (loss)
|
|
$ |
1,911 |
|
|
$ |
(9,210 |
) |
|
$ |
4,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
.02 |
|
|
$ |
(.05 |
) |
|
$ |
.11 |
|
|
Discontinued
operations
|
|
|
(.02 |
) |
|
|
(.13 |
) |
|
|
(.01 |
) |
|
Disposal
of discontinued operations
|
|
|
.04 |
|
|
|
— |
|
|
|
— |
|
|
Net
income (loss) per common share
|
|
$ |
.04 |
|
|
$ |
(.18 |
) |
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
.02 |
|
|
$ |
(.05 |
) |
|
$ |
.11 |
|
|
Discontinued
operations
|
|
|
(.02 |
) |
|
|
(.13 |
) |
|
|
(.01 |
) |
|
Disposal
of discontinued operations
|
|
|
.04 |
|
|
|
— |
|
|
|
— |
|
|
Net
income (loss) per common share
|
|
$ |
.04 |
|
|
$ |
(.18 |
) |
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of common shares used in computing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
53,803 |
|
|
|
52,549 |
|
|
|
48,157 |
|
|
Diluted
|
|
|
54,003 |
|
|
|
52,549 |
|
|
|
48,768 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
For
the years ended December 31,
|
(Amounts
in Thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
1,911 |
|
|
$ |
(9,210 |
) |
|
$ |
4,711 |
|
|
Less:
Income (loss) on discontinued operations
|
|
|
991 |
|
|
|
(6,830 |
) |
|
|
(711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
920 |
|
|
|
(2,380 |
) |
|
|
5,422 |
|
|
Adjustments
to reconcile net income (loss) from continuing operations to cash provided
by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,866 |
|
|
|
4,092 |
|
|
|
3,629 |
|
|
Asset
impairment (recovery) loss
|
|
|
(507 |
) |
|
|
1,836 |
|
|
|
¾ |
|
|
Provision
(benefit) for bad debt and other reserves
|
|
|
187 |
|
|
|
119 |
|
|
|
(33 |
) |
|
(Gain)
loss on disposal of plant, property and equipment
|
|
|
(295 |
) |
|
|
172 |
|
|
|
27 |
|
|
Issuance
of common stock for services
|
|
|
257 |
|
|
|
391 |
|
|
|
172 |
|
|
Share
based compensation
|
|
|
531 |
|
|
|
457 |
|
|
|
338 |
|
|
Changes
in operating assets and liabilities of continuing operations, net
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect
from business acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,358 |
|
|
|
(614 |
) |
|
|
748 |
|
|
Unbilled
receivables
|
|
|
(3,254 |
) |
|
|
1,132 |
|
|
|
(3,593 |
) |
|
Prepaid
expenses, inventories and other assets
|
|
|
3,019 |
|
|
|
2,121 |
|
|
|
(1,604 |
) |
|
Accounts
payable, accrued expenses and unearned revenue
|
|
|
(2,872 |
) |
|
|
(579 |
) |
|
|
(2,598 |
) |
|
Cash
provided by continuing operations
|
|
|
4,210 |
|
|
|
6,747 |
|
|
|
2,508 |
|
|
Cash
(used in) provided by discontinued operations
|
|
|
(3,745 |
) |
|
|
274 |
|
|
|
(409 |
) |
|
Cash
provided by operating activities
|
|
|
465 |
|
|
|
7,021 |
|
|
|
2,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(981 |
) |
|
|
(2,926 |
) |
|
|
(5,561 |
) |
|
Proceeds
from sale of plant, property and equipment
|
|
|
881 |
|
|
|
75 |
|
|
|
73 |
|
|
Change
in restricted cash, net
|
|
|
¾ |
|
|
|
¾ |
|
|
|
435 |
|
|
Payments
to finite risk sinking fund
|
|
|
(4,943 |
) |
|
|
(1,516 |
) |
|
|
(1,179 |
) |
|
Cash
used for acquisition consideration, net of cash acquired
|
|
|
(14 |
) |
|
|
(2,991 |
) |
|
|
¾ |
|
|
Cash
used in investing activities of continuing operations
|
|
|
(5,057 |
) |
|
|
(7,358 |
) |
|
|
(6,232 |
) |
|
Proceeds
from sale of discontinued operations (Note 8)
|
|
|
6,734 |
|
|
|
¾ |
|
|
|
¾ |
|
|
Cash
provided by (used in) discontinued operations
|
|
|
75 |
|
|
|
(219 |
) |
|
|
(610 |
) |
|
Net
cash provided by (used in) investing activities
|
|
|
1,752 |
|
|
|
(7,577 |
) |
|
|
(6,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(repayments) borrowings of revolving credit
|
|
|
(335 |
) |
|
|
6,851 |
|
|
|
(2,447 |
) |
|
Principal
repayments of long term debt
|
|
|
(8,842 |
) |
|
|
(8,593 |
) |
|
|
(2,386 |
) |
|
Proceeds
from issuance of long-term debt
|
|
|
7,000 |
|
|
|
¾ |
|
|
|
¾ |
|
|
Proceeds
from issuance of stock
|
|
|
184 |
|
|
|
418 |
|
|
|
12,053 |
|
|
Repayment
of stock subscription receivable
|
|
|
25 |
|
|
|
54 |
|
|
|
26 |
|
|
Cash
(used in) provided by financing activities of continuing
operations
|
|
|
(1,968 |
) |
|
|
(1,270 |
) |
|
|
7,246 |
|
|
Principal
repayment of long-term debt for discontinued operations
|
|
|
(238 |
) |
|
|
(277 |
) |
|
|
(308 |
) |
|
Cash
(used in) provided by financing activities
|
|
|
(2,206 |
) |
|
|
(1,547 |
) |
|
|
6,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash
|
|
|
11 |
|
|
|
(2,103 |
) |
|
|
2,195 |
|
|
Cash
at beginning of period
|
|
|
118 |
|
|
|
2,221 |
|
|
|
26 |
|
|
Cash
at end of period
|
|
$ |
129 |
|
|
$ |
118 |
|
|
$ |
2,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized
|
|
$ |
1,485 |
|
|
$ |
1,090 |
|
|
$ |
982 |
|
|
Income
taxes paid
|
|
|
3 |
|
|
|
311 |
|
|
|
276 |
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt incurred for purchase of property and equipment
|
|
|
148 |
|
|
|
614 |
|
|
|
94 |
|
|
Sinking
fund financed
|
|
|
368 |
|
|
|
¾ |
|
|
|
¾ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES,
INC
For
the years ended December 31,
(Amounts
in Thousands, Except for Share Amounts)
| |
|
|
|
|
|
|
|
Additional
|
|
|
Stock
|
|
|
|
|
|
Common
Stock
|
|
|
Total
|
|
| |
|
Common
Stock
|
|
|
Paid-In
|
|
|
Subscription
|
|
|
Accumulated
|
|
|
Held
In Hand
|
|
|
Stockholders'
|
|
| |
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Treasury
|
|
|
Equity
|
|
|
Balance
at December 31, 2005
|
|
|
45,813,916 |
|
|
$ |
46 |
|
|
$ |
82,180 |
|
|
$ |
¾ |
|
|
$ |
(33,211 |
) |
|
$ |
(1,862 |
) |
|
$ |
47,153 |
|
|
Net
income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
4,711 |
|
|
|
¾ |
|
|
|
4,711 |
|
|
Retirement
of Treasury Stock
|
|
|
(988,000 |
) |
|
|
(1 |
) |
|
|
(1,861 |
) |
|
|
¾ |
|
|
|
¾ |
|
|
|
1,862 |
|
|
|
¾ |
|
|
Issuance
of Common Stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
and services
|
|
|
121,038 |
|
|
|
¾ |
|
|
|
216 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
216 |
|
|
Issue
Stock Subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
60,000 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
(105 |
) |
|
|
¾ |
|
|
|
¾ |
|
|
|
(105 |
) |
|
Repayment
of Stock Subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
26 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
26 |
|
|
Issuance
of Common Stock upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¾ |
|
|
exercise
of Warrants and Options
|
|
|
7,046,790 |
|
|
|
7 |
|
|
|
12,107 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
12,114 |
|
|
Share
Based Compensation
|
|
|
¾ |
|
|
|
¾ |
|
|
|
338 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
338 |
|
|
Balance
at December 31, 2006
|
|
|
52,053,744 |
|
|
$ |
52 |
|
|
$ |
92,980 |
|
|
$ |
(79 |
) |
|
$ |
(28,500 |
) |
|
$ |
¾ |
|
|
$ |
64,453 |
|
|
Net
Loss
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
(9,210 |
) |
|
|
¾ |
|
|
|
(9,210 |
) |
|
Issuance
of Common Stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
|
|
|
143,005 |
|
|
|
¾ |
|
|
|
391 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
391 |
|
|
Common
Stock issued in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conjunction
with acquisition
|
|
|
709,207 |
|
|
|
1 |
|
|
|
2,164 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
2,165 |
|
|
Repayment
of Stock Subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
54 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
54 |
|
|
Issuance
of Common Stock upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of Options and Warrants
|
|
|
798,560 |
|
|
|
1 |
|
|
|
417 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
418 |
|
|
Share
Based Compensation
|
|
|
¾ |
|
|
|
¾ |
|
|
|
457 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
457 |
|
|
Balance
at December 31, 2007
|
|
|
53,704,516 |
|
|
$ |
54 |
|
|
$ |
96,409 |
|
|
$ |
(25 |
) |
|
$ |
(37,710 |
) |
|
$ |
¾ |
|
|
$ |
58,728 |
|
|
Net
Income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
1,911 |
|
|
|
¾ |
|
|
|
1,911 |
|
|
Issuance
of Common Stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
|
|
|
118,865 |
|
|
|
¾ |
|
|
|
257 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
257 |
|
|
Issuance
of Common Stock upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of Options
|
|
|
111,179 |
|
|
|
¾ |
|
|
|
184 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
184 |
|
|
Repayment
of Stock Subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
25 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
25 |
|
|
Share
Based Compensation
|
|
|
¾ |
|
|
|
¾ |
|
|
|
531 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
531 |
|
|
Balance
at December 31, 2008
|
|
|
53,934,560 |
|
|
$ |
54 |
|
|
$ |
97,381 |
|
|
$ |
¾ |
|
|
$ |
(35,799 |
) |
|
$ |
¾ |
|
|
$ |
61,636 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
December
31, 2008, 2007, and 2006
NOTE
1
DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
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, engaged through its subsidiaries, in:
|
·
|
Nuclear
Waste Management Services (“Nuclear Segment”), which
includes:
|
|
|
o
|
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;
|
|
|
o
|
Nuclear,
low-level radioactive, and mixed waste treatment, processing and disposal;
and
|
|
|
o
|
Research
and development of innovative ways to process low-level radioactive and
mixed waste.
|
|
·
|
Consulting
Engineering Services (“Engineering Segment”), which
includes:
|
|
|
o
|
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.
|
|
·
|
Industrial
Waste Management Services (“Industrial Segment”), which
includes:
|
|
|
o
|
Treatment,
storage, processing, and disposal of hazardous and non-hazardous waste;
and
|
|
|
o
|
Wastewater
management services, including the collection, treatment, processing and
disposal of hazardous and non-hazardous
wastewater.
|
In May
2007, our Board of Directors authorized the divestiture of our Industrial
Segment. In May 2007, the Industrial Segment met the held for sale
criteria under SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, and therefore, certain assets and liabilities of the
Industrial Segment were reclassified as discontinued operations in the
Consolidated Balance Sheets as of December 31, 2007, and we ceased depreciation
of the Industrial Segment’s long-lived assets classified as held for
sale. The results of operations and cash flows of the Industrial
Segment were reported in the Consolidated Financial Statements as discontinued
operations as of December 31, 2007.
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.
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, Inc. (“PFSG”), and Perma-Fix of Orlando, Inc.
(“PFO”). 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. As a result of our Board of Directors
approving the retention of our PFFL, PFO, and PFSG facilities/operations, we
have
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 our PFO facility as “net property and equipment held for sale”
within our continued operations in the Consolidated Balance Sheets in accordance
to SFAS No. 144. We sold this property on December 23, 2008 for
$900,000 in cash. We do not expect any impact or reduction to PFO’s
operating capability from the sale of the property.
We are
subject to certain risks as we are involved in the treatment, handling, storage
and transportation of hazardous and non-hazardous, mixed and industrial wastes
and wastewater. Such activities contain risks against which we
believe we are adequately insured.
Our
consolidated financial statements include our accounts and the accounts of our
wholly-owned subsidiaries as follows:
Continuing
Operations: Schreiber, Yonley and Associates (“SYA”),
Diversified Scientific Services, Inc. (“DSSI”), East Tennessee Materials &
Energy Corporation (“M&EC”), Perma-Fix of Florida, Inc.
(“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”), Perma-Fix
of Ft. Lauderdale, Inc. (“PFFL”), Perma-Fix of Orlando, Inc. (“PFO”), and
Perma-Fix of South Georgia, Inc. (“PFSG”).
Discontinued Operations (See “Note
8”): Perma-Fix of Maryland (“PFMD”), Perma-Fix of Dayton, Inc.
(“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”), which were sold in
January 2008, March 2008, and May 2008, respectively, and two non-operational
facilities, Perma-Fix of Michigan, Inc. (“PFMI”), and Perma-Fix of Pittsburgh,
Inc. (“PFP”).
NOTE
2
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
Our
consolidated financial statements include our accounts and those of our
wholly-owned subsidiaries after elimination of all significant intercompany
accounts and transactions.
Reclassifications
Certain
prior year amounts have been reclassified to conform with the current year
presentation.
Use
of Estimates
When we
prepare financial statements in conformity with generally accepted accounting
principles in the United States of America, we make 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. Actual results could differ from those estimates. See Notes
8, 12, 13, and 15 for estimates of discontinued operations, closure costs,
environmental liabilities and contingencies for details on significant
estimates.
Restricted
Cash
Restricted
cash of $55,000 reflects secured collateral relative to the various bonding
requirements required for the PFFL treatment, storage, and disposal facility and
escrow for our workers’ compensation policy.
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms requiring
payment within 30 or 60 days from the invoice date based on the customer type
(government, broker, or commercial). Account balances are stated by
invoice at the amount billed to the customer. Payments of accounts
receivable are made directly to a lockbox and are applied to the specific
invoices stated on the customer's remittance advice. 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 will not be collected. 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 balance that will not be collected. This analysis excludes
government related receivables due to our past successful experience in their
collectability. 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. Once we have exhausted all options in the
collection of a delinquent accounts receivable balance, which includes
collection letters, demands for payment, collection agencies and attorneys, the
account is deemed uncollectible and subsequently written off. The
write off process involves approvals, based on dollar amount, from senior
management.
Unbilled
Receivables
Unbilled
receivables are generated by differences between invoicing timing and the
percentage of completion methodology used for revenue recognition
purposes. As major processing and milestone 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 but are normally considered collectible within twelve
months. 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 postpone and delay the collection of some of
these receivables greater than twelve months. However, our historical
experience suggests that a significant part of unbilled receivables are
ultimately collectible with minimal concession on our part. We
therefore, segregate the unbilled receivables between current and long
term.
Inventories
Inventories
consist of treatment chemicals, salable used oils, and certain
supplies. Additionally, we have replacement parts in inventory, which
are deemed critical to the operating equipment and may also have extended lead
times should the part fail and need to be replaced. Inventories are
valued at the lower of cost or market with cost determined by the first-in,
first-out method.
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 improvements,
which extend the useful lives of the assets, are
capitalized. Included within buildings is an asset retirement
obligation, which represents our best estimate of the cost to close, at some
undetermined future date, our permitted and/or licensed
facilities. The asset retirement cost was originally recorded at
$4,559,000 and depreciates over the estimated useful life of the
property. In 2007, as result of the acquisition of PNFWR, we recorded
an additional asset retirement obligation cost of $3,768,000, which has been
depreciated over the estimated useful life of the property. 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 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 144, 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.
Capitalized
Interest
The
Company’s policy is to capitalize interest cost incurred on debt during the
construction of major projects exceeding one year. A reconciliation of our total
interest cost to “Interest Expense” as reported on our consolidated statements
of operations for 2008, 2007 and 2006 is as follows:
|
(Amounts
in Thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Interest
cost capitalized
|
|
$ |
— |
|
|
$ |
144 |
|
|
$ |
— |
|
|
Interest
cost charged to income
|
|
|
1,317 |
|
|
|
1,321 |
|
|
|
1,255 |
|
|
Total
Interest
|
|
$ |
1,317 |
|
|
$ |
1,465 |
|
|
$ |
1,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and Other 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 (“goodwill”) and the recognized permit value of the
business. Goodwill and intangible assets that have indefinite useful
lives are tested annually for impairment, or more frequently if triggering
events occur or other impairment indicators arise which might impair
recoverability. An impairment loss is recognized to the extent that
the carrying amount exceeds the asset’s fair value. For goodwill, the
impairment determination is made at the Reporting unit and consists of two
steps. First, the Company determines the fair value of a reporting
unit and compares it to its carrying amount. Second, if the carrying
amount of a reporting unit exceeds its fair value, an impairment loss is
recognized for any excess of the carrying amount of the reporting unit’s
goodwill over the implied fair value of the goodwill. The implied
value of goodwill is determined by allocating the fair value of the reporting
unit in a manner similar to a purchase price allocation, in accordance with SFAS
Statement No. 141, Business
Combinations. Our annual financial valuations performed as of
October 1, 2008, 2007, and 2006,
indicated
no impairments. The Company estimates the fair value of our reporting
units using a discounted cash flow valuation approach. This approach
is dependent on estimates for future sales, operating income, working capital
changes, and capital expenditures, as well as, expected growth rates for cash
flows and long-term interest rates, all of which are impacted by economic
conditions related to our industry as well as conditions in the U.S. capital
(see “Note 5 – Goodwill and Other Intangible Assets” for further discussion on
goodwill and other intangible assets).
Accrued
Closure Costs
Accrued
closure costs represent our estimated environmental liability to clean up our
facilities as required by our permits, in the event of closure.
SFAS No.
143, Accounting for Asset
Retirement Obligations, requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made, and that the
associated asset retirement costs be capitalized as part of the carrying amount
of the long-lived asset. In conjunction with the state mandated
permit and licensing requirements, we are obligated to determine our best
estimate of the cost to close, at some undetermined future date, our permitted
and/or licensed facilities. We subsequently increase this liability
as a result of changes to the facility, changes in estimated cost for closure,
and/or for inflation. The associated asset retirement cost is
recorded as property and equipment (buildings). We depreciate the
asset retirement cost on a straight-line basis over its estimated useful life in
accordance with our depreciation policy.
Income
Taxes
The
provision for income taxes is determined in accordance with SFAS No. 109, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are recognized for future
tax consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted income tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Any effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
In July
2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxes, which attempts to set out a consistent framework for for the
recognition and measurement of 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.
Concentration
Risk
Approximately
84 or 15.2% of the Company's employees are unionized and are covered by a
collective bargaining agreement. All of these employees were hired as result of
the subcontract awarded to us by CHPRC in the second quarter of 2008. The
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
Gross
Receipts Taxes and Other Charges
We
adopted EITF Issue No. 06-03, How Taxes Collected from Customers
and Remitted to Governmental Authorities Should be Presented in the Income
Statement, (EITF 06-03), for the year ended December 31, 2006. EITF 06-03
provides guidance regarding the accounting and financial statement presentation
for certain taxes assessed by a governmental authority. These taxes and
surcharges include, among others, universal service fund charges, sales, use,
waste, and some excise taxes. In determining whether to include such taxes in
our revenue and expenses, we assess, among other things, whether we are the
primary obligor or principal taxpayer for the taxes assessed in each
jurisdiction where we do business. As we are merely a collection
agent for the government authority in certain of our facilities, we record the
taxes on a net method and do not include them in our revenue and cost of
services. The adoption of EITF 06-03 did not change our accounting for these
taxes.
Revenue
Recognition
Nuclear revenues. The
processing of mixed waste is complex and may take several months or more to
complete, as such we recognize revenues on a percentage of completion basis with
our measure of progress towards completion determined based on output measures
consisting of milestones achieved and completed. We have waste
tracking capabilities, which we continue to enhance, to allow us to better match
the revenues
earned to
the processing phases achieved. The revenues are recognized as each
of the following three processing phases are completed: receipt,
treatment/processing and shipment/final disposal. However, based on the
processing of certain waste streams, the treatment/processing and shipment/final
disposal phases may be combined as they are completed
concurrently. 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 preapproval prior to our shipping waste for
disposal and our contract terms with the customer that we dispose of the waste
prior to invoicing. As the waste moves through these processing
phases and revenues are recognized, the correlating costs are expensed as
incurred. Although we use our best estimates and all available
information to accurately determine these disposal expenses, the risk does exist
that these estimates could prove to be inadequate in the event the waste
requires retreatment. Furthermore, should the waste be returned to
the generator, the related receivables could be uncollectible; however,
historical experience has not indicated this to be a material uncertainty. Under
our subcontract awarded by CH Plateau Remediation Company (“CHPRC”) in 2008, we
are reimbursed for costs incurred plus a certain percentage markup for indirect
costs, in accordance with contract provision. Costs incurred in
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. We include in revenues
the amount of the reimbursement for costs incurred plus the markup for indirect
costs as well as the fee that we have earned. Cost of revenue under
this subcontract consists of direct and indirect costs. Our revenue
under this subcontract is recorded gross versus net in accordance with the
criteria under EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal
versus Net as an Agent”.
Consulting revenues.
Consulting revenues are recognized as services are rendered. The services
provided are based on billable hours and revenues are recognized in relation to
incurred labor and consulting costs. Out of pocket costs reimbursed
by customers are also included in revenues.
Industrial waste revenues.
Since industrial waste streams are much less complicated than mixed waste
streams and they require a short processing period, we recognize revenues for
industrial services at the time the services are substantially rendered, which
generally happens upon receipt of the waste, or shortly
thereafter. These large volumes of bulk waste are received and
immediately commingled with various customers' wastes, which transfers the legal
and regulatory responsibility and liability to us upon receipt.
Self-Insurance
We are
self-insured for a significant portion of our group health. The
Company estimates expected losses based on statistical analyses of historical
industry data, as well as our own estimates based on the Company’s actual
historical data to determine required self-insurance reserves. The assumptions
are closely reviewed, monitored, and adjusted when warranted by changing
circumstances. The estimated accruals for these liabilities could be
affected if actual experience related to the number of claims and cost per claim
differs from these assumptions and historical trends. Based on the information
known on December 31, 2008, we believe we have provided adequate reserves for
our self-insurance exposure. As of December 31, 2008 and 2007, self-insurance
reserves were $535,000 and $736,000, respectively, and were included in accrued
expenses in the accompanying consolidated balance sheets. The total amounts
expensed for self-insurance during 2008, 2007, and 2006 were $2,794,000,
$3,100,000 and $2,118,000, respectively, for our continuing operations, and
$144,000, $1,050,000, and $750,000 for our discontinued operations,
respectively.
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
statement of operations 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.
Before
our adoption of SFAS 123R in January 1, 2006, the Company previously accounted
for stock option grants under the recognition and measurement principles of APB
Opinion No. 25, “Accounting for Stock Issued to Employees (“APB 25”) and related
interpretations and disclosure requirements established by SFAS
123.
Prior to
our adoption of SFAS 123R, on July 28, 2005, the Compensation and Stock
Option Committee of the Board of Directors approved the acceleration of vesting
for all the outstanding and unvested options to purchase Common Stock awarded to
employees as of the approval date. The Board of Directors approved
the accelerated vesting of these options based on the belief that it was in the
best interest of our stockholders to reduce future compensation expense that
would otherwise be required in the statement of operations upon adoption of SFAS
123R, effective beginning January 1, 2006. The accelerated vesting
triggered the re-measurement of compensation cost under current accounting
standards. See “Note 3 – Share Based Compensation” for further detail of
SFAS 123R and the impact on our financial statement.
The
Company estimates fair value of stock options using the Black-Scholes valuation
model. Assumptions used to estimate the fair value of stock options
granted include the exercise price of the award, the expected term, the expected
volatility of the Company’s stock over the option’s expected term, the risk-free
interest rate over the option’s expected term, and the expected annual dividend
yield.
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 and director option
grants made in 2008, we computed the expected term based on the 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.
We
recognized share based compensation expense using a straight-line amortization
method over the requisite period, which is the vesting period of the stock
option grant. As SFAS 123R requires that stock based compensation
expense be based on options that are ultimately expected to vest, our stock
based compensation expense is reduced at an estimated forfeiture
rate. Our estimated forfeiture rate is generally based on historical
trends of actual forfeitures. Forfeiture rates are evaluated, and
revised as necessary.
Net
Income (Loss) Per Share
Basic
earnings per share excludes any dilutive effects of stock options, warrants, and
convertible preferred stock. In periods where they are anti-dilutive,
such amounts are excluded from the calculations of dilutive earnings per
share.
The
following is a reconciliation of basic net income (loss) per share to diluted
net income (loss) per share for the years ended December 31, 2008, 2007, and
2006:
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income (loss) per
share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
920 |
|
|
$ |
(2,380 |
) |
|
$ |
5,422 |
|
|
Basic
income (loss) per share
|
|
$ |
.02 |
|
|
$ |
(.05 |
) |
|
$ |
.11 |
|
|
Diluted
income (loss) per share
|
|
$ |
.02 |
|
|
$ |
(.05 |
) |
|
$ |
.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
– basic and diluted
|
|
$ |
(1,332 |
) |
|
$ |
(6,830 |
) |
|
$ |
(711 |
) |
|
Basic
loss per share
|
|
$ |
(.02 |
) |
|
$ |
(.13 |
) |
|
$ |
(.01 |
) |
|
Diluted
loss per share
|
|
$ |
(.02 |
) |
|
$ |
(.13 |
) |
|
$ |
(.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share from
disposal of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of discontinued operations
|
|
$ |
2,323 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Basic
income per share
|
|
$ |
.04 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Diluted
income per share
|
|
$ |
.04 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic
|
|
|
53,803 |
|
|
|
52,549 |
|
|
|
48,157 |
|
|
Potential
shares exercisable under stock option plans
|
|
|
200 |
|
|
|
¾ |
|
|
|
286 |
|
|
Potential
shares upon exercise of Warrants
|
|
|
¾ |
|
|
|
¾ |
|
|
|
325 |
|
|
Weighted
average shares outstanding – diluted
|
|
|
54,003 |
|
|
|
52,549 |
|
|
|
48,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
shares excluded from above weighted average share calculations due to
their anti-dilutive effect include:
|
|
|
Upon
exercise of options
|
|
|
1,908 |
|
|
|
132 |
|
|
|
1,030 |
|
|
Upon
exercise of Warrants
|
|
|
¾ |
|
|
|
¾ |
|
|
|
1,776 |
|
Fair
Value of Financial Instruments
The
carrying values of cash, trade accounts receivable, trade accounts payable,
accrued expenses and unearned revenues approximate their fair values principally
because of the short-term maturities of these financial
instruments. The fair value of our long-term debt is estimated based
on the current rates offered to us for debt of similar terms and
maturities. Under this method, the fair value of long-term debt was
not significantly different from the stated carrying value at December 31, 2008
and 2007. The carrying value of our subsidiary's preferred stock is
not significantly different than its fair value.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
157, “Fair Value Measurements”, which codifies guidance on fair value
measurements under generally accepted accounting principles. This
standard defines fair value, establishes a framework for measuring fair value,
and prescribes expanded disclosures about fair value measurements. In
February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of
FASB Statement No. 157” (“FSP FAS 157-2”), which delays the effective date of
SFAS 157 for certain non-financial assets and non-financial
liabilities. SFAS 157 is effective for financial assets and
liabilities in fiscal years beginning after November 15, 2007 and for
non
financial
assets and liabilities in fiscal years beginning after March 15,
2008. We have evaluated the impact of the provisions applicable to
our financial assets and liabilities and have determined that there is no
current impact on our financial condition, results of operations, and cash
flow. The aspects that have been deferred by FSP FAS 157-2 pertaining
to non-financial assets and non-financial liabilities will be effective for us
beginning January 1, 2009. The Company does not expect SFAS 157 for
non-financial assets and liabilities to materially impact the Company’s
financial position and results of operations.
On
October 10, 2008, the FASB issued FSP FAS No. 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not Active”,
which clarifies the application of SFAS No. 157 in an inactive market and
provides an example to demonstrate how the fair value of a financial asset is
determined when the market for that financial asset is inactive. FSP FAS 157-3
was effective upon issuance, including prior periods for which financial
statements have not been issued. The adoption of this FSP had no
impact on our financial statements.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”, permitting entities to measure many financial
instruments and certain other items at fair value. The objective is
to improve financial reporting by providing entities with the opportunities to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is expected to expand use of fair value
measurement, consistent with the Board’s long-term measurement objectives for
accounting for financial instruments. SFAS 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007. If the fair value option is elected, the effect of the first
re-measurement to fair value is reported as a cumulative effect adjustment to
the opening balance of retained earnings. We have not elected the
fair value option for any of our assets or liabilities.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS
No. 141R establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. The statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141R is effective for
financial statements issued for fiscal years beginning after December 15, 2008.
Accordingly, any business combinations the Company engages in will be recorded
and disclosed following existing GAAP until December 31, 2008. The Company
expects SFAS No. 141R will have an impact on its consolidated financial
statements when effective, but the nature and magnitude of the specific effects
will depend upon the nature, terms, and size of acquisitions it consummates
after the effective date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
51. SFAS No. 160 changes the accounting and reporting for
minority interest. Minority interest will be recharacterized as noncontrolling
interest and will be reported as a component of equity separate from the
parent’s equity, and purchases or sales of equity interest that do not result in
a change in control will be accounted for as equity transactions. In addition,
net income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement and upon a loss of
control, the interest sold, as well as any interest retained, will be recorded
at fair value with any gain or loss recognized in earnings. SFAS No. 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim period within those fiscal years, except for the
presentation and disclosure requirements, which will apply retrospectively. We
do not expect this standard will materially impact the Company’s financial
position and results of operations.
In
December 2007, the SEC issued SAB No. 110, which expressed the views of the
staff regarding the use of a “simplified” method, as discussed in SAB No. 107,
in developing an estimate of expected term of “plain vanilla” share options in
accordance with SFAS No. 123R, Share-Based
Payment. In particular, the staff indicated in SAB No. 107
that it will accept a company’s election to use the simplified method,
regardless of whether the Company has sufficient information to make more
refined estimates of expected
term. At
the time SAB No. 107 was issued, the staff believed that more detailed external
information about employee exercise behavior would, over time, become readily
available to companies. Therefore, the SEC staff stated in SAB No.
107 that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that
such detailed information about employee exercise behavior may not be widely
available by December 31, 2007. Accordingly, SAB No. 110 states that
the staff will continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. The Company does not
expect SAB No. 110 to materially impact its operations or financial
position.
In
March 2008, the FASB issued SFAS 161, “Disclosures about Derivative
Instruments and Hedging Activities”. SFAS 161 amends and expands the disclosure
requirements of SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities”, and requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application
encouraged. This standard will not materially impact the Company’s
current disclosure process.
In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS 142-3”), which amends the factors to be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS 141(R) and other U.S. generally accepted accounting
principles. FSP FAS 142-3 requires an entity to disclose information
for a recognized intangible asset that enables users of the financial statements
to assess the extent to which the expected future cash flows associated with the
asset are affected by the entity’s intent and/or ability to renew or extend the
arrangement. FSP FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. We do not expect FSP No. 142-3 to
materially impact the Company’s financial position or results of
operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS No. 162 is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles”. The implementation of
this standard will not have a material impact on our consolidated financial
position and results of operations.
In June
2008, the FASB ratified EITF (Emerging Issues Task Force) Issue No. 08-3,
“Accounting for Lessees for Maintenance Deposits Under Lease Arrangement” (EITF
08-3), to provide guidance on the accounting of nonrefundable maintenance
deposits. It also provides revenue recognition accounting guidance
for the lessor. EITF 08-3 is effective for fiscal years beginning
after December 15, 2008. We do not expect EITF 08-3 to materially
impact our financial condition, result of operations, and cash
flows.
In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF
07-5). EITF 07-5 provides that an entity should use a two step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including the instrument’s contingent
exercise and settlement provisions. It also clarifies on the impact
of foreign currency denominated strike prices and market-based employee stock
option valuation instruments on the evaluation. EITF 07-5 is
effective for fiscal year beginning and after December 15, 2008. EITF
07-5 will not materially impact our financial condition, result of operations,
and cash flows.
In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, “Disclosures about
Credit Derivatives and Certain Guarantees: An Amendment of FASB Statements No.
133 and FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161” (“FSP FAS 133-1 and FIN 45-4”). The FSP amends the
disclosure requirements of FAS 133, “Accounting for Derivative Instruments and
Hedging Activities”, requiring that the seller of a credit derivative, or writer
of the contract, to disclose various items for each balance sheet presented
including the nature of the credit derivative, the maximum amount of potential
future payments the seller could be required to make, the fair value of the
derivative at the balance sheet date, and the nature of any recorded provisions
available to the seller to recover from third parties any of the amounts paid
under the credit derivative. The FSP also amends FASB Interpretation No. 45
(“FIN 45”) “Guarantor’s Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others” to require disclosure
of the current status of the payment performance risk of the guarantee. The
additional disclosure requirements above will be effective for reporting periods
ending after November 15, 2008. The FSP also clarifies that the effective date
of FAS 161 will be for any period, annual or interim, beginning after November
15, 2008. This standard will not materially impact the Company’s
current disclosure process.
In
November 2008, the Emerging Issues Task Force issued EITF Issue No. 08-06,
"Equity Method Investment Considerations", which clarifies the accounting for
certain transactions involving equity method investments. This interpretation is
effective for financial statements issued for fiscal years beginning on or after
December 15, 2008 and interim periods within those years. The Company does
not expect EITF Issue No. 08-06 to materially impact the Company’s financial
position or results of operations.
In
December 2008, the FASB issued FASB Staff Position FSP 132(R)-1, "Employers
Disclosures about Postretirement Benefit Plan Assets", which provides additional
guidance on employers' disclosures about plan assets of a defined benefit
pension or other postretirement plan. This interpretation is effective for
financial statements issued for fiscal years ending after December 15,
2009. We are currently evaluating the impact of this standard on our
consolidated financial position and results of operations.
NOTE
3
SHARE
BASED COMPENSATION
We follow
the provisions of 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.
The
Company has certain stock option plans under which it awards incentive and
non-qualified stock options to employees, officers, and outside
directors. Stock options granted to employees have either a ten year
contractual term with one fifth yearly vesting over a five year period or a six
year contractual term with one third yearly vesting over a three year
period. Stock options granted to outside directors have a ten year
contractual term with vesting period of six months. On August 5,
2008, our Board of Directors authorized the grant of 918,000 Incentive Stock
Options (“ISO”) to certain officers and employees of the Company which allows
for the purchase of Common Stock from the Company’s 2004 Stock Option
Plan. The options granted were for a contractual term of six years
with vesting over a three year period at one third increments per
year. The exercise price of the options granted was $2.28 per share
which was based on our closing stock price on the date of grant. We
also granted 84,000 options from the Company’s 2003 Outside Directors Stock Plan
to our seven outside directors as a result of the reelection our Board of
Directors at our Annual Meeting of Stockholders on August 5,
2008. The options granted were for a contractual term of ten years
with vesting period of six months. The exercise price of the options
was $2.34
per share
which was equal to our closing stock price the day preceding the grant date,
pursuant to the 2003 Outside Directors Stock Plan. On December 19,
2008, our Board of Directors authorized the grant of 165,000 Incentive Stock
Options (“ISO”) to certain employees of the Company which allows for the
purchase of Common Stock from the Company’s 2004 Stock Option
Plan. The options granted were for a contractual term of six years
with vesting over a three year period at one third increments per
year. The exercise price of the options granted was $2.09 per share
which was not less than the fair market value of the shares of Common Stock
subject to the Stock Option at the time the ISO is granted pursuant to the 2004
Stock Option Plan.
As of
December 31, 2008, we had 2,772,347 employee stock options outstanding, of which
1,552,847 are vested. The weighted average exercise price of the
1,552,847 outstanding and fully vested employee stock option is $1.85 with a
remaining weighted contractual life of 3.04 years. The fair value of
the employee options which vested in 2008, 2007, and 2006 totaled $219,000,
$240,000, and $0, respectively. Additionally, we had 645,000 director
stock options outstanding, of which 561,000 are vested. The weighted
average exercise price of the 561,000 outstanding and fully vested director
stock option is $2.16 with a weighted remaining contractual life of 5.67
years. The fair value of the director options which vested in 2008,
2007, and 2006 totaled $234,000, $157,000, and $11,425,
respectively.
The
Company estimates fair value of stock options using the Black-Scholes valuation
model. Assumptions used to estimate the fair value of stock options
granted include the exercise price of the award, the expected term, the expected
volatility of the Company’s stock over the option’s expected term, the risk-free
interest rate over the option’s expected term, and the expected annual dividend
yield. The fair value of the employee and director stock options
granted and the related assumptions used in the Black-Scholes option pricing
model used to value the options granted for fiscal year 2008, 2007, and 2006
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Option Granted
|
|
|
|
|
|
For
Year Ended
|
|
|
|
|
|
2008
|
|
|
|
2007 (4)
|
|
|
|
2006
|
|
|
Weighted-average
fair value per share
|
$
|
1.03
|
|
|
$
|
—
|
|
|
$
|
.87
|
|
|
Risk
-free interest rate (1)
|
|
1.35%-3.28
|
|
|
|
—
|
|
|
|
4.70%-5.03%
|
|
|
Expected
volatility of stock (2)
|
|
55.54%-58.85%
|
|
|
—
|
|
|
|
54.0%-54.61%
|
|
|
Dividend
yield
|
|
|
None
|
|
|
|
—
|
|
|
|
None
|
|
|
Expected
option life (in years) (3)
|
|
5.0-5.1
|
|
|
|
—
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside
Director Stock Option Granted
|
|
|
|
|
|
For
Year Ended
|
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
Weighted-average
fair value per share
|
$
|
1.79
|
|
|
$
|
2.30
|
|
|
$
|
1.74
|
|
|
Risk
-free interest rate (1)
|
|
4.04%
|
|
|
|
4.77%
|
|
|
|
4.98%
|
|
|
Expected
volatility of stock (2)
|
|
66.53%
|
|
|
|
67.60%
|
|
|
|
73.31%
|
|
|
Dividend
yield
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
Expected
option life (in years) (3)
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
(1) The
risk-free interest rate is based on the U.S. Treasury yield in effect at the
grant date over the expected term of the option.
(2) The
expected volatility is based on historical volatility from our traded Common
Stock over the expected term of the option.
(3) The
expected option life is based on historical exercises and post-vesting data for
employee grants made in 2008 and director option grants made in 2008, 2007, and
2006. The expected option life is calculated using the simplified method as
defined in SEC’s Staff Accounting Bulletin No. 107 for employee option grants
made prior to 2008.
(4) No
employee option grants were made in 2007.
The
following table summarizes stock-based compensation recognized for the fiscal
year 2008, 2007, and 2006.
|
|
|
Year
Ended
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Employee
Stock Options
|
|
$ |
368,000 |
|
|
$ |
242,000 |
|
|
$ |
194,000 |
|
|
Director
Stock Options
|
|
|
163,000 |
|
|
|
215,000 |
|
|
|
144,000 |
|
|
Total
|
|
$ |
531,000 |
|
|
$ |
457,000 |
|
|
$ |
338,000 |
|
We
recognized share based compensation expense using a straight-line amortization
method over the requisite period, which is the vesting period of the stock
option grant. As SFAS 123R requires that stock based compensation
expense be based on options that are ultimately expected to vest, we have
reduced our stock based compensation for the August 5, 2008 employee, December
19, 2008 employee, and August 5, 2008 director stock option grants at an
estimated forfeiture rate of 5.0%, 0.0%, and 0.0%, respectively, for the first
year of vesting. Our estimated forfeiture rate is based on historical
trends of actual forfeitures. Forfeiture rates are evaluated, and
revised as necessary. In 2008, we reevaluated our forfeiture rate for
our May 15, 2006 option grant due to the resignation of our Chief Financial
Officer in October 2008 and as a result, our compensation expense for our
employee stock option was reduced by approximately $18,000. As
of December 31, 2008, we have approximately $935,000 of total unrecognized
compensation cost related to unvested options, of which $382,000 is expected to
be recognized in 2009, $319,000 in 2010, and $234,000 in 2011.
NOTE
4
CAPITAL
STOCK, EMPLOYEE STOCK PLAN AND INCENTIVE COMPENSATION
Employee
Stock Purchase Plan
At our
Annual Meeting of Stockholders held on July 29, 2003, our stockholders approved
the adoption of the Perma-Fix Environmental Services, Inc. 2003 Employee Stock
Purchase Plan. The plan provides our eligible employees an
opportunity to become stockholders and purchase our Common Stock through payroll
deductions. The maximum number of shares issuable under this plan is
1,500,000. The Plan authorized the purchase of shares two times per
year, at an exercise price per share of 85% of the market price of our Common
Stock on the offering date of the period or on the exercise date of the period,
whichever is lower. The first purchase period commenced July 1,
2004.
On May
15, 2006, the Board of Directors of the Company terminated the 2003 Employee
Stock Purchase Plan due to lack of employee participation and the cost of
managing the plan. The Plan allows the Board of Directors to
terminate the Plan at anytime without prior notice to the participants and
without liability to the participants. A total of 96,380 shares had
been purchased under the Plan prior to the Plan’s termination, of which 65,257
shares of our Common Stock were issued in 2005 and 31,123 shares of Common Stock
were issued in 2006. Upon termination of the Plan, the balance, if
any, then standing to the credit of each participant in the participant stock
purchase stock purchase account was refunded to the participant.
Employment
Options
During
October 1997, Dr. Centofanti, our current Chairman of the Board, President and
Chief Executive Officer, entered into an Employment Agreement, which expired in
October 2000 and provided for, the issuance of Non-qualified Stock Options
(“Non-qualified Stock Options”). The Non-qualified Stock Options
provide Dr. Centofanti with the right to purchase an aggregate of 300,000 shares
of Common Stock as follows: (i) after one year 100,000 shares of Common Stock at
a price of $2.25 per share, (ii) after two years 100,000 shares of Common Stock
at a price of $2.50 per share, and (iii) after three years 100,000 shares of
Common Stock at a price of $3.00 per share. The 300,000 Non-qualified
Stock Options expired and were forfeited in October 2007.
Stock
Option Plans
Effective
September 13, 1993, we adopted a Non-qualified Stock Option Plan pursuant to
which officers and key employees can receive long-term performance-based equity
interests in the Company. The maximum number of shares of Common
Stock as to which stock options may be granted in any year shall not exceed
twelve percent (12%) of the number of common shares outstanding on December 31
of the preceding year, less the number of shares covered by the outstanding
stock options issued under our 1991 Performance Equity Plan as of December 31 of
such preceding year. The option grants under the plan are exercisable
for a period of up to ten years from the date of grant at an exercise price,
which is not less than the market price of the Common Stock at date of
grant. On September 13, 2003, the plan expired. No new
options will be issued under this plan, but the options issued under the Plan
prior to the expiration date will remain in effect until their respective
maturity dates.
Effective
December 12, 1993, we adopted the 1992 Outside Directors Stock Option Plan,
pursuant to which options to purchase an aggregate of 100,000 shares of Common
Stock had been authorized. This plan provides for the grant of
options to purchase up to 5,000 shares of Common Stock for each of our outside
directors upon initial election and each re-election. The plan also
provides for the grant of additional options to purchase up to 10,000 shares of
Common Stock on the foregoing terms to each outside director upon initial
election to the Board. The options have an exercise price equal to
the closing trading price, or, if not available, the fair market value of the
Common Stock on the date of grant. As amended and approved at the
December 1996 Annual Meeting, the plan provided that each eligible director
shall receive, at such eligible director’s option, either 65% or 100% of the fee
payable to such director for services rendered to us as a member of the Board in
Common Stock. The number of shares of our Common Stock issuable to
the eligible director shall be determined by valuing our Common Stock at 75% of
its fair market value as defined by the Outside Directors Plan. As
amended and approved at the May 1998 Annual Meeting, the Plan authorized 500,000
shares to be issued under the Plan. On December 12, 2003, the plan
expired. No new options will be issued under this plan, but the
options issued under the Plan prior to the expiration date will remain in effect
until their respective maturity dates.
Effective
July 29, 2003, we adopted the 2003 Outside Directors Stock Plan, which was
approved by our stockholders at the Annual Meeting of Stockholders on such
date. A maximum of 1,000,000 shares of our Common Stock are
authorized for issuance under this plan. The plan provides for the
grant of an option to purchase up to 30,000 shares of Common Stock for each
outside director upon initial election to the Board of Directors, and the grant
of an option to purchase up to 12,000 shares of Common Stock upon each
reelection. The options granted generally have vesting period of six
months from the date of grant, with exercise price equal to the closing trade
price on the date prior to grant date. The plan also provides for the
issuance to each outside director a number of shares of Common Stock in lieu of
65% or 100% of the fee payable to the eligible director for services rendered as
a member of the Board of Directors. The number of shares issued is
determined at 75% of the market value as defined in the plan. During
the annual meeting held on August 5, 2008, the stockholders approved the First
Amendment to our 2003 Outside Director Stock Plan which increased from 1,000,000
to 2,000,000 the number of shares reserved for issuance under the
plan.
Effective
July 28, 2004, we adopted the 2004 Stock Option Plan, which was approved by our
stockholders at the Annual Meeting of Stockholders on such date. The
plan provides for the grants of options to selected officers and employees,
including any employee who is also a member of the Board of Directors of the
Company. A maximum of 2,000,000 shares of our Common Stock are
authorized for issuance under this plan in the form of either incentive or
non-qualified stock options. The option grants under the plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price of not less than market price of the Common Stock at grant
date.
Effective
on January 1, 2006, we began accounting for employee and director stock options
pursuant to SFAS 123R, which 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. Pursuant to our adoption of SFAS
123R we began recognizing compensation expense for all unvested stock
options. Prior to adopting
SFAS 123R
we applied APB Opinion 25, “Accounting for Stock Issued to Employees,” and
related interpretations in accounting for options issued to employees and
directors. Accordingly, prior to 2006, no compensation cost was
recognized for options granted to employees and directors at exercise prices,
which equaled or exceeded the market price of our Common Stock at the date of
grant. Pursuant to the standards in SFAS 123R and our belief that it
is in the best interest of our stockholders to reduce future compensation
expense, in July 2005 we accelerated the vesting of all unvested employee stock
options outstanding at that date. As of December 31, 2008, we have
1,303,500 unvested options outstanding. See “Note 3 – Shared Based
Compensation” for further discussion on SFAS 123R.
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. During 2007, we issued 234,927 shares of our Common Stock
upon exercise of 237,225 employee stock options, at exercise prices from $1.25
to $2.19 per share. An optionee surrendered 2,298 shares of
personally held Common Stock of the Company as payment for the exercise of the
4,000 options. Total proceeds received during 2007 for option
exercises totaled approximately $418,000. We issued 433,500 shares of
our Common Stock upon exercise of 433,500 employee options in 2006, resulting in
total proceeds of approximately $575,000.
Summary
of the status of options under the plans as of December 31, 2008, 2007, and 2006
and changes during the years ending on those dates is presented
below:
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Intrinsic
Value (a)
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Intrinsic
Value (a)
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Intrinsic
Value (a)
|
|
|
Performance Equity Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
9,000 |
|
|
$ |
1.25 |
|
|
|
|
|
|
12,000 |
|
|
$ |
1.25 |
|
|
|
|
|
|
27,000 |
|
|
$ |
1.16 |
|
|
|
|
|
Exercised
|
|
|
(4,000 |
) |
|
|
1.25 |
|
|
$ |
5,300 |
|
|
|
(3,000 |
) |
|
|
1.25 |
|
|
$ |
5,470 |
|
|
|
(14,000 |
) |
|
|
1.07 |
|
|
$ |
12,940 |
|
|
Forfeited
|
|
|
(5,000 |
) |
|
|
1.25 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(1,000 |
) |
|
|
1.25 |
|
|
|
|
|
|
Balance
at end of year
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
9,000 |
|
|
|
1.25 |
|
|
$ |
10,980 |
|
|
|
12,000 |
|
|
|
1.25 |
|
|
$ |
12,840 |
|
|
Options
exercisable at year end
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
9,000 |
|
|
|
1.25 |
|
|
|
|
|
|
|
12,000 |
|
|
|
1.25 |
|
|
|
|
|
|
Non-qualified Stock Option
Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
1,174,859 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
1,297,750 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
1,989,250 |
|
|
$ |
1.78 |
|
|
|
|
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercised
|
|
|
(60,511 |
) |
|
|
1.54 |
|
|
$ |
60,352 |
|
|
|
(119,391 |
) |
|
|
1.91 |
|
|
$ |
112,546 |
|
|
|
(419,500 |
) |
|
|
1.34 |
|
|
$ |
287,328 |
|
|
Forfeited
|
|
|
(29,500 |
) |
|
|
1.91 |
|
|
|
|
|
|
|
(3,500 |
) |
|
|
1.72 |
|
|
|
|
|
|
|
(272,000 |
) |
|
|
2.13 |
|
|
|
|
|
|
Balance
at end of year
|
|
|
1,084,848 |
|
|
|
1.86 |
|
|
$ |
— |
|
|
|
1,174,859 |
|
|
|
1.85 |
|
|
$ |
731,441 |
|
|
|
1,297,750 |
|
|
|
1.85 |
|
|
$ |
606,720 |
|
|
Options
exercisable at year end
|
|
|
1,084,848 |
|
|
|
1.86 |
|
|
|
|
|
|
|
1,174,859 |
|
|
|
1.85 |
|
|
|
|
|
|
|
1,297,750 |
|
|
|
1.85 |
|
|
|
|
|
|
1992 Outside Directors Stock
Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
150,000 |
|
|
$ |
2.04 |
|
|
|
|
|
|
|
165,000 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
200,000 |
|
|
$ |
2.00 |
|
|
|
|
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercised
|
|
|
(5,000 |
) |
|
|
1.75 |
|
|
$ |
3,450 |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
Forfeited
|
|
|
(10,000 |
) |
|
|
1.75 |
|
|
|
|
|
|
|
(15,000 |
) |
|
|
2.13 |
|
|
|
|
|
|
|
(35,000 |
) |
|
|
1.75 |
|
|
|
|
|
|
Balance
at end of year
|
|
|
135,000 |
|
|
|
2.08 |
|
|
$ |
468 |
|
|
|
150,000 |
|
|
|
2.04 |
|
|
$ |
78,680 |
|
|
|
165,000 |
|
|
|
2.05 |
|
|
$ |
69,006 |
|
|
Options
exercisable at year end
|
|
|
135,000 |
|
|
|
2.08 |
|
|
|
|
|
|
|
150,000 |
|
|
|
2.04 |
|
|
|
|
|
|
|
165,000 |
|
|
|
2.05 |
|
|
|
|
|
|
2003 Outside Directors Stock
Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
426,000 |
|
|
$ |
2.18 |
|
|
|
|
|
|
|
324,000 |
|
|
$ |
1.94 |
|
|
|
|
|
|
|
234,000 |
|
|
$ |
1.85 |
|
|
|
|
|
|
Granted
|
|
|
84,000 |
|
|
|
2.34 |
|
|
|
|
|
|
|
102,000 |
|
|
|
2.95 |
|
|
|
|
|
|
|
90,000 |
|
|
|
2.15 |
|
|
|
|
|
|
Balance
at end of year
|
|
|
510,000 |
|
|
|
2.21 |
|
|
$ |
— |
|
|
|
426,000 |
|
|
|
2.18 |
|
|
$ |
172,800 |
|
|
|
324,000 |
|
|
|
1.94 |
|
|
$ |
124,200 |
|
|
Options
exercisable at year end
|
|
|
426,000 |
|
|
|
2.18 |
|
|
|
|
|
|
|
324,000 |
|
|
|
1.94 |
|
|
|
|
|
|
|
234,000 |
|
|
|
1.85 |
|
|
|
|
|
|
2004 Stock Option Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
830,167 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
1,018,000 |
|
|
$ |
1.82 |
|
|
|
|
|
|
|
96,500 |
|
|
$ |
1.44 |
|
|
|
|
|
|
Granted
|
|
|
1,083,000 |
|
|
|
1.93 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
978,000 |
|
|
|
1.86 |
|
|
|
|
|
|
Exercised
|
|
|
(41,668 |
) |
|
|
1.85 |
|
|
$ |
26,000 |
|
|
|
(114,834 |
) |
|
|
1.68 |
|
|
$ |
134,901 |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
Forfeited
|
|
|
(184,000 |
) |
|
|
2.05 |
|
|
|
|
|
|
|
(72,999 |
) |
|
|
1.86 |
|
|
|
|
|
|
|
(56,500 |
) |
|
|
1.77 |
|
|
|
|
|
|
Balance
at end of year
|
|
|
1,687,499 |
|
|
|
2.08 |
|
|
$ |
— |
|
|
|
830,167 |
|
|
|
1.84 |
|
|
$ |
522,819 |
|
|
|
1,018,000 |
|
|
|
1.82 |
|
|
$ |
504,980 |
|
|
Options
exercisable at year end
|
|
|
467,999 |
|
|
|
1.83 |
|
|
|
|
|
|
|
272,833 |
|
|
|
1.80 |
|
|
|
|
|
|
|
85,000 |
|
|
|
1.44 |
|
|
|
|
|
|
(a)
Represents the difference between the market price at the date of exercise
or the end of the year, as applicable, and the exercise
price.
|
The
summary of the Company’s total Plans as of December 31, 2008, and changes during
the period then ended are presented as follows:
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Options
outstanding January 1, 2008
|
|
|
2,590,026 |
|
|
$ |
1.91 |
|
|
|
|
|
|
|
|
Granted
|
|
|
1,167,000 |
|
|
|
1.96 |
|
|
|
|
|
|
|
|
Exercised
|
|
|
(111,179 |
) |
|
|
1.66 |
|
|
|
|
|
$ |
95,102 |
|
|
Forfeited
|
|
|
(228,500 |
) |
|
|
2.00 |
|
|
|
|
|
|
|
|
|
Options
outstanding End of Period (1)
|
|
|
3,417,347 |
|
|
|
2.03 |
|
|
|
4.4 |
|
|
$ |
468 |
|
|
Options
Exercisable at December 31, 2008 (1)
|
|
|
2,113,847 |
|
|
$ |
1.94 |
|
|
|
3.7 |
|
|
$ |
468 |
|
|
Options
Vested and expected to be vested at December 31, 2008
|
|
|
3,358,356 |
|
|
$ |
2.03 |
|
|
|
4.4 |
|
|
$ |
468 |
|
(1) Option
with exercise price ranging from $1.22 to $2.98
Shares
Reserved
At
December 31, 2008, we have reserved approximately 3,417,347 shares of Common
Stock for future issuance under all of the above option
arrangements.
Warrants
We have
issued various Warrants pursuant to acquisitions, private placements, debt and
debt conversion and to facilitate certain financing arrangements. The
Warrants principally are for a term of three to five years and entitle the
holder to purchase one share of Common Stock for each warrant at the stated
exercise price.
We issued
no warrants in 2008, 2007, and 2006. As of December 31, 2008, we had
no outstanding warrants for the purchase of our Common Stock. During
2008, 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. During 2007, we
issued 563,633 shares of Common Stock upon exercise of 1,281,731 warrants on a
cashless basis, resulting in the surrendering of the remaining 718,098
warrants. In addition, 1,775,638 warrants expired in
2007. We received $54,000 from repayment of stock subscription
resulting from exercise of warrants to purchase 60,000 shares of our Common
Stock on loan by the Company at an arms length basis in 2006. During
2006, a total of 6,673,290 shares of Common Stock were issued upon the exercise
of 6,904,149 warrants, both on a cash and cashless basis and on a loan by the
Company on an arms length basis. We received proceeds of $11,460,000
for the exercises, and 306,262 warrants expired.
Put
Options
In
2001, we entered into an Option Agreement with Associated
Mezzanine Investors (“AMI”) and Bridge East Capital, L.P. (“BEC”),
dated July 31, 2001 (the "Option Agreement"). Pursuant to
the Option Agreement, we granted each purchaser an irrevocable option
requiring us to purchase any of the Warrants or the shares of Common
Stock issuable under the Warrants (the "Warrant Shares") then held by the
purchaser (the "Put Option"). The Put Option could be exercised
at any time commencing July 31, 2004, and ending July 31, 2008. In
addition, each purchaser granted to us an irrevocable option to
purchase all the Warrants or the Warrant Shares then held by the
purchaser (the "Call Option"). The Call Option could be
exercised at any time commencing July 31, 2005, and ending July 31,
2008. The purchase price under the Put Option and the Call Option was based on
the quotient obtained by dividing (a) the sum of
six times our consolidated EBITDA for the period of
the 12 most recent consecutive months minus Net Debt plus the
Warrant Proceeds by (b) our Diluted Shares (as the terms EBITDA, Net Debt,
Warrant Proceeds, and Diluted Shares are defined in the Option
Agreement). On November 8, 2007, BEC exercised the 569,658 Warrants
on a cashless basis, resulting in issuance of 273,321 shares of Common Stock and
on December 31,
2007, AMI
exercised the 712,073 Warrants on a cashless basis, resulting in issuance of
290,312 shares of Common Stock, with the remaining warrants
forfeited. At December 31, 2006 and for the life of the Put Option to
the warrant exercise date, this instrument has been measured regularly to have
no value and thus no liability has been recorded. As result of
the exercises by BEC and AMI, the Company has no further obligations under the
“Option Agreement”.
NOTE
5
GOODWILL
AND OTHER INTANGIBLE ASSETS
The
following table is a summary of changes in the carrying amount of goodwill for
the years ended December 31, 2006, 2007, and 2008. As a result of the
acquisition of the PFNWR facility within our Nuclear Segment on June 13, 2007,
we recorded $7,716,000 in goodwill within our Nuclear Segment in
2007. In 2008, we recorded an additional $1,777,000 in goodwill
related to the acquisition of PFNWR as we finalized the allocation of the
purchase price to the net assets acquired in this acquisition in the second
quarter of 2008. In the fourth quarter of 2008, we determined that we
had not appropriately recorded purchased unbilled
receivables. Accordingly, we recorded an adjustment in the fourth
quarter of 2008 to correct goodwill and unbilled receivables related to the
PFNWR acquisition. This correction increased goodwill and decreased
unbilled receivable by $497,000. We did not amend our prior financial
statements as this correction was not considered material to the Consolidated
Balance Sheet and had no impact on our Consolidated Statement of Operations,
loss per share, accumulated deficit or our cash flows. We had no
goodwill for our Industrial Segment since December 31, 2005. (See
“Note 6” below for finalized goodwill recorded as result of the acquisition of
PFNWR facility).
|
Goodwill
(amounts in thousands)
|
|
Nuclear
Segment
|
|
|
Engineering
Segment
|
|
|
Total
|
|
|
Balance
as of December 31, 2005 and 2006
|
|
$ |
— |
|
|
$ |
1,330 |
|
|
$ |
1,330 |
|
|
Goodwill
Recorded as Result of Acquisition
|
|
|
7,716 |
|
|
|
¾ |
|
|
|
7,716 |
|
|
Balance
as of December 31, 2007
|
|
$ |
7,716 |
|
|
$ |
1,330 |
|
|
$ |
9,046 |
|
|
Additional
Goodwill Recorded as Result of Acquisition
|
|
|
2,274 |
|
|
|
¾ |
|
|
|
2,274 |
|
|
Balance
as of December 31, 2008
|
|
$ |
9,990 |
|
|
$ |
1,330 |
|
|
$ |
11,320 |
|
The
following table is a summary of changes in the carrying amount of permits for
the years ended December 31, 2006, 2007, and 2008. We recorded
$4,500,000 in permit costs within our Nuclear Segment as result of the
acquisition of our PFNWR facility on June 13, 2007 (See “Note 6” below for
permit recorded as result of the acquisition of PFNWR facility). Our
Engineering Segment has been excluded as it has no permits
recorded.
| Permit
(amount in thousands) |
|
Nuclear
Segment
|
|
|
Industrial
Segment
|
|
|
Total
|
|
|
Balance
as of December 31, 2005
|
|
$ |
10,819 |
|
|
$ |
1,190 |
|
|
$ |
12,009 |
|
|
Permits
in progress
|
|
|
206 |
|
|
|
¾ |
|
|
|
206 |
|
|
Balance
as of December 31, 2006
|
|
|
11,025 |
|
|
|
1,190 |
|
|
|
12,215 |
|
|
Permits
in progress
|
|
|
111 |
|
|
|
¾ |
|
|
|
111 |
|
|
Acquired
Permit as Result of Acquisition
|
|
|
4,500 |
|
|
|
¾ |
|
|
|
4,500 |
|
|
Balance
as of December 31, 2007
|
|
|
15,636 |
|
|
|
1,190 |
|
|
|
16,826 |
|
|
Permits
in progress
|
|
|
299 |
|
|
|
¾ |
|
|
|
299 |
|
|
Balance
as of December 31, 2008
|
|
$ |
15,935 |
|
|
$ |
1,190 |
|
|
$ |
17,125 |
|
NOTE
6
BUSINESS
ACQUISITION
Acquisition
of Nuvotec
On June
13, 2007, the Company completed its acquisition of Nuvotec and its wholly owned
subsidiary, Pacific EcoSolutions, Inc (“PEcoS”), pursuant to the terms of the
Merger Agreement, between Perma-Fix, Perma-Fix’s wholly owned subsidiary,
Transitory, Nuvotec, and PEcoS, dated April 27, 2007, which was subsequently
amended on June 13, 2007. The Company acquired 100% of the
outstanding shares of Nuvotec. The acquisition was structured as a
reverse subsidiary merger, with Transitory being merged into Nuvotec, and
Nuvotec being the surviving corporation. As a result of the merger,
Nuvotec became a wholly owned subsidiary of ours. Nuvotec’s name was
changed to Perma-Fix Northwest, Inc. (“PFNW”). PEcoS, whose name was
changed to Perma-Fix Northwest Richland, Inc. (“PFNWR”) on August 2, 2007, is a
wholly-owned subsidiary of PFNW. PEcoS is a permitted hazardous, low
level radioactive and mixed waste treatment, storage and disposal facility
located in the Hanford U.S. Department of Energy site in the eastern part of the
state of Washington.
Under the
terms of the Merger Agreement, the purchase price paid by the Company in
connection with the acquisition was approximately $17,299,000, consisting of as
follows:
|
(a)
|
$2,300,000
in cash at closing of the merger, with $1,500,000 payable to unaccredited
shareholders and $800,000 payable to shareholders of Nuvotec that
qualified as accredited investors pursuant to Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended (the
“Act”).
|
|
(b)
|
Also
payable only to the shareholders of Nuvotec that qualified as accredited
investors:
|
|
|
·
|
$2,500,000,
payable over a four year period, unsecured and nonnegotiable and bearing
an annual rate of interest of 8.25%, with (i) accrued interest only
payable on June 30, 2008, (ii) $833,333.33, plus accrued and unpaid
interest, payable on June 30, 2009, (iii) $833,333.33, plus accrued and
unpaid interest, payable on June 30, 2010, and (iv) the remaining unpaid
principal balance, plus accrued and unpaid interest, payable on June 30,
2011 (collectively, the “Installment Payments”). The
Installment Payments may be prepaid at any time by Perma-Fix without
penalty; and
|
|
|
·
|
709,207
shares of Perma-Fix common stock, which were issued on July 23, 2007, with
such number of shares determined by dividing $2,000,000 by 95% of average
of the closing price of the common stock as quoted on the NASDAQ during
the 20 trading days period ending five business days prior to the closing
of the merger. The value of these shares on June 13, 2007 was
approximately $2,165,000, which was determined by the average closing
price of the common stock as quoted on the NASDAQ four days prior to and
following the completion date of the acquisition, which was June 13,
2007.
|
|
(c)
|
The
assumption of $9,412,000 of debt, $8,900,000 of which was payable to
KeyBank National Association which represents debt owed by PFNW under a
credit facility. As part of the closing, the Company paid down $5,412,000
of this debt resulting in debt remaining of
$4,000,000.
|
(d) Transaction
costs totaling approximately $922,000.
In
addition to the above, the agreement contains a contingency of an earn-out
amount not to exceed $4,400,000 over a four year period (“Earn-Out
Amount”). The earn-out amounts will be earned if certain annual
revenue targets are met by the Company’s consolidated Nuclear
Segment. The first $1,000,000 of the earn-out amount, when earned,
will be placed in an escrow account to satisfy certain indemnification
obligations under the Merger Agreement of Nuvotec, PEcoS, and the shareholders
of Nuvotec to Perma-Fix that are identified by Perma-Fix within the escrow
period as provided in the Merger Agreement. The earn-out amount, if
and when paid, will increase goodwill.
The EPA
alleged that prior to the date that we acquired the PEcoS facility in June 2007,
the PEcoS facility was in violation of certain regulatory provisions relating to
the facility’s handling of certain hazardous waste
and PCB
waste. During May 2008, the EPA advised the facility as to these
alleged violations that a total penalty of $317,500 is appropriate to settle the
alleged violations. The $317,500 was recorded as a liability in the
purchase acquisition of Nuvotec and its wholly owned subsidiary,
PEcoS. On September 26, 2008, PFNWR entered into a consent agreement
with the EPA to resolve the allegations and to pay a penalty amount of
$304,500. Under the consent agreement, PFNWR neither admits nor
denies the specific EPA allegations. We may claim reimbursement of
the penalty, plus out of pocket expenses, paid or to be paid by us in connection
with this matter from the escrow account as discussed above. As of
the date of this report, we have not been required to pay any earn-out to the
former shareholders of Nuvotec or deposit any amount into the escrow account
pursuant to the agreement. Irrespective of the fact no amounts have
been deposited into the escrow account, the former shareholders of Nuvotec
(including Mr. Ferguson, a member of our Board of Directors) have paid $152,250
of the $304,500 penalty in satisfaction of their obligation under the indemnity
provision in connection with the settlement with the EPA. Under the
agreement between the Company and the former shareholders of Nuvotec, the
$152,250 penalty paid by the former shareholders of Nuvotec can be recouped by
the Nuvotec shareholder by adding it to the potential $4,400,000 earn-out
payment. The $152,250 can only be recouped if the $4,400,000 has been
entirely earned. The $304,500 was paid to the EPA on November 18,
2008.
The
acquisition was accounted for using the purchase method of accounting, pursuant
to SFAS 141, “Business Combinations”. The consideration for the acquisition was
attributed to net assets on the basis of the fair value of assets acquired and
liabilities assumed as of June 13, 2007. The results of operations
after June 13, 2007 have been included in the consolidated financial statements.
In the second quarter of 2008, the Company finalized the allocation of the
purchse price to the net asset acquired in this acquisition. The
excess of the cost of the acquisition over the estimated fair value of the net
tangible assets and intangible assets on the acquisition date, which amounted to
approximately $9,493,000, was allocated to goodwill. In the fourth
quarter of 2008, we determined that we had not appropriately recorded purchased
unbilled receivables. Accordingly, we recorded an adjustment in the
fourth quarter of 2008 to correct goodwill and unbilled receivables related to
the PFNWR acquisition. This correction increased goodwill and
decreased unbilled receivable by $497,000. We did not amend our prior
financial statements as this correction was not considered material to the
Consolidated Balance Sheet and had no impact on our Consolidated Statement of
Operations, loss per share, accumulated deficit or our cash
flows. The total goodwill recorded for this acquisition totaled
$9,990,000, which is not amortized but subject to an annual impairment
test. The following table summarized the final purchase price to the
net assets acquired in this acquisition.
|
(Amounts
in thousands)
|
|
|
|
|
Cash
|
|
$ |
2,300 |
|
|
Assumed
debt
|
|
|
9,412 |
|
|
Installment
payments
|
|
|
2,500 |
|
|
Common
Stock of the Company
|
|
|
2,165 |
|
|
Transaction
costs
|
|
|
922 |
|
|
Total
consideration
|
|
$ |
17,299 |
|
The
following table presents the allocation of the final acquisition cost, including
professional fees and other related acquisition costs, to the assets acquired
and liabilities assumed based on their estimated fair values:
|
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
Current
assets (including cash acquired of $249)
|
|
$ |
2,400 |
|
|
Property,
plant and equipment
|
|
|
14,978 |
|
|
Permits
|
|
|
4,500 |
|
|
Goodwill
|
|
|
9,990 |
|
|
Total
assets acquired
|
|
|
31,868 |
|
|
Current
liabilities
|
|
|
(10,801 |
) |
|
Non-current
liabilties
|
|
|
(3,768 |
) |
|
Total
liabilities assumed
|
|
|
(14,569 |
) |
|
|
|
|
|
|
|
Net
assets acquired
|
|
$ |
17,299 |
|
NOTE
7
CHANGES
TO PLAN OF SALE AND ASSET IMPAIRMENT CHARGES (RECOVERY)
On May
18, 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 PFFL, PFSG, and
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 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 May
2007, our Industrial Segment met the held for sale criteria under SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, and therefore,
certain assets and liabilities of the Industrial Segment were classified as
discontinued operations in the Consolidated Balance Sheets, and we ceased
depreciation of these facilities’ long-lived assets classified as held for
sale. In accordance with SFAS No. 144, the long-lived assets were
written down to fair value less anticipated selling costs and we recorded
$4,531,000 in impairment charges which were included in “loss from discontinued
operations, net of taxes” on our Consolidated Statement of Operations for the
year ended December 31, 2007.
As a
result of our Board of Directors approving the retention of our PFFL, PFO, and
PFSG facilities/operations in the third quarter of 2008, 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. We sold the property at PFO for $900,000 in cash
on December 23, 2008 and recognized a gain of $483,000 from the sale of this
property. We do not expect any impact or reduction to PFO’s operating
capability from the sale of the property at PFO.
As the
long-lived assets for PFFL, PFSG, and PFO (except for the property at PFO
classified as held for sale) facilities no longer met the held for sale criteria
under SFAS No. 144 in the third quarter of 2008, long-lived assets for these
facilities were reported individually at the lower of their respective carrying
amount before they were initially classified as held for sale, adjusted for any
depreciation expense that would have been recognized had these assets been
continuously classified as held and used or the fair value at the date of the
subsequent decision not to sell. As a result of our decision to
retain PFFL, PFSG, and PFO
facilities/operations,
we incurred incremental depreciation expense of approximately $372,000, which is
included in our Consolidated Statements of Operations for the year ended
December 31, 2008.
NOTE
8
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, PFP and PFMI,
two facilities which were approved as discontinued operations by our Board of
Directors effective November 8, 2005, and October 4, 2004,
respectively. As discussed in “Note 1 – Description of Business and
Basis of Presentation”, in May 2007, PFMD, PFD, and PFTS met the held for sale
criteria under SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, and therefore, certain assets and liabilities of these
facilities were classified as discontinued operations in the Consolidated
Balance Sheet, and we ceased depreciation of these facilities’ long-lived assets
classified as held for sale in May 2007. In accordance with SFAS No.
144, the long-lived assets for these facilities were written down to fair value
less anticipated selling costs. We recorded $4,531,000 in impairment
charges for PFD and PFTS, all of which were included in “loss from discontinued
operations, net of taxes” on our Consolidated Statement of Operations for the
year ended December 31, 2007. The results of operations and cash
flows of the aforementioned facilities have been reported in the Consolidated
Financial Statements as discontinued operations for all periods
presented.
On
January 8, 2008, we sold substantially all of the assets of PFMD within our
Industrial Segment, pursuant to the terms of an Asset Purchase Agreement, dated
January 8, 2008. In consideration for such assets, the buyer paid us
$3,811,000 (purchase price of $3,825,000 less closing costs) in cash at the
closing and assumed certain liabilities of PFMD. The cash
consideration is subject to certain working capital adjustments during
2008. Pursuant to the terms of our credit facility, $1,400,000 of the
proceeds received was used to pay down our term loan, with the remaining funds
used to pay down our revolver. As of December 31, 2008, we have sold
$3,100,000 of PFMD’s assets, which excludes approximately $10,000 of restricted
cash. The buyer assumed liabilities in the amount of approximately
$1,108,000. As of December 31, 2008, expenses relating to the sale of
PFMD totaled approximately $132,000, of which $1,000 remains to be
paid. As of December 31, 2008, the gain on the sale of PFMD totaled
approximately $1,786,000 (net of taxes of $71,000), which includes a final
working capital adjustment of $170,000 we received from the buyer in the fourth
quarter of 2008. The gain is recorded separately on the Consolidated Statement
of Operations as “Gain on disposal of discontinued operations, net of
taxes”.
On March
14, 2008, we completed the sale of substantially all of the assets of PFD within
our Industrial Segment, pursuant to the terms of an Asset Purchase Agreement,
dated March 14, 2008, for approximately $2,143,000 in cash, subject to certain
working capital adjustments after the closing, plus the assumption by the buyer
of certain of PFD’s liabilities and obligations. We received cash of
approximately $2,139,000 at closing, which was net of certain closing
costs. The proceeds received were used to pay down our term
loan. As of December 31, 2008, we sold approximately $3,103,000 of
PFD’s assets. The buyer assumed liabilities in the amount of
approximately $1,635,000. As of December 31, 2008, expenses relating
to the sale of PFD totaled approximately $206,000, of which all have been
paid. As of December 31, 2008, our gain on the sale of PFD totaled
approximately $256,000, net of taxes of $0, which includes a final working
capital adjustment of approximately $209,000 paid to the buyer in the second
quarter of 2008. The gain is recorded separately on the Consolidated
Statement of Operations as “Gain on disposal of discontinued operations, net of
taxes”.
On May
30, 2008, we completed sale of substantially all of the assets of PFTS within
our Industrial Segment, pursuant to the terms of an Asset Purchase Agreement,
dated May 14, 2008 as amended by a First Amendment dated May 30,
2008. In consideration for such assets, the buyer paid us $1,468,000
(purchase price of $1,503,000 less certain closing/settlement costs) in cash at
closing and assumed certain liabilities of PFTS. The cash
consideration is subject to certain working capital adjustments after
closing. Pursuant to the terms of our credit facility, the proceeds
received were used to pay down our term loan with the remaining funds used to
pay down our revolver. As of December 31, 2008, we had sold
approximately
$1,861,000
of PFTS’s assets. The buyer assumed liabilities in the amount of
approximately $996,000. As of December 31, 2008, expenses relating to
the sale of PFTS totaled approximately $186,000, of which approximately $13,000
remains to be paid. As of December 31, 2008, our gain on the sale of
PFTS totaled approximately $281,000, net of taxes of $0, which includes a
$135,000 final working capital adjustment paid to the buyer in July
2008. The gain is recorded separately on the Consolidated Statement
of Operations as “Gain on disposal of discontinued operations, net of
taxes”.
The
following table summarizes the results of discontinued operations for the years
ended December 31, 2008, 2007, and 2006. The gains on disposals of
discontinued operations, net of taxes, as mentioned above, are reported
separately on our Consolidated Statements of Operations as “Gain on disposal of
discontinued operations, net of taxes”. The operating results of
discontinued operations are included in our Consolidated Statements of
Operations as part of our “Loss from discontinued operations, net of
taxes”.
| |
|
For
The Year Ended December 31,
|
|
|
(Amounts
in Thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
3,195 |
|
|
$ |
19,965 |
|
|
$ |
19,724 |
|
|
Interest
expense
|
|
|
(121 |
) |
|
|
(194 |
) |
|
|
(165 |
) |
|
Operating
(loss) income from discontinued operations (1)
|
|
|
(1,332 |
) |
|
|
(6,830 |
) |
|
|
(711 |
) |
|
Gain
on disposal of discontinued operations (2)
|
|
|
2,323 |
|
|
|
— |
|
|
|
— |
|
|
Income
(loss) from discontinued operations
|
|
|
991 |
|
|
|
(6,830 |
) |
|
|
(711 |
) |
(1) Net of taxes of $0 for each of the year
ended December 31.
(2) Net
of taxes of $71,000 for year ended December 31, 2008.
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.
The
following table presents the Industrial Segment’s major classes of assets and
liabilities of discontinued operations that are classified as held for sale as
of December 31, 2008 and 2007. The held for sale asset and
liabilities balances as of December 31, 2008 may differ from the respective
balances at closing:
|
|
|
December
31,
|
|
|
December
31,
|
|
|
(Amounts
in Thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Account
receivable, net (1)
|
|
$ |
— |
|
|
$ |
2,828 |
|
|
Inventories
|
|
|
— |
|
|
|
313 |
|
|
Other
assets
|
|
|
22 |
|
|
|
1,533 |
|
|
Property,
plant and equipment, net (2)
|
|
|
651 |
|
|
|
3,942 |
|
|
Total
assets held for sale
|
|
$ |
673 |
|
|
$ |
8,616 |
|
|
Account
payable
|
|
$ |
— |
|
|
$ |
1,707 |
|
|
Deferred
revenue
|
|
|
— |
|
|
|
7 |
|
|
Accrued
expenses and other liabilities
|
|
|
5 |
|
|
|
3,595 |
|
|
Note
payable
|
|
|
— |
|
|
|
604 |
|
|
Environmental
liabilities
|
|
|
— |
|
|
|
428 |
|
|
Total
liabilities held for sale
|
|
$ |
5 |
|
|
$ |
6,341 |
|
(1) net
of allowance for doubtful accounts of $0, and $204,000 as of December 31, 2008
and 2007, respectively.
(2) net
of accumulated depreciation of $13,000 and $9,292,000 as of December 31, 2008
and 2007, respectively.
The
following table presents the Industrial Segment’s major classes of assets and
liabilities of discontinued operations that are not held for sale as of December
31, 2008 and 2007:
|
|
|
December
31,
|
|
|
December
31,
|
|
|
(Amounts
in Thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$ |
88 |
|
|
$ |
10 |
|
|
Total
assets of discontinued operations
|
|
$ |
88 |
|
|
$ |
10 |
|
|
Account
payable
|
|
$ |
15 |
|
|
$ |
144 |
|
|
Accrued
expenses and other liabilities
|
|
|
1,947 |
|
|
|
1,287 |
|
|
Deferred
revenue
|
|
|
— |
|
|
|
— |
|
|
Environmental
liabilities
|
|
|
1,027 |
|
|
|
1,265 |
|
|
Total
liabilities of discontinued operations
|
|
$ |
2,989 |
|
|
$ |
2,696 |
|
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.
NOTE
9
PREFERRED
STOCK ISSUANCE AND CONVERSION
Series
B Preferred Stock
As
partial consideration of the M&EC Acquisition, M&EC issued shares of its
Series B Preferred Stock to stockholders of M&EC having a stated value of
approximately $1,285,000. No other shares of M&EC's Series B Preferred Stock
are outstanding. The Series B Preferred Stock is non-voting and
non-convertible, has a $1.00 liquidation preference per share and may be
redeemed at the option of M&EC at any time after one year from the date of
issuance for the per share price of $1.00. Following the first 12
months after the original issuance of the Series B Preferred Stock, the holders
of the Series B Preferred Stock will be entitled to receive, when, as, and if
declared by the Board of Directors of M&EC out of legally available funds,
dividends at the rate of 5% per year per share applied to the amount of $1.00
per share, which shall be fully cumulative. We began accruing
dividends for the Series B Preferred Stock in July 2002, and have accrued a
total of approximately $419,000 since July 2002, of which $64,000 was accrued in
each of the years ended December 31, 2003 to 2008.
NOTE
10
LONG-TERM
DEBT
Long-term
debt consists of the following at December 31, 2008 and 2007:
|
(Amounts
in Thousands)
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
Revolving Credit
facility dated December 22, 2000, borrowings based
|
|
|
|
|
|
|
|
upon
eligible accounts receivable, subject to monthly borrowing
base
|
|
|
|
|
|
|
|
calculation,
variable interest paid monthly at prime rate plus ½%
|
|
|
|
|
|
|
|
(4.5%
at December 31, 2008), balance due in July
2012. Weighted
|
|
$ |
6,516 |
|
|
$ |
6,851 |
|
|
average
interest rate on year end balances are 5.7% and 8.7%,
respectively
|
|
|
|
|
|
|
|
|
|
Term Loan dated December
22, 2000, payable in equal monthly
|
|
|
|
|
|
|
|
|
|
installments
of principal of $83, balance due in July 2012, variable
|
|
|
|
|
|
|
|
|
|
interest
paid monthly at prime rate plus 1% (5.0% at December 31,
2008).
|
|
|
6,667 |
|
|
|
4,500 |
|
|
Promissory Note dated
June 25, 2001, payable in semiannual installments
|
|
|
|
|
|
|
|
|
|
on
June 30 and December 31 through December 31, 2008,
variable
|
|
|
|
|
|
|
|
|
|
interest
accrues at the applicable law rate determined under the
IRS
|
|
|
|
|
|
|
|
|
|
Code
Section (8.0% on December 31, 2008) and is payable in one
lump
|
|
|
|
|
|
|
|
|
|
sum
at the end of installment period.
|
|
|
¾ |
|
|
|
635 |
|
|
Promissory Note dated June 25,
2007, payable in monthly installments
|
|
|
|
|
|
|
|
|
|
of
principal of $160 starting July 2007 and $173 starting July
2008,
|
|
|
|
|
|
|
|
|
|
variable
interest paid monthly at prime rate plus 1.125%
|
|
|
|
|
|
|
|
|
|
(5.125%
at December 31, 2008)
|
|
|
¾ |
|
|
|
3,039 |
|
|
Installment Agreement in
the Agreement and Plan of Merger with
|
|
|
|
|
|
|
|
|
|
Nuvotec
and PEcoS, dated April 27, 2007, payable in three equal
yearly
|
|
|
|
|
|
|
installment
of principal of $833 beginning June 2009. Interest accrues
at
|
|
|
|
|
|
|
annual
rate of 8.25% on outstanding principal balance starting
|
|
|
|
|
|
|
|
|
|
June
2007 and payable yearly starting June 2008
|
|
|
2,500 |
|
|
|
2,500 |
|
|
Installment Agreement
dated June 25, 2001, payable in semiannual
|
|
|
|
|
|
|
|
|
|
installments
on June 30 and December 31 through December 31, 2008,
|
|
|
|
|
|
|
|
|
|
variable
interest accrues at the applicable law rate determined under
the
|
|
|
|
|
|
|
|
|
|
Internal
Revenue Code Section (8.0% on December 31, 2008)
|
|
|
|
|
|
|
|
|
|
and
is payable in one lump sum at the end of installment
period.
|
|
|
¾ |
|
|
|
153 |
|
|
Various
capital lease and promissory note obligations, payable 2009
to
|
|
|
|
|
|
|
|
|
|
2013,
interest at rates ranging from 5.0% to 12.6%.
|
|
|
520 |
|
|
|
1,158 |
|
|
|
|
|
16,203 |
|
|
|
18,836 |
|
|
Less
current portion of long-term debt
|
|
|
2,022 |
|
|
|
15,352 |
|
|
Less
long-term debt related to assets held for sale
|
|
|
¾ |
|
|
|
604 |
|
|
|
|
$ |
14,181 |
|
|
$ |
2,880 |
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit and Term Loan
Agreement
On
December 22, 2000, 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 initially 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 December 22,
2005. The Agreement also provided for a revolving line of credit
(“Revolving Credit”) with a maximum principal amount outstanding at any one time
of $18,000,000, as
amended. The
Revolving Credit advances are subject to limitations of an amount up to the sum
of (a) up to 85% of Commercial Receivables aged 90 days or less from invoice
date, (b) up to 85% of Commercial Broker Receivables aged up to 120 days from
invoice date, (c) up to 85% of acceptable Government Agency Receivables aged up
to 150 days from invoice date, and (d) up to 50% of acceptable unbilled amounts
aged up to 60 days, less (e) reserves the Agent reasonably deems proper and
necessary. Our revolving credit and term loan are collateralized by
substantially all of the assets of the Company, excluding the assets of
PFNWR. As of December 31, 2008, the excess availability under our
revolving credit was $5,394,000 based on our eligible receivables.
Pursuant
to the Agreement, as amended, the Term Loan bears interest at a floating rate
equal to the prime rate plus 1%, and the Revolving Credit at a floating rate
equal to the prime rate plus ½%. The Agreement was subject to a
prepayment fee of 1% until March 25, 2006, and ½% until March 25, 2007 had we
elected to terminate the Agreement with PNC.
On June
12, 2007, we entered into Amendment No. 6 with PNC. Pursuant to
Amendment No. 6, PNC provided Consent to the Company’s acquisition of Nuvotec
(n/k/a Perma-Fix Northwest, Inc.) and its wholly owned subsidiary, PEcoS (n/k/a
Perma-Fix Northwest Richland, Inc.), which was completed on June 13,
2007. PNC also provided consent for the Company to issue a corporate
guaranty for a portion of the debt being assumed as result of the
acquisition. In addition, the Amendment provided us with an
additional $2,000,000 of availability via a sub-facility within our secured
revolver loan. The availability from this sub-facility will be
amortized at a rate of $83,333 per month.
On July
18, 2007, we entered into Amendment No. 7 with PNC, which extended the due date
of the $25,000,000 credit facility entered into on December 22, 2000 from May
31, 2008 to August 29, 2008. Pursuant to the term of the Amendment,
we may terminate the agreement upon 60 days’ prior written notice upon payment
in full of the obligation.
On
November 2, 2007, we entered into Amendment No. 8 with PNC, which extended the
due date of the $25,000,000 credit facility from August 29, 2008 to November 27,
2008. Pursuant to the term of the Amendment, we may terminate the
agreement upon 60 days’ prior written notice upon payment in full of the
obligation.
On
December 18, 2007, we entered into Amendment No. 9 with PNC, which entitled the
Company to pay off the collateralized property sold from the sales proceeds upon
the sale of each of the Industrial Segment facility, with any remaining proceeds
to be used to pay off the term note and the revolver in such
order. As a condition of the amendment, we paid a $10,000 fee to
PNC.
On March
26, 2008, we entered into Amendment No. 10 with PNC, which extended the due date
of the $25,000,000 credit facility from November 27, 2008 to September 30,
2009. This amendment also waived the Company’s violation of the fixed
charge coverage ratio as of December 31, 2007 and revised and modified the
method of calculating the fixed charge coverage ratio covenant contained in the
loan agreement in each quarter of 2008. Pursuant to the amendment, we
may terminate the agreement upon 60 days’ prior written notice upon payment in
full of the obligation. As a condition to this amendment, we paid PNC
a fee of $25,000.
On July
25, 2008, we entered into Amendment No. 11 with PNC which extended the
additional $2,000,000 of availability via a sub-facility resulting from the
acquisition of Nuvotec (n/k/a Perma-fix Northwest, Inc.) and PEcoS (n/k/a
Perma-Fix Northwest Richland, Inc.) within our secured revolver loan, pursuant
to Amendment No. 6, dated June 12, 2007 to the earlier of August 30, 2008 or the
date that our Revolving Credit, Term Loan and Security Agreement is restructured
with PNC.
On August
4, 2008, we entered into Amendment No. 12 with PNC. Pursuant to
Amendment No. 12, PNC renewed and extended our credit facility by increasing our
term loan back up to $7,000,000 from the principal outstanding balance of $0,
with the revolving line of credit remaining at
$18,000,000. Under
Amendment
No. 12, the due date of the $25,000,000 credit facility is extended through July
31, 2012. 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. Pursuant to the Amendment No. 12, we may terminate the
agreement upon 90 days’ prior written notice upon payment in full of the
obligation. We agreed to pay PNC 1% 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. As part of Amendment No.
12, we agreed to grant mortgages to PNC as to certain of our facilities not
previously granted to PNC under the Agreement. Amendment No. 12 also
terminated the $2,000,000 of availability pursuant to Amendment No. 11 noted
above in its entirety. All other terms and conditions to the credit
facility remain principally unchanged. The $7,000,000 in loan
proceeds was used to reduce our revolver balance and our current
liabilities. As a condition of Amendment No. 12, we agreed to pay PNC
a fee of $120,000.
Promissory
Notes and Installment Agreements
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.
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.
The
aggregate approximate amount of the maturities of long-term debt maturing in
future years as of December 31, 2008, is $2,022,000 in 2009; $1,978,000 in 2010;
1,965,000 in 2011; $10,229,000 in 2012, and $9,000 in 2013.
Capital
Leases
The
following table lists components of the capital leases as of December 31, 2008
(in thousands):
| |
|
Captial
Leases
|
|
|
Operating
Leases
|
|
|
Year
ending December 31:
|
|
|
|
|
|
|
|
2009
|
|
$ |
189 |
|
|
$ |
744 |
|
|
2010
|
|
|
144 |
|
|
|
609 |
|
|
2011
|
|
|
132 |
|
|
|
437 |
|
|
2012
|
|
|
46 |
|
|
|
254 |
|
|
2013
|
|
|
9 |
|
|
|
53 |
|
|
Later
years beyond
|
|
|
― |
|
|
|
― |
|
|
Total
Minimum Lease Payments
|
|
|
520 |
|
|
$ |
2,097 |
|
|
Less
amount representing interest (effective interest rate of
8.10%)
|
|
|
(67 |
) |
|
|
|
|
|
Less
estimated executory costs
|
|
|
― |
|
|
|
|
|
|
Net
minimum lease payments
|
|
|
453 |
|
|
|
|
|
|
Less
current installments of obligations under capital leases
|
|
|
189 |
|
|
|
|
|
|
Obligations
under capital leases excluding
|
|
|
|
|
|
|
current
installments
|
|
$ |
264 |
|
|
|
|
|
NOTE
11
ACCRUED
EXPENSES
Accrued
expenses at December 31 include the following (in thousands):
|
|
|
2008
|
|
|
2007
|
|
|
Salaries
and employee benefits
|
|
$ |
3,173 |
|
|
$ |
3,478 |
|
|
Accrued
sales, property and other tax
|
|
|
519 |
|
|
|
671 |
|
|
Interest
payable
|
|
|
2,722 |
|
|
|
2,769 |
|
|
Insurance
payable
|
|
|
1,553 |
|
|
|
2,268 |
|
|
Other
|
|
|
929 |
|
|
|
796 |
|
|
Total
accrued expenses
|
|
$ |
8,896 |
|
|
$ |
9,982 |
|
NOTE
12
ACCRUED
CLOSURE COSTS
We accrue
for the estimated closure costs as determined pursuant to RCRA guidelines for
all fixed-based regulated operating and discontinued facilities, even though we
do not intend to or have present plans to close any of our existing
facilities. The permits and/or licenses define the waste, which may
be received at the facility in question, and the treatment or process used to
handle and/or store the waste. In addition, the permits and/or
licenses specify, in detail, the process and steps that a hazardous waste or
mixed waste facility must follow should the facility be closed or cease
operating as a hazardous waste or mixed waste
facility. Closure
procedures and cost calculations in connection with closure of a facility are
based on guidelines developed by the federal and/or state regulatory authorities
under RCRA and the other appropriate statutes or regulations promulgated
pursuant to the statutes. The closure procedures are very specific to
the waste accepted and processes used at each facility. We recognize
the closure cost as a liability on the balance sheet. Since all our
facilities are acquired facilities, the closure cost for each facility was
recognized pursuant to a business combination and recorded as part of the
purchase price allocation of fair value to identifiable assets acquired and
liabilities assumed.
The
closure calculation is increased annually for inflation based on RCRA
guidelines, and for any approved changes or expansions to the facility, which
may result in either an increase or decrease in the approved closure
amount. If there is a change to the closure estimate, we record this
change in the liability and asset, with the asset depreciated in accordance with
our depreciation policy. Annual inflation factor increases are
expensed during the current year. In 2008, due to change in estimate
of the costs to close our DSSI and PFNWR facilities based on federal/state
regulatory guidelines, we increased our closure accrual by $726,000 and $373,000
for our DSSI and PFNWR facility, respectively.
During
2008, the accrued long-term closure cost increased by $1,240,000 to a total of
$10,141,000 as compared to the 2007 total of $8,901,000 for our continuing
operations. This increase is principally a result of normal inflation
factor increases as well as changes in estimates to close our DSSI and PFNWR
facilities as discussed above.
NOTE
13
ENVIRONMENTAL
LIABILITIES
We have
four remediation projects, which are currently in progress at certain of our
permitted Industrial Segment facilities (two within our discontinued operations,
PFD and PFMI) owned and operated by our subsidiaries. These
remediation projects principally entail the removal/remediation of contaminated
soil and, in some cases, the remediation of surrounding ground
water. All of the remedial clean-up projects in question were an
issue for that facility for years prior to our acquisition of the facility and
were recognized pursuant to a business combination and recorded as part of the
purchase price allocation to assets acquired and liabilities
assumed. Three of the facilities, (PFD, PFM, and PFSG) are RCRA
permitted facilities, and as a result, the remediation activities are closely
reviewed and monitored by the applicable state
regulators. Additionally, we recorded environmental liabilities upon
acquisition of PFMD and PFP in March 2004, which were not RCRA permitted
facilities. In January 2008, we sold substantially all of the assets
of our PFMD facility. We recognized our best estimate of such
environmental liabilities upon the acquisition of these five facilities, as part
of the acquisition cost. In the normal course of our business, the
operations will on occasion create a minor environmental remediation issue,
which will be evaluated and a corresponding remedial liability recorded. Minor
environmental remediation liabilities were recognized and recorded for the PFTS
facility during 2004. In May 2008, we sold substantially all of the
assets of our PFTS facility. As further discussed in the discontinued
operations and divestiture footnote, we accrued environmental liabilities for
PFMI, one of our two non-operating discontinued operations. See “Note
8” – “Discontinued Operations and Divestitures”.
At
December 31, 2008, we had total accrued environmental remediation liabilities of
$1,833,000, which reflects a decrease of $1,040,000 from the December 31, 2007,
balance of $2,873,000. The decrease represents payments of
approximately $614,000 on remediation projects, approximately $391,000 in
environmental reserve which was assumed by the buyer upon the sale of
substantially all of the assets of PFMD in January 2008, and reduction of
approximately $35,000 in reserve which we recorded as “gain on disposal of
continued operations, net of taxes” in the second quarter of 2008 upon the sale
of substantially all of the assets of PFTS in May 2008. In connection
with the sale of substantially all of the assets of PFMD in January 2008, the
buyer assumed all 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. The December
31, 2008, current and long-term accrued environmental balance is recorded as
follows (in thousands):
|
|
|
Current
|
|
|
Long-term
|
|
|
|
|
|
|
|
Accrual
|
|
|
Accrual
|
|
|
Total
|
|
|
PFD
|
|
$ |
165 |
|
|
$ |
324 |
|
|
$ |
489 |
|
|
PFM
|
|
|
74 |
|
|
|
201 |
|
|
|
275 |
|
|
PFSG
|
|
|
112 |
|
|
|
419 |
|
|
|
531 |
|
|
PFMI
|
|
|
425 |
|
|
|
113 |
|
|
|
538 |
|
|
Total
Liability
|
|
$ |
776 |
|
|
$ |
1,057 |
|
|
$ |
1,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFD
In June
1994, we acquired from Quadrex Corporation and/or a subsidiary of Quadrex
Corporation (collectively, “Quadrex”) three treatment, storage and disposal
companies, including the PFD facility. The former owners of PFD had
merged EPS with PFD, which was subsequently sold to Quadrex. Through
our acquisition of PFD in 1994 from Quadrex, we were indemnified by Quadrex for
costs associated with remediating this facility leased by PFD (“Leased
Property”) but never used or operated by PFD, which entails remediation of 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 is located. In conjunction with the subsequent bankruptcy filing by
Quadrex, and our recording of purchase accounting for the acquisition of PFD, we
recognized an environmental liability of approximately $1,200,000 for the
remediation of this leased facility. This environmental liability for
the EPS site was retained by the Company upon the sale of PFD in March
2008. We have pursued remedial activities for the past ten years and
after evaluating various technologies, are seeking approval from appropriate
governmental authority for the final remedial process. 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. During 2008, we incurred remedial
expenditures of $213,000, which reduced the reserve. We have $489,000 accrued for
the closure as of December 31, 2008, and we anticipate spending $165,000 in 2009
with the remainder over the next six years.
PFM
Pursuant
to our acquisition, effective December 31, 1993, of Perma Fix of Memphis, Inc.
(“PFM”) (f/k/a American Resource Recovery, Inc.), we assumed certain liabilities
relative to the removal of contaminated soil and to undergo groundwater
remediation at the facility. 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. The groundwater remediation at this facility has been
ongoing since approximately 1990. With approval of a remediation
approach in 2006, PFM began final remediation of this facility in
2007. In 2008, we completed all soil remediation with the exception
of that associated with the groundwater remediation. In 2008, we
incurred remediation expenditure of $200,000. We have $275,000 accrued for
the closure as of December 31, 2008, and we anticipate spending $74,000 in 2009
with the remainder over the next four years.
PFSG
During
1999, we recognized an environmental accrual of $2,199,000, in conjunction with
the acquisition of PFSG. This amount represented our estimate of the
long- term costs to remove contaminated soil and to undergo groundwater
remediation activities at the PFSG acquired facility in Valdosta,
Georgia. PFSG have over the past five years, completed the initial
valuation, and selected the remedial process to be utilized. Approval
to proceed with final remediation has not yet been received from the appropriate
agency. Remedial activities began in 2003. In 2008, we
incurred remedial expenditures of $173,000. We have $531,000 accrued for
the closure, as of December 31, 2008, and we anticipate spending $112,000 in
2009 with the remainder over the next six years.
PFTS
In
conjunction with an oil spill, we accrued approximately $69,000 to remediate the
contaminated soil and ground water at this location. For the year
ended December 31, 2007, we had $37,000 accrued for the
closure. In
2008, we incurred approximately $2,000 in remedial expenditure. The
remaining $35,000 in reserve was recorded as a “gain on disposal of discontinued
operations, net of taxes” on the “Consolidated Statement of Operations” upon the
sale of substantially all of PFTS’s assets on May 30, 2008, as the buyer had
assumed any future on-going environmental monitoring.
PFMI
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.
PFMD
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.
We
performed, or had performed, due diligence on each of these environmental
projects, and also reviewed/utilized reports obtained from third party
engineering firms who have been either engaged by the prior owners or by us to
assist in our review. Based upon our expertise and the analysis
performed, we have accrued our best estimate of the cost to complete the
remedial projects. No insurance or third party recovery was taken
into account in determining our cost estimates or reserve, nor do our cost
estimates or reserves reflect any discount for present value
purposes. We do not believe that any adverse changes to our estimates
would be material to us. The circumstances that could affect the
outcome range from new technologies, that are being developed every day that
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.
NOTE
14
INCOME
TAXES
Income
tax from the continuing operations for the years ended December 31, consisted of
the following (in thousands):
|
Current:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
83 |
|
|
State
|
|
|
10 |
|
|
|
— |
|
|
|
424 |
|
|
Total
income tax expense
|
|
$ |
10 |
|
|
$ |
— |
|
|
$ |
507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had
temporary differences and net operating loss carry forwards, which gave rise to
deferred tax assets and liabilities at December 31, as follows (in
thousands):
|
Deferred
tax assets:
|
|
2008
|
|
|
2007
|
|
|
Net
operating losses
|
|
$ |
9,040 |
|
|
$ |
7,724 |
|
|
Environmental
and closure reserves
|
|
|
3,114 |
|
|
|
2,770 |
|
|
Impairment
of assets
|
|
|
7,658 |
|
|
|
10,015 |
|
|
Other
|
|
|
2,151 |
|
|
|
2,167 |
|
|
Valuation
allowance
|
|
|
(14,130 |
) |
|
|
(14,237 |
) |
|
Deferred
income tax assets
|
|
$ |
7,833 |
|
|
$ |
8,439 |
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(7,833 |
) |
|
|
(8,439 |
) |
|
Total
deferred income tax liability
|
|
|
— |
|
|
|
— |
|
|
Net
deferred income tax asset
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
An
overall reconciliation between the expected tax benefit using the federal
statutory rate of 34% and the provision for income taxes from continuing
operations as reported in the accompanying consolidated statements of operations
is provided below.
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Tax
(benefit) expense at statutory rate
|
|
$ |
261 |
|
|
$ |
(809 |
) |
|
$ |
2,016 |
|
|
State
taxes, net of federal benefit
|
|
|
7 |
|
|
|
206 |
|
|
|
236 |
|
|
Permanent
items
|
|
|
37 |
|
|
|
(1 |
) |
|
|
105 |
|
|
Other
|
|
|
(153 |
) |
|
|
(5 |
) |
|
|
118 |
|
|
Increase
(decrease) in valuation allowance
|
|
|
(142 |
) |
|
|
609 |
|
|
|
(1,968 |
) |
|
Provision
for income taxes
|
|
$ |
10 |
|
|
$ |
— |
|
|
$ |
507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
January 1, 2007, the Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income
Taxes. FIN No. 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with SFAS
No. 109, Accounting for Income
Taxes. FIN No. 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This pronouncement also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The adoption of FIN
No. 48 did not result in the identification of material uncertain tax positions
through December 31,
2008.
The
Company has provided a valuation allowance on substantially all of its deferred
tax assets. The Company 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, the Company considers a
number of factors including whether there is a historical pattern of consistent
and significant profitability in combination with the Company’s 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 more likely than not be realizable in future
years, in whole or in part. These deferred tax assets in particular
will require us to generate significant taxable income in the applicable
jurisdictions in future years in order to recognize their economic
benefits. At this point, the Company does not believe that it has
enough positive 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 the Company may
reverse the allowance as appropriate. Our valuation allowance
(decreased) increased by approximately $(107,000), $3,263,000, and $(1,757,000)
for the years ended December 31, 2008, 2007, and 2006, respectively, which
represents the effect of changes in the temporary differences and net operating
losses (NOLs). Included in deferred tax assets as of December 31,
2008 is a future deductible tax benefit associated with the impairment of assets
for financial reporting purposes in the amount of $7,658,000. Of this
amount, approximately $7,175,000 was recorded in conjunction with our
acquisition of DSSI in August 2000 and approximately $483,000 was in conjunction
with impairment of assets at PFSG in 2007. For income tax reporting
purposes, the future benefit of these impairment charges will be recognized when
the underlying assets are actually disposed.
We have
estimated net operating loss carryforwards (NOL's) for federal income tax
purposes of approximately $26,589,000 at December 31, 2008 for continuing
operations. These net operating losses can be carried forward and
applied against future taxable income, if any, and expire in the years 2009
through 2028. However, as a result of various stock offerings and
certain acquisitions, the use of these NOLs will be limited under the provisions
of Section 382 of the Internal Revenue Code of 1986, as amended. As
of December 31, 2008, we have approximately $16,556,000 of net operating loss
carryforwards available to offset future taxable income without any restrictions
as imposed by Section 382. Additionally, NOLs may be further limited
under the provisions of Treasury Regulation 1.1502-21 regarding Separate Return
Limitation Years.
NOTE
15
COMMITMENTS
AND CONTINGENCIES
Hazardous
Waste
In
connection with our waste management services, we handle both hazardous and
non-hazardous waste, which we transport to our own, or other facilities for
destruction or disposal. As a result of disposing of hazardous
substances, in the event any cleanup is required, we could be a potentially
responsible party for the costs of the cleanup notwithstanding any absence of
fault on our part.
Legal
Matters
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 Department of Environemental Quality (“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-effectively. 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
ultimate 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.
Perma-Fix
Northwest Richland, Inc. (“PFNWR” - f/k/a Pacific EcoSolutions, Inc –
“PEcoS”)
The EPA
alleged that prior to the date that we acquired the PEcoS facility in June 2007,
the PEcoS facility was in violation of certain regulatory provisions relating to
the facility’s handling of certain hazardous waste and PCB
waste. During May 2008, the EPA advised the facility as to these
alleged violations that a total penalty of $317,500 is appropriate to settle the
alleged violations. The $317,500 was recorded as a liability in the
purchase acquisition of Nuvotec and its wholly owned subsidiary,
PEcoS. On September 26, 2008, PFNWR entered into a consent agreement
with the EPA to resolve the allegations and to pay a penalty amount of
$304,500. Under the consent agreement, PFNWR neither admits nor
denies the specific EPA allegations. Under the agreements relating to
our acquisition of Nuvotec and PEcoS, we are required, if certain revenue
targets are met, to pay to the former shareholders of Nuvotec an earn-out amount
not to exceed $4,400,000 over a four year period ending June 30, 2011, with the
first $1,000,000 of the earn-out amount to be placed into an escrow account to
satisfy certain indemnification obligations to us of Nuvotec, PEcoS, and the
former shareholders of Nuvotec (including Mr. Robert Ferguson, a current member
of our Board of Directors) (See “Note 17 - Related Party Transaction” in “Note
to Consolidated Financial Statements”). We may claim reimbursement of
the penalty, plus out of pocket expenses, paid or to be paid by us in connection
with this matter from the escrow account. As of the date of this
report, we have not been required to pay any earn-out to the former shareholders
of Nuvotec or deposit any amount into the escrow account pursuant to the
agreement. Irrespective of the fact no amounts have been deposited
into the escrow account, the former shareholders of Nuvotec (including Mr.
Ferguson, a member of our Board of Director) have paid $152,250 of the $304,500
penalty in satisfaction of their obligation under the indemnity provision in
connection with the settlement with the EPA. Under the agreement
between the Company and the former shareholders of Nuvotec, the $152,250 penalty
paid by the former shareholders of Nuvotec can be recouped by the Nuvotec
shareholder by adding it to the potential $4,400,000 earn-out
payment. The $152,250 can only be recouped if the $4,400,000 has been
entirely earned. The $304,500 was paid to the EPA on November 18,
2008.
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. The buyer of PFTS has submitted its financial
assurance documentation, which has been under review by regulatory authority
(see “Note 20 – Subsequent Event – Financial Assurance for PFTS (Divested
Industrial Segment Facility)” for authorization provided to the Company for
release of our financial assurance for PFTS of $685,000.
In
addition to the above matters and in the normal course of conducting our
business, we are involved in various other litigations. We are not a
party to any litigation or governmental proceeding which our management believes
could result in any judgments or fines against us that would have a material
adverse affect on our financial position, liquidity or results of future
operations.
Pension
Liability
We had a
pension withdrawal liability of $1,129,000 at December 31, 2008, based upon a
withdrawal letter received from Central States Teamsters Pension Fund (“CST”),
resulting from the termination of the union employees at PFMI and a subsequent
actuarial study performed. In August 2005, we received a demand
letter from CST, amending the liability to $1,629,000, and provided for the
payment of $22,000 per month over an eight year period.
Insurance
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 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.
Operating
Leases
We lease
certain facilities and equipment under operating leases. Future
minimum rental payments as of December 31, 2008, required under these leases for
our continuing operations are $744,000 in 2009, $609,000 in 2010, $437,000 in
2011, $254,000 in 2012, and $53,000 in 2013.
Net rent
expense was $1,409,000, $1,464,000, and $1,561,000 for 2008, 2007, and 2006,
respectively for our continuing operations. These amounts include
payments on operating leases of approximately $652,000, $1,075,000, and
$1,261,000 for 2008, 2007, and 2006, respectively. The remaining rent
expense is for non-contractual monthly and daily rentals of specific use
vehicles, machinery and equipment.
Net rent
expense was $177,000, $1,134,000, and $981,000 for 2008, 2007, and 2006,
respectively for our discontinued operations. These amounts include
payments on operating leases of approximately $0, $476,000, and $488,000,
respectively. The remaining rent expense is for non-contractual
monthly and daily rentals of specific use vehicles, machinery and
equipment.
NOTE
16
PROFIT
SHARING PLAN
We
adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan (the “401(k)
Plan”) in 1992, which is intended to comply under Section 401 of the Internal
Revenue Code and the provisions of the Employee Retirement Income Security Act
of 1974. All full-time employees who have attained the age of 18 are
eligible to participate in the 401(k) Plan. Participating employees
may make annual pretax contributions to their accounts up to 100% of their
compensation, up to a maximum amount as limited by law. We, at our
discretion, may make matching contributions based on the employee's elective
contributions. Company contributions vest over a period of five
years. We matched up to 25% of our employees'
contributions. We contributed $401,000, $418,000, and $378,000 in
matching funds during 2008, 2007, and 2006, respectively. Effective
March 1, 2009, the Company suspended its matching contribution in an effort to
reduce costs in light of the recent economic environment. The Company
will evaluate the reversal of this suspension as the economic environment
improves.
NOTE
17
RELATED
PARTY TRANSACTIONS
Lawrence
Properties LLC
During
February 2006, our Board of Directors approved and we entered into a lease
agreement, whereby we lease property from Lawrence Properties LLC, a company
jointly owned by the president of Schreiber, Yonley and Associates, Robert
Schreiber, Jr. and his spouse. Mr. Schreiber is a member of our
executive management team. The lease is for a term of five years from
June 1, 2006. We pay monthly rent expense of $10,000, which we
believe is lower than costs charged by unrelated third party
landlords. Additional rent will be assessed for any increases over
the initial lease commencement year for property taxes or assessments and
property and casualty insurance premiums.
Mr.
David Centofanti
Mr. David
Centofanti serves as our Director of Information Services. For such
services, he received total compensation in 2008 of approximately $162,000. Mr.
David Centofanti is the son of our Chief Executive Officer and Chairman of our
board, Dr. Louis F. Centofanti. We believe the compensation received
by Mr. Centofanti for his technical expertise which he provides to the Company
is competitive and comparable to compensation we would have to pay to an
unaffiliated third party with the same technical expertise.
Mr.
Robert L. Ferguson
On June
13, 2007, we acquired Nuvotec and Nuvotec's wholly owned subsidiary, PEcoS (our
PFNWR facility), pursuant to the terms of the Merger Agreement, between us,
Nuvotec, PEcoS, and our wholly owned subsidiary. At the time of the
acquisition, Robert L. Ferguson was the Chairman, Chief Executive Officer, and
individually or through entities controlled by him, the owner of approximately
21.29% of Nuvotec’s outstanding common stock. In connection with the
acquisition, Mr. Ferguson was nominated to serve as a Director and subsequently
elected as a Director at our Annual Meeting of Stockholders held in August
2007. Mr. Ferguson was reelected to serve as a Director at our August
2008 Annual Meeting of Stockholders.
As
consideration for the acquisition, Mr. Ferguson: (a) received a total of
$224,560 cash and 192,783 shares of Perma-Fix Common Stock in July 2007 as a
former shareholder of Nuvotec who is “accredited” under the rules of Regulation
D under the Act, (b) is entitled to receive certain contingent consideration
under the terms of the acquisition as described below, (c) guaranteed $4,000,000
of bank debt, which was paid off by Perma-Fix in December 2008, and a $1,750,000
line of credit assumed by us in the acquisition, which the $1,750,000 line of
credit was released when we replaced the financial assurance of PEcoS deposited
with the State of Washington with our financial assurance, and (d) as a former
shareholder of Nuvotec, is entitled to his proportionate share of a $2,500,000
note payable by the Company to the former shareholders of
Nuvotec. The foregoing consideration includes the amounts and shares
paid and payable to entities controlled by Mr. Ferguson.
The EPA
alleged that prior to the date that we acquired the PEcoS facility in June 2007,
the PEcoS facility was in violation of certain regulatory provisions relating to
the facility’s handling of certain hazardous waste and PCB
waste. During May 2008, the EPA advised the facility as to these
alleged violations that a total penalty of $317,500 is appropriate to settle the
alleged violations. On September 26, 2008, PFNWR entered into a
consent agreement with the EPA to resolve the allegations and to pay a penalty
amount of $304,500. Under the consent agreement, PFNWR neither admits
nor denies the specific EPA allegations. Under the agreements
relating to our acquisition of Nuvotec and PEcoS, we are required, if certain
revenue targets are met, to pay to the former shareholders of Nuvotec an
earn-out amount not to exceed $4,400,000 over a four year period ending June 30,
2011, with the first $1,000,000 of the earn-out amount to be placed into an
escrow account to satisfy certain indemnification obligations to us of Nuvotec,
PEcoS, and the former shareholders of Nuvotec, which includes Mr. Robert
Ferguson. We may claim reimbursement of the penalty, plus out of
pocket expenses, paid or to be paid by us in connection with this matter from
the escrow account. As
of the date of this report, we have not been required to pay any earn-out to the
former
shareholders
of Nuvotec or deposit any amount into the escrow account pursuant to the
agreement. Irrespective of the fact no amounts have been deposited
into the escrow account, the former shareholders of Nuvotec, including Mr.
Ferguson, agreed to pay and have paid $152,250 of the $304,500 penalty in
satisfaction of their obligation under the indemnity provision in connection
with the settlement with the EPA. Under the agreement between the
Company and the former shareholders of Nuvotec, the $152,250 penalty paid by the
former shareholders of Nuvotec can be recouped by the Nuvotec shareholder by
adding it to the potential $4,400,000 earn-out payment. The $152,250
can only be recouped if the $4,400,000 has been entirely earned. The
$304,500 was paid to the EPA on November 18, 2008.
NOTE
18
OPERATING
SEGMENTS
Pursuant
to FAS 131, we define an operating segment as a business activity:
|
·
|
from
which we may earn revenue and incur expenses;
|
|
·
|
whose
operating results are regularly reviewed by the segment president to make
decisions about resources to be allocated to the segment and assess its
performance; and
|
|
·
|
for
which discrete financial information is
available.
|
We
currently have three operating segments, which are defined as each business line
that we operate. This however, excludes corporate headquarters, which
does not generate revenue, and our discontinued operations, which include
certain facilities within our Industrial Segment. (See “Note 8 – Discontinued
Operations and Divestitures” to “Notes to Consolidated Financial
Statements”).
Our
operating segments are defined as follows:
The
Nuclear Waste Management Services Segment (“Nuclear Segment”) provides
treatment, storage, processing and disposal of nuclear, low-level radioactive,
mixed (waste containing both hazardous and non-hazardous constituents),
hazardous and non-hazardous waste through our four
facilities: Perma-Fix of Florida, Inc., Diversified Scientific
Services, Inc., East Tennessee Materials and Energy Corporation, and Perma-Fix
of Northwest Richland, Inc., which was acquired in June 2007.
The
Consulting Engineering Services Segment (“Engineering Segment”) provides
environmental engineering and regulatory compliance services through Schreiber,
Yonley & Associates, Inc. which includes oversight management of
environmental restoration projects, 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.
The
Industrial Waste Management Services Segment (“Industrial Segment”) provides
on-and-off site treatment, storage, processing and disposal of hazardous and
non-hazardous industrial waste, and wastewater through our three facilities;
Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of Orlando, Inc., and Perma-Fix of
South Georgia, Inc.
The table
below shows certain financial information of our operating segment for 2008,
2007, and 2006 (in thousands).
|
Segment
Reporting as of and for the year ended December 31,
2008
|
| |
|
Nuclear
Services
|
|
|
Engineering
|
|
|
Industrial
|
|
|
Segments
Total
|
|
|
Corporate
And
Other (2)
|
|
|
Consolidated
Total
|
|
|
Revenue
from external customers
|
|
$ |
61,359 |
(3) |
|
$ |
3,194 |
|
|
$ |
10,951 |
|
|
$ |
75,504 |
|
|
$ |
— |
|
|
$ |
75,504 |
|
|
Intercompany
revenues
|
|
|
2,915 |
|
|
|
709 |
|
|
|
886 |
|
|
|
4,510 |
|
|
|
¾ |
|
|
|
4,510 |
|
|
Gross
profit
|
|
|
15,610 |
|
|
|
1,072 |
|
|
|
3,512 |
|
|
|
20,194 |
|
|
|
¾ |
|
|
|
20,194 |
|
|
Interest
income
|
|
|
2 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
2 |
|
|
|
224 |
|
|
|
226 |
|
|
Interest
expense
|
|
|
678 |
|
|
|
1 |
|
|
|
16 |
|
|
|
695 |
|
|
|
622 |
|
|
|
1,317 |
|
|
Interest
expense-financing fees
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
137 |
|
|
|
137 |
|
|
Depreciation
and amortization
|
|
|
4,328 |
|
|
|
32 |
|
|
|
463 |
|
|
|
4,823 |
|
|
|
43 |
|
|
|
4,866 |
|
|
Segment
profit (loss)
|
|
|
4,908 |
|
|
|
418 |
|
|
|
1,803 |
|
|
|
7,129 |
|
|
|
(6,209 |
) |
|
|
920 |
|
|
Segment
assets(1)
|
|
|
98,748 |
|
|
|
2,024 |
|
|
|
6,115 |
|
|
|
106,887 |
|
|
|
16,825 |
(4) |
|
|
123,712 |
|
|
Expenditures
for segment assets
|
|
|
976 |
|
|
|
61 |
|
|
|
76 |
|
|
|
1,113 |
|
|
|
16 |
|
|
|
1,129 |
|
|
Total
long-term debt
|
|
|
2,836 |
|
|
|
28 |
|
|
|
156 |
|
|
|
3,020 |
|
|
|
13,183 |
|
|
|
16,203 |
|
|
Segment
Reporting as of and for the year ended December 31,
2007
|
| |
|
Nuclear
Services
|
|
|
Engineering
|
|
|
Industrial
|
|
|
Segments
Total
|
|
|
Corporate
And
Other (2)
|
|
|
Consolidated
Total
|
|
|
Revenue
from external customers
|
|
$ |
51,704 |
(3) |
|
$ |
2,398 |
|
|
$ |
10,442 |
|
|
$ |
64,544 |
|
|
$ |
— |
|
|
$ |
64,544 |
|
|
Intercompany
revenues
|
|
|
3,103 |
|
|
|
1,069 |
|
|
|
785 |
|
|
|
4,957 |
|
|
|
¾ |
|
|
|
4,957 |
|
|
Gross
profit
|
|
|
16,505 |
|
|
|
760 |
|
|
|
1,735 |
|
|
|
19,000 |
|
|
|
¾ |
|
|
|
19,000 |
|
|
Interest
income
|
|
|
1 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
1 |
|
|
|
311 |
|
|
|
312 |
|
|
Interest
expense
|
|
|
546 |
|
|
|
1 |
|
|
|
19 |
|
|
|
566 |
|
|
|
755 |
|
|
|
1,321 |
|
|
Interest
expense-financing fees
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
196 |
|
|
|
196 |
|
|
Depreciation
and amortization
|
|
|
3,763 |
|
|
|
36 |
|
|
|
225 |
|
|
|
4,024 |
|
|
|
68 |
|
|
|
4,092 |
|
|
Segment
profit (loss)
|
|
|
6,599 |
|
|
|
245 |
|
|
|
(3,132 |
) |
|
|
3,712 |
|
|
|
(6,092 |
) |
|
|
(2,380 |
) |
|
Segment
assets(1)
|
|
|
98,037 |
|
|
|
1,986 |
|
|
|
5,732 |
|
|
|
105,755 |
|
|
|
20,293 |
(4) |
|
|
126,048 |
|
|
Expenditures
for segment assets
|
|
|
2,943 |
|
|
|
20 |
|
|
|
382 |
|
|
|
3,345 |
|
|
|
19 |
|
|
|
3,364 |
|
|
Total
long-term debt
|
|
|
6,659 |
|
|
|
6 |
|
|
|
216 |
|
|
|
6,881 |
|
|
|
11,351 |
|
|
|
18,232 |
|
|
Segment
Reporting as of and for the year ended December 31,
2006
|
| |
|
Nuclear
Services
|
|
|
Engineering
|
|
|
Industrial
|
|
|
Segments
Total
|
|
|
Corporate
And
Other (2)
|
|
|
Consolidated
Total
|
|
|
Revenue
from external customers
|
|
$ |
49,423 |
(3) |
|
$ |
3,358 |
|
|
$ |
15,424 |
|
|
$ |
68,205 |
|
|
$ |
— |
|
|
$ |
68,205 |
|
|
Intercompany
revenues
|
|
|
2,433 |
|
|
|
558 |
|
|
|
1,432 |
|
|
|
4,423 |
|
|
|
¾ |
|
|
|
4,423 |
|
|
Gross
profit
|
|
|
20,930 |
|
|
|
797 |
|
|
|
3,318 |
|
|
|
25,045 |
|
|
|
¾ |
|
|
|
25,045 |
|
|
Interest
income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
280 |
|
|
|
280 |
|
|
Interest
expense
|
|
|
475 |
|
|
|
1 |
|
|
|
14 |
|
|
|
490 |
|
|
|
765 |
|
|
|
1,255 |
|
|
Interest
expense-financing fees
|
|
|
1 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
1 |
|
|
|
191 |
|
|
|
192 |
|
|
Depreciation
and amortization
|
|
|
2,931 |
|
|
|
38 |
|
|
|
583 |
|
|
|
3,552 |
|
|
|
77 |
|
|
|
3,629 |
|
|
Segment
profit (loss)
|
|
|
12,452 |
|
|
|
252 |
|
|
|
(903 |
) |
|
|
11,801 |
|
|
|
(6,379 |
) |
|
|
5,422 |
|
|
Segment
assets(1)
|
|
|
68,523 |
|
|
|
2,182 |
|
|
|
8,843 |
|
|
|
79,548 |
|
|
|
26,807 |
(4) |
|
|
106,355 |
|
|
Expenditures
for segment assets
|
|
|
5,329 |
|
|
|
62 |
|
|
|
113 |
|
|
|
5,504 |
|
|
|
57 |
|
|
|
5,561 |
|
|
Total
long-term debt
|
|
|
1,984 |
|
|
|
15 |
|
|
|
125 |
|
|
|
2,124 |
|
|
|
5,500 |
|
|
|
7,624 |
|
(1) Segment
assets have been adjusted for intercompany accounts to reflect actual assets for
each segment.
(2)
Amounts reflect the activity for corporate headquarters, not
included in the segment information.
|
(3)
|
The
consolidated revenues within the Nuclear Waste Management Services Segment
include the LATA/Parallax revenue of $4,841,000 or 6.4%, $8,784,000 or
13.6%, and $10,341,000 or 15.2% for 2008, 2007, and 2006, of total
consolidated revenue, respectively. The consolidated revenue
within the Nuclear Segment also include the Fluor Hanford revenue of
$7,974,000 or
|
|
|
10.6%,
$6,985,000 or 10.8%, and $1,229,000 or 1.8% for 2008, 2007, and
2006, of total consolidated revenue, respectively. In addition,
the consolidated revenue within the Nuclear Segment includes the CHPRC
revenue of $8,120,000 or 10.6% for 2008. We were awarded the
subcontract from CHPRC in the second quarter of
2008.
|
|
(4)
|
Amount includes assets from our
discontinued operations of $761,000, $8,626,000, and $13,600,000 as of
December 31, 2008, 2007, and 2006,
respectively.
|
NOTE
19
QUARTERLY
OPERATING RESULTS (UNAUDITED)
Unaudited
quarterly operating results are summarized as follows (in thousands, except per
share data):
|
|
|
Three
Months Ended (unaudited)
|
|
|
|
|
|
|
|
|
|
|
March
31
|
|
|
June
30
|
|
|
Sept
30
|
|
|
Dec.
31
|
|
|
Total
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
17,470 |
|
|
$ |
18,502 |
|
|
$ |
15,989 |
|
|
$ |
23,543 |
|
|
$ |
75,504 |
|
|
Gross
profit
|
|
|
4,446 |
|
|
|
5,874 |
|
|
|
4,105 |
|
|
|
5,769 |
|
|
|
20,194 |
|
|
(Loss)
income from continuing operations
|
|
|
(363 |
) |
|
|
733 |
|
|
|
(276 |
) |
|
|
826 |
|
|
|
920 |
|
|
Loss
from discontinued operations, net of taxes
|
|
|
(675 |
) |
|
|
(383 |
) |
|
|
(159 |
) |
|
|
(115 |
) |
|
|
(1,332 |
) |
|
Gain
on disposal of discontinued operations, net of taxes
|
|
|
2,107 |
|
|
|
108 |
|
|
|
94 |
|
|
|
14 |
|
|
|
2,323 |
|
|
Net
income (loss)
|
|
|
1,069 |
|
|
|
458 |
|
|
|
(341 |
) |
|
|
725 |
|
|
|
1,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
(.01 |
) |
|
|
.02 |
|
|
|
(.01 |
) |
|
|
.01 |
|
|
|
.02 |
|
|
Discontinued
operations
|
|
|
(.01 |
) |
|
|
(.01 |
) |
|
|
— |
|
|
|
— |
|
|
|
(.02 |
) |
|
Disposal
of discontinued operations
|
|
|
.04 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.04 |
|
|
Net
(loss) income per common share
|
|
|
.02 |
|
|
|
.01 |
|
|
|
(.01 |
) |
|
|
.01 |
|
|
|
.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued
operations
|
|
|
(.01 |
) |
|
|
.02 |
|
|
|
(.01 |
) |
|
|
.01 |
|
|
|
.02 |
|
|
Discontinued
operations
|
|
|
(.01 |
) |
|
|
(.01 |
) |
|
|
— |
|
|
|
— |
|
|
|
(.02 |
) |
|
Disposal
of discontinued operations
|
|
|
.04 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.04 |
|
|
Net
(loss) income per common share
|
|
|
.02 |
|
|
|
.01 |
|
|
|
(.01 |
) |
|
|
.01 |
|
|
|
.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
15,919 |
|
|
$ |
16,227 |
|
|
$ |
16,306 |
|
|
$ |
16,092 |
|
|
$ |
64,544 |
|
|
Gross
Profit
|
|
|
5,062 |
|
|
|
5,213 |
|
|
|
4,613 |
|
|
|
4,112 |
|
|
|
19,000 |
|
|
Income
(loss) from continuing operations
|
|
|
371 |
|
|
|
382 |
|
|
|
(404 |
) |
|
|
(2,729 |
) |
|
|
(2,380 |
) |
|
(Loss)
income from discontinued operations, net of taxes
|
|
|
(1,455 |
) |
|
|
840 |
|
|
|
(1,549 |
) |
|
|
(4,666 |
) |
|
|
(6,830 |
) |
|
Net
(loss) income applicable to Common Stockholders
|
|
|
(1,084 |
) |
|
|
1,222 |
|
|
|
(1,953 |
) |
|
|
(7,395 |
) |
|
|
(9,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
.01 |
|
|
|
.01 |
|
|
|
(.01 |
) |
|
|
(.05 |
) |
|
|
(.05 |
) |
|
Discontinued
operations
|
|
|
(.03 |
) |
|
|
.01 |
|
|
|
(.03 |
) |
|
|
(.09 |
) |
|
|
(.13 |
) |
|
Net
income (loss) per common share
|
|
|
(.02 |
) |
|
|
.02 |
|
|
|
(.04 |
) |
|
|
(.14 |
) |
|
|
(.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued
operations
|
|
|
.01 |
|
|
|
.01 |
|
|
|
(.01 |
) |
|
|
(.05 |
) |
|
|
(.05 |
) |
|
Discontinued
operations
|
|
|
(.03 |
) |
|
|
.01 |
|
|
|
(.03 |
) |
|
|
(.09 |
) |
|
|
(.13 |
) |
|
Net
income (loss) per common share
|
|
|
(.02 |
) |
|
|
.02 |
|
|
|
(.04 |
) |
|
|
(.14 |
) |
|
|
(.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
in the third quarter of 2008 includes a recovery of impairment loss of $507,000
for PFO within our continuing operations. Net income in the fourth
quarter of 2008 includes a gain on the sale of property at PFO of $483,000
within our continuing operations. Net loss in the third quarter of
2007 includes an impairment loss of $564,000 within our discontinued
operations. Net
loss in
the fourth quarter of 2007 includes an impairment loss of $3,967,000 within our
discontinued operations and $1,836,000 within our continuing
operations.
NOTE
20
SUBSEQUENT
EVENT
Revolving
Credit and Term Loan Agreement
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. As a condition of this Amendment, we agreed to pay PNC a
fee of $25,000. Funds made available under this Amendment were used
to secure the additional financial assurance coverage needed by our DSSI
subsidiary to operate under the PCB permit issued by the EPA on November 26,
2008 (see below “Insurance” for information regarding this financial assurance
coverage).
Insurance
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 “Risk Factors” for a discussion as to the
potential risks relating to AIG).
Financial
Assurance for PFTS (Divested Industrial Segment Facility)
In
connection with the divestiture of PFTS, the buyer of PFTS’s 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 remaining 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. The buyer of
PFTS had submitted its financial assurance documentation, which had been under
review by regulatory authority. 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.
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
|
|
None.
|
|
|
|
|
|
CONTROLS
AND PROCEDURES
|
|
|
Evaluation
of disclosure, controls, and procedures.
|
|
|
We
maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our periodic reports filed
with the Securities and Exchange Commission (“SEC”) is recorded,
processed, summarized and reported within the time periods specified in
the rules and forms of the SEC and that such information is accumulated
and communicated to our management. Based on their most recent evaluation,
which was completed as of the end of the period covered by this Annual
Report on Form 10-K, we have evaluated, with the participation of our
Chief Executive Officer and Chief Financial Officer, the effectiveness of
our disclosure controls and procedures (as defined in Rule 13a-15 and
15d-15 of the Securities Exchange Act of 1934, as
amended). In designing and evaluating our disclosure
controls and procedures, our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and are
subject to certain limitations, including the exercise of judgment by
individuals, the difficulty in identifying unlikely future events, and the
difficulty in eliminating misconduct completely. Based upon
that evaluation, we have concluded with the participation of our Chief
Executive Officer and Chief Financial Officer that our disclosure controls
and procedures were not effective as of December 31, 2008 because of
material weaknesses to internal controls over financial reporting (“ICFR”)
as set forth below.
|
|
|
|
|
|
Management's
Report on Internal Control over Financial Reporting
|
|
|
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in
Rules 13a-15(f) of the Securities Exchange Act of
1934. Internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in
the United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements or fraudulent acts. A control system, no matter how well
designed, can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Internal
control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit the preparation of the
consolidated financial statements in accordance with generally accepted
accounting principles in the United States of America, and that receipts
and expenditures of the Company are being made only in accordance with
appropriate authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the consolidated
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements or fraudulent acts. Also, projections
of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management,
with the participation of our Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of internal control
over financial reporting based on the framework in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on
|
|
|
this
evaluation, we concluded, with the participation of our Chief Executive
Officer and Chief Financial Officer that the Company did not maintain
effective internal control over financial reporting as of December 31,
2008 for the reasons described below.
BDO
Seidman, LLP, an independent registered public accounting firm, audited
the effectiveness of the Company’s internal control over financial
reporting, and based on that audit, issued their report which is included
herein.
A
significant deficiency is a control deficiency, or combination of control
deficiencies that is less than material yet important enough to merit
attention by those responsible for oversight of the company's financial
reporting. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement
of the company's annual or interim financial statements will not be
prevented or detected on a timely basis.
As
of December 31, 2008, the following material weaknesses were
identified:
|
|
|
·
|
The
monitoring of pricing, invoicing, and the corresponding inventory for
transportation and disposal process controls at facilities within the
Company’s Industrial Segment were ineffective and were not being applied
consistently. This weakness could result in sales being priced and
invoiced at amounts, which were not approved by the customer or the
appropriate level of management, and inaccurate corresponding
transportation and disposal
expense.
|
|
|
·
|
The design
and operation of payroll, pricing and invoicing controls for our
subcontract awarded to our East Tennessee Materials & Energy
Corporation (“M&EC”) subsidiary by the Department of Energy’s (“DOE”)
general contractor, CH Plateau Remediation Company (“CHPRC”) were
ineffective and were not being applied consistently. This
weakness could result in invoices, expenses, and revenue recognized at
amounts that were not validated and approved by the customer and the
appropriate level of management.
|
|
|
·
|
The
control for the recognition of processed/disposed revenue at our Perma-Fix
Northwest Richland, Inc. (“PFNWR”) subsidiary was ineffective and not
being applied consistently. This weakness could result in a
material amount of revenue being recognized in an incorrect financial
reporting period.
|
|
|
The
ICFR material weaknesses identified above were partly due to the
following:
|
|
|
·
|
As
a result of our decision in September 2008 to retain our remaining
Industrial Segment operations, we were unable to correct this
deficiency before the end of 2008. Certain system upgrades, as
well as the time to implement these upgrades, are
necessary.
|
|
|
·
|
The
new CHPRC subcontract was implemented in October 2008. The
administrative requirements of this subcontract were ongoing throughout
the fourth quarter of 2008 and the Company was unable to document,
implement, and test controls before the end of
2008.
|
| |
·
|
We
acquired PFNWR in 2007 and have not yet fully implemented these
controls.
|
|
|
We
are in the process of developing formal remediation plans for the Audit
Committee’s review and
approval.
|
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Stockholders
Perma-Fix
Environmental Services, Inc.
Atlanta,
Georgia
We have
audited Perma-Fix Environmental Services, Inc. and subsidiaries’ (the “Company”)
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying “Item 9A,
Management’s Report on Internal Control Over Financial Reporting”. Our
responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness is a deficiency, or a combination of control deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim
financial statements will not be prevented or detected on a timely basis. The
following material weaknesses have been identified and included in management’s
assessment:
|
|
·
|
Deficiencies
in the design and operation of the quote to invoice controls at PFNWR
primarily caused by a lack of precision, reconciliation, monitoring, and
oversight in its spreadsheet based waste tracking system. This
deficiency resulted in audit adjustments to the Company’s 2008 annual
consolidated financial statements.
|
|
|
·
|
Deficiencies
exist in the design and operation of the payroll controls and quote to
invoice controls for the cost-plus CHPRC
contract.
|
|
|
·
|
Deficiencies
in the monitoring and execution of certain pricing and invoicing process
controls at facilities within the Company's Industrial Segment were
identified and others were not being applied
consistently.
|
|
|
·
|
Deficiencies
exist in controls at certain facilities within the Industrial Segment over
tracking material for transportation and disposal and the monitoring,
oversight, and review of related accrual and revenue
calculations.
|
These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2008 consolidated financial
statements, and this report does not affect our report dated March 30, 2009
on those consolidated financial statements.
In our
opinion, Perma-Fix Environmental Services, Inc. and subsidiaries did not
maintain, in all material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO criteria.
We do not
express an opinion or any other form of assurance on management’s statements
referring to any corrective actions taken by the Company after the date of
management’s assessment.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company
as of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2008, and our report dated March 30, 2009
expressed an unqualified opinion thereon.
/s/ BDO
Seidman, LLP
Atlanta,
Georgia
March 30,
2009
|
|
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
|
DIRECTORS
The
following table sets forth, as of the date hereof, information concerning our
Directors:
|
NAME
|
|
AGE
|
|
POSITION
|
|
Dr.
Louis F. Centofanti
|
|
65
|
|
Chairman
of the Board, President and Chief Executive Officer
|
|
Mr.
Jon Colin
|
|
53
|
|
Director
|
|
Mr.
Robert L. Ferguson
|
|
76
|
|
Director
|
|
Mr.
Jack Lahav
|
|
60
|
|
Director
|
|
Mr.
Joe R. Reeder
|
|
61
|
|
Director
|
|
Mr.
Larry M. Shelton
|
|
55
|
|
Director
|
|
Dr.
Charles E. Young
|
|
77
|
|
Director
|
|
Mr.
Mark A. Zwecker
|
|
58
|
|
Director
|
Each
director is elected to serve until the next annual meeting of
stockholders.
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.
Jon Colin
Mr. Colin
has served as a Director since December 1996. Mr. Colin is currently
President and Chief Executive Officer of LifeStar Response Corporation, a
position he has held since April 2002. Mr. Colin served as Chief
Operating Officer of LifeStar Response Corporation from October 2000 to April
2002, and a consultant for LifeStar Response Corporation from September 1997 to
October 2000. From 1990 to 1996, Mr. Colin served as President and
Chief Executive Officer for Environmental Services of America, Inc., a publicly
traded environmental services company. Mr. Colin is also a Director
at LifeStar Response Corporation, Bamnet Inc, and Environmental Quality
Management, Inc. Mr. Colin has a B.S. in Accounting from the
University of Maryland.
Mr.
Robert L. Ferguson
Mr.
Ferguson has served as a Director since August 2007. Mr. Ferguson was
nominated to serve as a Director and subsequently elected as a board member in
connection with the acquisition by the Company of our PFNWR facility (formerly
Nuvotec and its wholly owned subsidiary, PEcoS) in 2007 (See “Certain
Relationships and Related Party Transactions and Director Independence – Mr.
Robert L. Ferguson”). Mr. Ferguson currently
serves as President of Columbia Nuclear, LLC and as a member of the Board of
Directors of Vivid Learning System, a publicly traded
company. Mr. Ferguson served as Chief Executive Officer and Chairman
of the Board of Directors of Nuvotec and PEcoS from December 1998 until
its
acquisition
by us in June 2007. Mr. Ferguson has over 45 years of
management and technical experience in the government and private
sectors. He served as Chairman of the Board of Technical Resources
International, Inc. from 1995 to 1998, Chairman of the Board for UNC Nuclear
Industries, Inc. from 1983 to 1985, and CEO for Washington Public Power Supply
System from 1980 to 1983. His government experience from 1961 to
1980 includes various roles for the Atomic Energy Commission, the
Energy Research and Development Administration, and the U.S. Department of
Energy, including his last assignment as Deputy Assistant Secretary of
Nuclear Reactor Programs. Mr. Ferguson also served on the Board of
British Nuclear Fuels Inc. He was a founder of Columbia Trust Bank,
where he served as a director prior to its acquisition by
American West Bank. Mr. Ferguson received his B.S. in
Physics from Gonzaga University and attended the US Army Ordnance Guided Missile
School, the Oak Ridge School of Reactor Technology, and the Federal
Executive Institute.
Mr.
Jack Lahav
Jack
Lahav has served as a Director since September 2001. Mr. Lahav is a
private investor, specializing in launching and growing
businesses. Mr. Lahav devotes much of his time to charitable
activities, serving as president, as well as, board member of several
charities. Previously, Mr. Lahav founded Remarkable Products Inc. and
served as its president from 1980 to 1993. Mr. Lahav was also
co-founder of Lamar Signal Processing, Inc., a digital signal processing
company; president of Advanced Technologies, Inc., a robotics company and
director of Vocaltech Communications, Inc. Mr. Lahav served as
Chairman of Quigo Technologies from 2001 to 2004 and currently serves as
Chairman of Phoenix Audio Technologies and Doclix Inc, two privately held
companies.
Honorable
Joe R. Reeder
Mr.
Reeder has served as a Director since April 2003. From April 1999 to
January 2008, he served as Shareholder in Charge of the Mid-Atlantic Region for
Greenberg Traurig LLP, one of the nation's largest law firms,
with 29 offices and over 1750 attorneys, worldwide, where he
continues his practice. His clientele includes sovereign nations,
international corporations, and law firms throughout the U.S. As
the 14th Undersecretary of the U.S. Army (1993-97), Mr.
Reeder also served for three years as Chairman of the Panama Canal
Commission's Board of Directors where he oversaw a multibillion-dollar
infrastructure program. He sits on the Board of Governor’s
of the National Defense Industry Association (NDIA) (and chairs NDIA’s Ethics
Committee), the Armed Services YMCA, the USO, and many other corporate and
charitable organizations, and is a frequent television commentator
on legal and national security issues. A graduate of West
Point who served in the 82d Airborne Division following Ranger School, Mr.
Reeder also has a J.D. from the University of Texas and an L.L.M. from
Georgetown University.
Mr.
Larry M. Shelton
Mr.
Shelton has served as a Director since July 2006. Mr. Shelton is
currently Chief Financial Officer of S K Hart Management, LC, an investment
holding company. He has held this position since 1999. Mr.
Shelton was Chief Financial Officer of Envirocare of Utah, Inc., a waste
management company from 1995 until 1999. Mr. Shelton serves on the
Board of Directors of Subsurface Technologies, Inc., and Pony Express Land
Development, Inc. Mr. Shelton has a B.A. in accounting from the
University of Oklahoma.
Dr.
Charles E. Young
Dr.
Charles E. Young has served as a Director since July 2003. Dr. Young
has assumed the position of Chief Executive Officer of the Los Angeles Museum of
Contemporary Art in January 2009. Dr. Young was president of the
University of Florida, a position he held from November 1999 to January
2004. Dr. Young also served as chancellor of the University of
California at Los Angeles (UCLA) for 29 years until his retirement in
1997. Dr. Young was formerly the chairman of the Association of
American Universities and served on numerous commissions including the American
Council on Education, the National Association of State Universities and
Land-Grant Colleges, and the Business-Higher Education Forum. Dr.
Young serves on the Board of Directors of I-MARK, Inc., a software and
professional services company and AAFL Enterprises, a sports development
Company. He previously served on the Board of Directors of Intel
Corp., Nicholas-Applegate Growth Equity Fund, Inc., Fiberspace, Inc., and
Student Advantage, Inc. Dr. Young
has a
Ph.D. and M.A. in political science from UCLA and a B.A. from the University of
California at Riverside.
Mr.
Mark A. Zwecker
Mark
Zwecker has served as a Director since the Company's inception in January 1991.
Mr. Zwecker assumed the position of Director of Finance in 2006 for
Communications Security and Compliance Technologies, Inc., a software company
developing security products for the mobile workforce, and also serves as an
advisor to Plum Combustion, Inc., an engineering and manufacturing company
developing high performance combustion technology. Mr. Zwecker served
as president of ACI Technology, LLC, from 1997 until 2006, and was vice
president of finance and administration for American Combustion, Inc., from 1986
until 1998. In 1983, Mr. Zwecker participated as a founder with
Dr. Centofanti in the start up of PPM, Inc. He remained with PPM, Inc.
until its acquisition in 1985 by USPCI. Mr. Zwecker has a B.S. in
Industrial and Systems Engineering from the Georgia Institute of Technology and
an M.B.A. from Harvard University.
AUDIT
COMMITTEE
We have a
separately designated standing Audit Committee of our Board of Directors. The
members of the Audit Committee are: Mark A. Zwecker, Jon Colin, and
Larry M. Shelton.
Our Board
of Directors has determined that each of our Audit Committee members is an
“audit committee financial expert” as defined by Item 407(d)(5)(ii) of
Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The Board has further determined that each director, other
than Dr. Centofanti and Mr. Ferguson, is “independent” within the meaning of the
applicable NASDAQ listing standards.
Dr.
Centofanti is not deemed to be an “independent director” because of his
employment as a senior executive of the Company. The Board of
Directors also does not consider Mr. Ferguson to be “independent” because (a) he
served as the Chief Executive Officer and Chairman of the Board of Directors of
Nuvotec and its wholly owned subsidiary Pacific EcoSolutions, Inc. (PEcoS),
(n/k/a Perma-Fix Northwest, Inc. and Perma-Fix Northwest Richland, Inc.,
respectively), our acquired subsidiary in June 2007, (b) as a former shareholder
of Nuvotec who is “accredited” under the rules of Regulation D under the Act,
the Company paid Mr. Ferguson a total of $224,560 cash and issued to
him 192,783 shares of our Common Stock in July 2007, (c) he is entitled to
receive certain contingent consideration under the terms of the acquisition,
which he has not received any consideration as of the date of this report, (d)
Mr. Ferguson guaranteed $4,000,000 of bank debt and a $1,750,000 line
of credit assumed by us in the acquisition, which the $1,750,000 line of credit
was released when we replaced the financial assurance of PEcoS deposited with
the State of Washington with our financial assurance and which the $4,000,000 of
bank debt was paid off by the Perma-Fix in December 2008, and (e) Mr. Ferguson,
as a former shareholder of Nuvotec, is entitled to his proportionate share of a
$2,500,000 note payable by the Company to the former shareholders of
Nuvotec. The foregoing consideration includes the amounts and shares
paid and payable to entities controlled by Mr. Ferguson. See “Certain
Relationships and Related Transactions and Director Independence Mr. Robert L.
Ferguson” for a discussion of certain transactions with Mr.
Ferguson.
CORPORATE
GOVERNANCE AND NOMINATING COMMITTEE
We have a
separately-designated standing Corporate Governance and Nominating Committee
(the “Nominating Committee”). Members of the Nominating Committee
during 2008 were Dr. Charles E. Young (Chairperson), Jack Lahav, Joe Reeder, and
Larry Shelton. All members of the Corporate Governance and Nominating
Committee are “independent” as that term is defined by the current NASDAQ
listing standards.
EXECUTIVE
OFFICERS
See Item
4A – “Executive Officers of the Registrant” in Part I of this report for
information concerning our executive officers, as of the date
hereof.
There are
no family relationships between any of the directors or executive
officers.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act, and the regulations promulgated thereunder require
our executive officers and directors and beneficial owners of more than 10% of
our Common Stock to file reports of ownership and changes of ownership of our
Common Stock with the Securities and Exchange Commission, and to furnish us
with copies of all such reports. Based solely on a review of the
copies of such reports furnished to us and written information provided to us,
we believe that during 2008 none of our executive officers, directors, or
beneficial owners of more than 10% of our Common Stock failed to timely file
reports under Section 16(a).
Capital
Bank–Grawe Gruppe AG (“Capital Bank”) has advised us that it is a banking
institution regulated by the banking regulations of Austria, which holds shares
of our Common Stock as agent on behalf of numerous investors. Capital
Bank has represented that all of its investors are accredited investors under
Rule 501 of Regulation D promulgated under the Act. In addition,
Capital Bank has advised us that none of its investors, individually or as a
group, beneficially own more than 4.9% of our Common Stock. Capital
Bank has further informed us that its clients (and not Capital Bank) maintain
full voting and dispositive power over such shares. Consequently,
Capital Bank has advised us that it believes it is not the beneficial owner, as
such term is defined in Rule 13d-3 of the Exchange Act, of the shares of our
Common Stock registered in the name of Capital Bank because it has neither
voting nor investment power, as such terms are defined in Rule 13d-3, over such
shares. Capital Bank has informed us that it does not believe that it
is required (a) to file, and has not filed, reports under Section 16(a) of the
Exchange Act or (b) to file either Schedule 13D or Schedule 13G in connection
with the shares of our Common Stock registered in the name of Capital
Bank.
If the
representations, or information provided, by Capital Bank are incorrect or
Capital Bank was historically acting on behalf of its investors as a group,
rather than on behalf of each investor independent of other investors, then
Capital Bank and/or the investor group would have become a beneficial owner of
more than 10% of our Common Stock on February 9, 1996, as a result of the
acquisition of 1,100 shares of our Preferred Stock that were convertible into a
maximum of 1,282,798 shares of our Common Stock. If either Capital
Bank or a group of Capital Bank’s investors became a beneficial owner of more
than 10% of our Common Stock on February 9, 1996, or at any time thereafter, and
thereby required to file reports under Section 16(a) of the Exchange Act, then
Capital Bank has failed to file a Form 3 or any Forms 4 or 5 since February 9,
1996. (See “Item 12 - Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matter – Security Ownership of Certain
Beneficial Owners” for a discussion of Capital Bank’s current record ownership
of our securities).
Code
of Ethics
Our Code
of Ethics applies to all our executive officers and is available on our website
at www.perma-fix.com. If
any amendments are made to the Code of Ethics or any grants of waivers are made
to any provision of the Code of Ethics to any of our executive officers, we will
promptly disclose the amendment or waiver and nature of such amendment of waiver
on our website.
Compensation
Discussion and Analysis
Our
long-term success depends on our ability to efficiently operate our facilities,
evaluate strategic acquisitions within our Nuclear Segment, and to continue to
research and develop innovative technologies in the treatment of nuclear waste,
mixed waste and industrial waste. To achieve these goals, it is
important
that we
be able to attract, motivate, and retain highly talented individuals who are
committed to our values and goals.
The
Compensation and Stock Option Committee (for purposes of this analysis, the
“Committee”) of
the Board has responsibility for establishing, implementing and continually
monitoring adherence with our compensation philosophy. The Committee
ensures that the total compensation paid to the named executive officers is
fair, reasonable and competitive. Generally, the types of compensation and
benefits provided to members of the named executive officers are similar to
those provided to other executive officers at similar sized companies and
industries.
Compensation
Philosophy and Objectives
The
Committee bases its executive compensation program on our performance
objectives. The Committee evaluates both executive performance and
compensation to ensure that we maintain our ability to attract superior
employees in key positions and to remain competitive relative to the
compensation paid to similarly situated executives of our peer companies.
The Committee believes executive compensation packages provided to
our executives, including the named executive officers, should include
both cash and equity-based compensation that provide rewards for
performance. The Committee bases it executive compensation program on
the following philosophy:
|
|
·
|
Compensation
should be based on the level of job responsibility, executive performance,
and company performance.
|
|
|
·
|
Executive
officers’ pay should be more closely linked to company performance than
that of other employees because the executive officers have a greater
ability to affect our results.
|
|
|
·
|
Compensation
should be competitive with compensation offered by other companies that
compete with us for talented
individuals.
|
|
|
·
|
Compensation
should reward performance.
|
|
|
·
|
Compensation
should motivate executives to achieve our strategic and operational
goals.
|
Role
of Executive Officers in Compensation Decisions
The
Committee makes all compensation decisions for the named executive officers
and equity awards to all of our officers. Decisions regarding the
non-equity compensation of other officers are made by the Chief Executive
Officer.
The Chief
Executive Officer annually reviews the performance of each of the named
executive officers (other than the Chief Executive Officer whose
performance is reviewed by the Committee). Based on such reviews, the
Chief Executive Officer presents a recommendation to the Committee, which may
include salary adjustments, bonus and equity based awards, and annual
award. The Committee considers such recommendation in light of
the compensation philosophy and objectives described above and the process
described below. Based on its analysis, the Committee exercises its
discretion in accepting or modifying all such recommendations. The Chief
Executive Officer is not present during the voting or deliberations of the
Committee with respect to the Chief Executive Officer’s
compensation.
The
Committee’s Processes
The
Compensation Committee has established certain processes designed to achieve our
executive compensation objectives. These processes include the
following:
|
|
·
|
Company Performance
Assessment. The Committee assesses our performance in
order to establish compensation ranges and, as described below, to
establish specific performance measures that determine incentive
compensation under the Company’s Executive Management Incentive
Plan.
|
|
|
For
this purpose, the Committee considers numerous measures of performance of
both us and industries with which we
compete.
|
|
|
·
|
Individual Performance
Assessment. Because
the Committee believes that an individual’s performance should effect an
individual’s compensation, the Committee evaluates each named executive
officer’s performance. With respect to the named executive
officers, other than the Chief Executive Officer, the Committee considers
the recommendations of the Chief Executive Officer. With
respect to all named executive officers, the Committee exercises its
judgment based on its interactions with the executive officer, such
officer’s contribution to our performance and other leadership
achievements.
|
|
|
·
|
Peer Group
Assessment. The Committee benchmarks our compensation
program with a group of companies against which the Committee believes we
compete for talented individuals (the “Peer Group”). The
composition of the Peer Group is periodically reviewed and updated by the
Committee. The companies currently comprising the Peer Group
are Clean Harbors, Inc., American Ecology Corporation, and
EnergySolutions, Inc., each of which is a waste disposal/management
company. The Committee considers the Peer Group’s executive
compensation programs as a whole and the compensation of individual
officers in the Peer Group, if job responsibilities are meaningfully
similar. The Committee also considers individual factors such
as experience level of the individual and market
conditions. The Committee believes that the Peer Group
comparison helps insure that our executive compensation program is
competitive with other companies in the
industry.
|
2008
Executive Compensation Components
For the
fiscal year ended December 31, 2008, the principal components of
compensation for executive officers were:
|
|
·
|
performance-based
incentive compensation;
|
|
|
·
|
long
term incentive compensation;
|
|
|
·
|
retirement
and other benefits; and
|
|
|
·
|
perquisites
and other personal benefits.
|
Based on
the Summary Compensation Table on page 121, salary accounted for approximately
73.3% of the total compensation of the executive officers while non-equity
incentive, option award, and other compensation accounted for approximately
26.7% of the total compensation of the executive officers.
Base
Salary
The named
executive officers, other officers, and other employees of the Company receive a
base salary during the fiscal year. Base salary ranges for executive
officers are determined for each executive based on his or her position and
responsibility by using market data and comparisons to the Peer
Group.
During
its review of base salaries for executives, the Committee primarily
considers:
|
|
·
|
market
data and Peer Group comparisons;
|
|
|
·
|
internal
review of the executive’s compensation, both individually and relative to
other officers; and
|
|
|
·
|
individual
performance of the executive.
|
Salary
levels are typically considered annually as part of the performance review
process as well as upon a promotion or other change in job responsibility.
Merit based salary increases for executives are based on the
Committee’s assessment of the individual’s performance.
Performance-Based
Incentive Compensation
The
Committee has the latitude to design cash and equity-based incentive
compensation programs to promote high performance and achievement of our
corporate objectives by Directors and the named executives, encourage the
growth of stockholder value and enable employees to participate in our long-term
growth and profitability. The Committee may grant stock options and/or
performance bonuses. In granting these awards, the Committee may establish
any conditions or restrictions it deems appropriate. In addition, the Chief
Executive Officer has discretionary authority to grant stock options to certain
high-performing executives.
All
awards of stock options are made at or above the market price at the time of the
award. Stock options may be awarded to newly hired or promoted
executives at the discretion of the Committee, following the hiring or
promotion. Grants of stock options to newly hired executive officers
who are eligible to receive them are made at the next regularly scheduled
Committee meeting following their hire date.
Executive
Management Incentive Plan
The
Company maintains an Executive Management Incentive Plan (the “MIP”), which is an
annual cash incentive program. The MIP provides guidelines for the
calculation of annual cash incentive based compensation, subject to Committee
oversight and modification. In 2008, the Committee approved individual MIP
plan for our Chief Executive Officer, Chief Financial Officer, and Chief
Operating Officer. Each MIP provided cash compensation based on
achievement of performance thresholds, with the amount of such compensation
established as a percentage of based salary. The potential target
performance compensation ranges from 25% to 44% of the 2008 base salary for the
Chief Financial Officer and 50% to 87% of the base salary for both the Chief
Operating Officer and Chief Executive Officer.
The performance compensation is based
upon achievement of corporate financial, safety, and environmental compliance
objectives during fiscal year 2008. Of the total potential
performance compensation, 55% is based on net income goals, 15% is based on
revenue goals, 15% is based on the number of health and safety claim incidents
that occur during fiscal year 2008, and the remaining 15% is based on the number
of permit or license violations that occur during the fiscal
year. The revenue and
net income components are based on our financial performance as compared to
our Board approved
2008 budget.
Performance
compensation earned under each MIP by the Chief Executive Officer, Chief
Operating Officer, and Chief Financial Officer are reduced by 15% if
unbilled trade receivable balances older than December 31, 2006 is not reduced
by $3,000,000 or more from the unbilled balance as of December 31, 2007 to
December 31, 2008. The minimum performance compensation becomes
payable upon achieving between 85% to 100% of corporate performance objectives,
with the maximum performance compensation becoming payable upon achieving
161% of such objectives. Generally, the Committee sets the revenue
and net income components of the performance compensation objectives using our
annually approved budget for the upcoming fiscal year. In making the
annual determination of the minimum and maximum performance levels, the
Committee may consider the specific circumstances facing the Company during the
coming year. The Committee generally sets the minimum and maximum
levels such that the relative difficulty of achieving these levels is consistent
from year to year. In 2006, each named executive officer achieved above
the minimum performance compensation level but below the maximum performance
compensation level. None of the named executive officers
met the minumum performance compensation level in 2007 or
2008.
The
annual MIP compensation is calculated and prepaid on a quarterly
basis. The following table sets forth the MIP compensation earned in
fiscal year 2008 under the MIP:
|
|
|
MIP
|
|
|
MIP
|
|
|
MIP
|
|
|
MIP
|
|
|
|
|
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Compensation
|
|
|
|
|
|
Name
|
|
1st
Qtr 2008
|
|
|
2nd
Qtr 2008
|
|
|
3rd
Qtr 2008
|
|
|
4th
Qtr 2008
|
|
|
Total
|
|
|
Dr.
Louis Centofanti
|
|
$ |
22,359 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
22,359 |
|
|
Larry
McNamara
|
|
$ |
19,874 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,874 |
|
|
Steven T. Baughman (1)
|
|
$ |
9,937 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,937 |
|
(1) Resigned
as Chief Financial Officer, effective October 31, 2008.
If at the
conclusion of any calendar quarter, the MIP compensation prepayment due to the
Chief Executive Officer, Chief Operating Officer, or Chief Financial Officer is
less than the amount prepaid in the previous quarters during 2008 to such
individual and the overpayment exceeds $25,000, the MIP participant will
reimburse the Company for the amount of the overpayment through payroll
deductions in accordance with the Company’s normal payroll
practices. Because the overpayment in 2008 was less than $25,000, the
overpayment was retained by the executive in accordance with the terms of the
MIP.
If the
MIP participant’s employment with the Company is voluntarily or involuntarily
terminated prior to a regularly scheduled MIP compensation payment period, no
MIP payment will be payable for and after such period. The Committee
retains the right to modify, change or terminate each MIP at any time and for
any reason.
Long-Term
Incentive Compensation
Employee
Stock Option Plan
The 2004
Stock Option Plan (the “2004 Option Plan”) encourages participants to focus on
long-term performance and provides an opportunity for executive officers and
certain designated key employees to increase their stake in us. Stock options
succeed by delivering value to the executive only when the value of our
stock increases. The Option Plan authorizes the grant of
non-qualified stock options and incentive stock options for the purchase of
Common Stock.
The
Option Plan assists the Company to:
|
|
·
|
enhance
the link between the creation of stockholder value and long-term executive
incentive compensation;
|
|
|
·
|
provide
an opportunity for increased equity ownership by executives;
and
|
|
|
·
|
maintain
competitive levels of total
compensation.
|
Stock
option award levels are determined based on market data, vary among participants
based on their positions with us and are granted generally at the Committee’s
regularly scheduled August meeting. Newly hired or promoted executive
officers who are eligible to receive options are generally awarded such options
at the next regularly scheduled Committee meeting following their hire or
promotion date.
Options
are awarded with an exercise price equal to or not less than the closing price
of the Company’s Common Stock on the date of the grant as reported on the
NASDAQ. In certain limited circumstances, the Committee may grant options
to an executive at an exercise price in excess of the closing price of the
Company’s Common Stock on the grant date. The Committee will not
grant options with an exercise price that is less than the closing price of the
Company’s Common Stock on the grant date.
On August
5, 2008, the Committee, with the approval of our Board of Directors authorized
the grant of incentive stock options (“ISO”) to certain
executive officers, officers and employees of the Company which allows for the
purchase of up to 918,000 shares of Common Stock under the Company’s 2004 Stock
Option Plan (see “Grant of Plan-Based Award” for options granted to our named
executive officers from the August 5, 2008 grant). The options have a
six year term with a staggered vesting period of three years at 33.3% increment
per year. No options were granted to any named executives in 2007 due
to timing
constraints
resulting from our acquisition of PFNWR and divestiture efforts of our
Industrial Segment facilities. The stock options granted prior to
2006 generally have a ten year term with annual vesting of 20% over a five year
period. In anticipation of the adoption of SFAS 123R, on July 28,
2005, the Committee accelerated the vesting of all then outstanding and unvested
options. The options granted in 2006 by the Committee are for a six
year term with vesting period of three years at 33.3% increment per
year. Vesting ceases upon termination of employment and exercise
right of the vested option amount ceases upon three months from termination of
employment except in the case of death or retirement (subject to a six month
limitation), or disability (subject to a one year limitation). Prior
to the exercise of an option, the holder has no rights as a stockholder with
respect to the shares subject to such option.
In the
event of a change of control (as defined in the “1993 Non-Qualified Stock Option
Plan” and “2004 Stock Option Plan”) of the Company, each outstanding option and
award granted under the plans shall immediately become exercisable in full
notwithstanding the vesting or exercise provisions contained in the stock option
agreement.
The
August 5, 2008, ISO grant as mentioned above, included 150,000, 150,000, 40,000
and 90,000 options made to our Chief Executive Officer, Chief Operating Officer,
Interim Chief Financial Officer (who was named as our Chief Financial Officer by
our Board of Director on February 26, 2009), and previous Chief Financial
Officer, respectively. The 90,000 ISO grant to our previous Chief
Financial Officer was forfeited upon his resignation, effective October 31,
2008.
Accounting
for Stock-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
statement of operations based on their fair values.
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 and directors prior
to the effective date of SFAS 123R that remain unvested on the
effective date.
Prior to
our adoption of SFAS 123R, on July 28, 2005, the Compensation and Stock
Option Committee of the Board of Directors approved the acceleration of vesting
for all the outstanding and unvested options to purchase Common Stock awarded to
employees as of the approval date. The Board of Directors approved
the accelerated vesting of these options based on the belief that it was in the
best interest of our stockholders to reduce future compensation expense that
would otherwise be required in the statement of operations upon adoption of SFAS
123R, effective beginning January 1, 2006. See impact of FASB
Statement 123(R) on our operating results in “Note 3 – Stock Based Compensation”
to “Notes to Consolidated Financial Statements”.
Retirement
and Other Benefits
401(k)
Plan
We
adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan (the “401(k)
Plan”) in 1992, which is intended to comply with Section 401 of the Internal
Revenue Code and the provisions of the Employee Retirement Income Security Act
of 1974. All full-time employees who have attained the age of 18 are
eligible to participate in the 401(k) Plan. Eligibility is immediate
upon employment but enrollment is only allowed during two yearly open periods of
January 1 and July 1. Participating employees may make
annual
pretax
contributions to their accounts up to 100% of their compensation, up to a
maximum amount as limited by law. We, at our discretion, may make
matching contributions based on the employee’s elective
contributions. Company contributions vest over a period of five
years. We matched 25% of our employees’ contributions in
2008. We contributed $401,000 in matching funds during 2008, with
approximately $20,625 for our named executive officers during
2008. Effective March 1, 2009, the Company suspended its matching
contribution in an effort to reduce costs in light of the recent economic
environment. The Company will evaluate the reversal of this
suspension as the economic environment improves (See the Summary Compensation
Table on page 121 for information about our contributions to the named executive
officers).
Perquisites
and Other Personal Benefits
The
Company provides executive officers with limited perquisites and other personal
benefits that the Company and the Committee believe are reasonable and
consistent with its overall compensation program to better enable the Company to
attract and retain superior employees for key positions. The Committee
periodically reviews the levels of perquisites and other personal benefits
provided to executive officers. The executive officers are provided an auto
allowance.
Proposed
Employment Agreements
On March
1, 2007, the Board of Directors authorized us to enter into employment
agreements with our named executives, subject to finalization of certain of its
material terms, including, but not limited to, the formula for paying year-end
incentive bonuses. As of the date of this report, the terms of the
employment agreements have not been finalized, and none of our named executives
has entered into any employment agreement with us. However, we
anticipate that employment agreements will be finalized during the second
quarter of 2009 for each of our Chief Executive Officer, Chief Financial
Officer, and Chief Operating Officer, subject to the review of our Audit
Committee and approval of the Board of Directors.
It is
anticipated that such proposed employment agreements, if completed, would be
effective for three years, unless earlier terminated by us with or without cause
or by the executive officer for “good reason” or any other reason. If
the executive officer’s employment is terminated due to death, disability or for
cause, it is anticipated that we would pay to the executive officer or to his
estate a lump sum equal to the sum of any unpaid base salary through the date of
termination and any benefits due to the executive officer under any
employee benefit plan, excluding any severance program or policy (the “Accrued
Amounts”).
If the
executive officer terminates his employment for good reason or is terminated
without cause, it is anticipated that the employment agreements will provide
that we would be required to pay the executive officer a sum equal to the total
Accrued Amounts and one year of full base salary. If the executive
terminates his employment for a reason other than for good reason, it is
anticipated that the Company would pay to the executive the amount equal to the
Accrued Amounts. The employment agreements would provide, when
finalized, that if there is a Change in Control (to be defined in the
agreements), that all outstanding stock options to purchase common stock held by
the executive officer will immediately become exercisable in full.
Compensation
Committee Report
The
Committee of the Company has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and,
based on such review and discussions, the Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this Form
10-K.
THE
COMPENSATION AND STOCK OPTION COMMITTEE
Jack
Lahav, Chairman
Jon
Colin
Joe
Reeder
Dr.
Charles E. Young
Summary
Compensation Table
The following table summarizes the total compensation paid
or earned by each of the executive officers for the fiscal years ended December 31, 2008, 2007, and 2006. Currently, we do not h
ave any employment agreements with any of the
named executive officers, but see the discussion under
“Compensation and
Discussion Analysis – Proposed Employment
Agreements”.
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
All
other Compensation
|
|
|
Total
Compensation
|
|
|
|
|
|
|
($)
|
|
|
($)
(3)
|
|
|
($)
(4)
|
|
|
($)
(5)
|
|
|
($)
(7)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Louis Centofanti
|
|
2008
|
|
|
251,410 |
|
|
|
¾ |
|
|
|
52,556 |
|
|
|
22,359
|
(6) |
|
|
12,875 |
|
|
|
339,200 |
|
|
Chairman
of the Board,
|
|
2007
|
|
|
241,560 |
|
|
|
¾ |
|
|
|
28,918 |
|
|
|
17,550 |
|
|
|
12,875 |
|
|
|
300,903 |
|
|
President
and Chief
|
|
2006
|
|
|
232,269 |
|
|
|
¾ |
|
|
|
24,098 |
|
|
|
143,324 |
|
|
|
13,601 |
|
|
|
413,292 |
|
|
Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben
Naccarato (¹)
|
|
2008
|
|
|
176,136 |
|
|
|
¾ |
|
|
|
7,749 |
|
|
|
¾ |
|
|
|
3,875 |
|
|
|
187,760 |
|
|
Vice
President and Chief
|
|
2007
|
|
|
166,610 |
|
|
|
25,000 |
|
|
|
1,446 |
|
|
|
¾ |
|
|
|
3,125 |
|
|
|
196,181 |
|
|
Financial
Officer
|
|
2006
|
|
|
150,192 |
|
|
|
13,315 |
|
|
|
1,205 |
|
|
|
¾ |
|
|
|
9,277 |
|
|
|
173,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Baughman (2)
|
|
2008
|
|
|
196,573 |
|
|
|
¾ |
|
|
|
10,811 |
|
|
|
9,937
|
(6) |
|
|
11,375 |
|
|
|
228,697 |
|
|
Vice
President and Chief
|
|
2007
|
|
|
205,200 |
|
|
|
¾ |
|
|
|
29,230 |
|
|
|
7,800 |
|
|
|
12,875 |
|
|
|
255,105 |
|
|
Financial
Officer
|
|
2006
|
|
|
123,077 |
|
|
|
¾ |
|
|
|
18,419 |
|
|
|
63,709 |
|
|
|
9,000 |
|
|
|
214,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry
McNamara
|
|
2008
|
|
|
214,720 |
|
|
|
¾ |
|
|
|
95,933 |
|
|
|
19,874
|
(6) |
|
|
12,875 |
|
|
|
343,403 |
|
|
Chief
Operating Officer
|
|
2007
|
|
|
206,769 |
|
|
|
¾ |
|
|
|
72,295 |
|
|
|
15,000 |
|
|
|
12,875 |
|
|
|
306,939 |
|
|
|
|
2006
|
|
|
193,558 |
|
|
|
¾ |
|
|
|
60,246 |
|
|
|
122,500 |
|
|
|
12,750 |
|
|
|
389,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Schreiber, Jr.
|
|
2008
|
|
|
184,588 |
|
|
|
88,386
|
(8) |
|
|
11,169 |
|
|
|
¾ |
|
|
|
12,676 |
|
|
|
296,819 |
|
|
President
of SYA
|
|
2007
|
|
|
197,000 |
|
|
|
35,204 |
|
|
|
7,230 |
|
|
|
¾ |
|
|
|
18,114 |
|
|
|
257,548 |
|
|
|
|
2006
|
|
|
158,292 |
|
|
|
5,915 |
|
|
|
6,025 |
|
|
|
¾ |
|
|
|
14,502 |
|
|
|
184,734 |
|
|
(1)
|
Named
as Chief Financial Officer and Secretary of the Board of Directors by the
Company’s Board of Directors on February 26, 2009. Mr.
Naccarato was named as Interim Chief Financial Officer and Secretary of
the Board of Directors effective November 1, 2008 by the Company’s Board
of Directors on October 24, 2008.
|
|
(2)
|
Resigned
as Chief Financial Officer, Vice President, and Secretary of the Board of
Director effective October 31,
2008.
|
|
(3)
|
No
bonus was paid to a named executive officer, except as part of a
non-equity incentive plan.
|
|
(4)
|
This
amount reflects the expense to the Company for financial statement
reporting purposes for the fiscal year indicated, in accordance with FAS
123(R) of options granted under the 2004 Option Plan. There was
no expense for options granted prior to 2006, which were fully vested
prior to 2006, and are not included in these
amounts. Assumptions used in the calculation of this amount are
included in “Note 3 – Share Based Compensation” to “Notes to Consolidated
Financial Statement”. No options were granted to any named
executives in 2007.
|
|
(5)
|
Represents
performance compensation earned under the Company’s MIP. The
MIP is described under the heading “Executive Management Incentive Plan”
in this section.
|
|
(6)
|
Represents
2008 performance compensation earned in 2008 under the Company’s
MIP.
|
|
(7)
|
The
amount shown includes a monthly automobile allowance of $750 or the use of
a company car, and where applicable, our 401(k) matching
contribution.
|
|
|
|
|
|
|
Auto
Allowance or
|
|
|
|
|
|
Name
|
|
401(k)
match
|
|
|
Company
Car
|
|
|
Total
|
|
|
Dr.
Louis Centofanti
|
|
$ |
3,875 |
|
|
$ |
9,000 |
|
|
$ |
12,875 |
|
|
Ben
Naccarato
|
|
$ |
3,875 |
|
|
$ |
— |
|
|
$ |
3,875 |
|
|
Steven
Baughman
|
|
$ |
3,875 |
|
|
$ |
7,500 |
|
|
$ |
11,375 |
|
|
Larry
McNamara
|
|
$ |
3,875 |
|
|
$ |
9,000 |
|
|
$ |
12,875 |
|
|
Robert
Schreiber, Jr.
|
|
$ |
5,125 |
|
|
$ |
7,551 |
|
|
$ |
12,676 |
|
|
(8)
|
Amount
includes $87,886 in bonus earned for 2008, which we anticipate paying by
the second quarter of 2009.
|
The
compensation plan under which the awards in the following table were made are
generally described in the Compensation Discussion and Analysis beginning on
page 114 and include the Company’s MIP, which is a non-equity
incentive plan, and the Company’s 2004 Stock Option Plan, which provides for
grant of stock options to our employees.
Grant of Plan-Based Awards
Table
| |
|
|
|
|
Estimated
Future Payouts Under Non-Equity Incentive Plan
Awards
|
|
|
|
|
|
|
|
|
|
|
| Name |
|
Grant
Date
|
|
|
Threshold
$
|
|
|
Target
$
(1)
|
|
|
Maximum
$
(1)
|
|
|
All
other Option Awards: Number of Securities Underlying
Options (#)
|
|
|
Exercise
or Base Price of Option Awards ($/Sh)
|
|
|
Grant
Date Fair Value of Option Awards ($)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Louis Centofanti
|
|
8/5/2008
|
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
150,000 |
|
|
|
2.28 |
|
|
|
175,500 |
|
|
|
|
|
N/A
|
|
|
|
¾ |
|
|
|
126,547 |
|
|
|
221,455 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben
Naccarato
|
|
8/5/2008
|
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
40,000 |
|
|
|
2.28 |
|
|
|
46,800 |
|
|
|
|
|
N/A
|
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Baughman
|
|
8/5/2008
|
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
90,000
|
(2) |
|
|
2.28 |
|
|
|
105,300 |
|
|
|
|
|
N/A
|
|
|
|
¾ |
|
|
|
54,080 |
|
|
|
94,639 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry
McNamara
|
|
8/5/2008
|
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
150,000 |
|
|
|
2.28 |
|
|
|
175,500 |
|
|
|
|
|
N/A
|
|
|
|
¾ |
|
|
|
108,160 |
|
|
|
189,278 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Schreiber, Jr.
|
|
8/5/2008
|
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
25,000 |
|
|
|
2.28 |
|
|
|
29,250 |
|
|
|
|
|
N/A
|
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
(1)
|
The
amounts shown in column titled “Target” reflects the minimum payment
level under the Company’s Executive Management Incentive Plan which
is paid with the achievement of 85% to 100% of the target amount. The
amount shown in column titled “Maximum” reflects the maximum payment level
of reaching 161% of the target amount. These amounts are based on the
individual’s current salary and
position.
|
|
|
(2)
|
Resigned
as Chief Financial Officer effective October 31, 2008. The
options granted were forfeited by Mr. Baughman upon his
resignation.
|
|
|
(3)
|
Calculated
using the fair value of $1.17 per share as determined on the date of grant
in accordance with FAS 123(R) times the number of options
granted.
|
Outstanding
Equity Awards at Fiscal Year
The
following table sets forth unexercised options held by the named executive
officers as of the fiscal year-end.
Outstanding Equity Awards at
December 31, 2008
|
|
|
Option
Awards
|
|
Name
|
|
Number
of Securities underlying Unexercised
Options (#) Exercisable
|
|
|
Number
of Securities underlying Unexercised Options (#) (1)
Unexercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
|
|
Option
Exercise
Price ($)
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Louis Centofanti
|
|
|
70,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1.25 |
|
4/10/2010
|
|
|
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1.75 |
|
4/3/2011
|
|
|
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2.19 |
|
2/27/2013
|
|
|
|
|
66,667 |
|
|
|
33,333 |
(2) |
|
|
— |
|
|
|
1.86 |
|
3/2/2012
|
|
|
|
|
— |
|
|
|
150,000 |
(3) |
|
|
— |
|
|
|
2.28 |
|
8/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben
Naccarato
|
|
|
20,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1.44 |
|
10/28/2014
|
|
|
|
|
3,333 |
|
|
|
1,667 |
(2) |
|
|
— |
|
|
|
1.86 |
|
3/2/2012
|
|
|
|
|
— |
|
|
|
40,000 |
(3) |
|
|
— |
|
|
|
2.28 |
|
8/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry
McNamara
|
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1.25 |
|
4/10/2010
|
|
|
|
|
120,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1.75 |
|
4/3/2011
|
|
|
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2.19 |
|
2/27/2013
|
|
|
|
|
166,667 |
|
|
|
83,333 |
(2) |
|
|
— |
|
|
|
1.86 |
|
3/2/2012
|
|
|
|
|
— |
|
|
|
150,000 |
(3) |
|
|
— |
|
|
|
2.28 |
|
8/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Schreiber, Jr.
|
|
|
15,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1.25 |
|
4/10/2010
|
|
|
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1.75 |
|
4/3/2011
|
|
|
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2.19 |
|
2/27/2013
|
|
|
|
|
16,667 |
|
|
|
8,333 |
(2) |
|
|
— |
|
|
|
1.86 |
|
3/2/2012
|
|
|
|
|
— |
|
|
|
25,000 |
(3) |
|
|
— |
|
|
|
2.28 |
|
8/5/2014
|
|
(1)
|
In
the event of a change in control (as defined in the Option Plan) of the
Company, each outstanding option and award shall immediately become
exercisable in full notwithstanding the vesting or exercise provisions
contained in the stock option
agreement.
|
|
(2)
|
Incentive
stock option granted on March 2, 2006 under the Company’s Option
Plan. The option is for a six year term and vests over a three
year period at one third increments per
year.
|
|
(3)
|
Incentive
stock option granted on August 5, 2008 under the Company’s Option
Plan. The option is for a six year term and vests over a three
year period, at one third increments per
year.
|
The
following table sets forth the number of options exercised by the named
executive officers in 2008:
Option Exercises and Stock
Vested Table
|
|
|
Option
Awards
|
|
|
|
|
|
Name
|
|
Number
of Shares
Acquired
on
Exercises (#)
|
|
|
Value
Realized On
Exercise ($)
(1)
|
|
|
|
|
|
|
|
|
|
|
Dr.
Louis F. Centofanti
|
|
|
5,000 |
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Baughman (2)
|
|
|
33,334 |
|
|
|
19,667 |
|
|
|
|
|
|
|
|
|
|
|
|
Larry
Mcnamara
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Schreiber, Jr.
|
|
|
15,000 |
|
|
|
17,550 |
|
|
(1)
|
Based on the difference between
the closing price of our Common Stock reported on the National Association
of Securities Dealers Automated Quotation (‘NASDAQ”) Capital Market on the
exercise date and the exercise price of the
option.
|
|
(2)
|
Resigned as Chief Financial
Officer effective October 31,
2008.
|
Compensation
of Directors
Directors
who are employees receive no additional compensation for serving on the Board of
Directors or its committees. In 2008, we provided the following
annual compensation to directors who are not employees:
|
|
·
|
on
the date of our 2008 Annual Meeting, each of our continuing non-employee
directors was awarded options to purchase 12,000 shares of our Common
Stock. The grant date fair value of each option award
received by our non-employee directors was $1.79 per share, based on the
date of grant, pursuant to SFAS
123R;
|
|
|
·
|
a
monthly director fee of $1,750, with the Audit Committee Chairman
receiving an additional monthly fee of $2,250, of which the director may
elect to have 65% or 100% payable in Common Stock under the 2003 Outside
Director Plan, with the remaining payable in cash. Effective
October 1, 2008, we increased the monthly director fee to $2,167, with the
Audit Committee Chairman receiving an additional monthly fee of $1,833;
and
|
|
|
·
|
a
fee of $1,000 for each board meeting attendance and a $500 fee for each
telephonic conference call attendance, of which the the director may elect
to have 65% or 100% payable in Common Stock under the 2003 Outside
Director Plan, with the remaining payable in
cash.
|
The table
below summarizes the director compensation expenses recognized by the Company
for the director option and stock (resulting from fees earned)
awards. The terms of the 2003 Outside Directors Plan are further
described below under “2003 Outside Directors Plan”.
Director Compensation
Table
|
Name
|
|
Fees
Earned
or
Paid In
Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
|
|
All
Other Compensation
|
|
|
Total
|
|
|
|
|
($)
(1)
|
|
|
($)
(2)
|
|
|
($)
(3)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Zwecker
|
|
|
18,725 |
|
|
|
46,364 |
|
|
|
17,142 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
82,231 |
|
|
Jon
Colin
|
|
|
— |
|
|
|
37,666 |
|
|
|
17,142 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
54,808 |
|
|
Robert
L. Ferguson
|
|
|
9,188 |
|
|
|
22,749 |
|
|
|
17,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,079 |
|
|
Jack
Lahav
|
|
|
— |
|
|
|
36,332 |
|
|
|
17,142 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53,474 |
|
|
Joe
R. Reeder
|
|
|
— |
|
|
|
35,667 |
|
|
|
17,142 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,809 |
|
|
Charles
E. Young
|
|
|
9,538 |
|
|
|
23,617 |
|
|
|
17,142 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,297 |
|
|
Larry
M. Shelton
|
|
|
9,888 |
|
|
|
24,483 |
|
|
|
17,142 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51,513 |
|
|
(1)
|
Under
the 2003 Outside Directors Plan, each director elects to receive 65% or
100% of the director’s fees in shares of our Common Stock. The
amounts set forth below represent the portion of the director’s fees paid
in cash and excludes the value of the director’s fee elected to be paid in
Common Stock under the 2003 Outside Director Plan, which value is included
under “Stock Awards”.
|
|
(2)
|
The
number of shares of Common Stock comprising stock awards granted under the
2003 Outside Directors Plan is calculated based on 75% of the closing
market value of the Common Stock as reported on the NASDAQ on the business
day immediately preceding the date that the quarterly fee is
due. Such shares are fully vested on the date of
grant. The value of the stock award is based on the market
value of our Common Stock at each quarter end times the number of shares
as determined in the manner noted.
|
|
(3)
|
Options
granted under the Company’s 2003 Outside Director Plan resulting from
reelection of the Board of Directors on August 5, 2008. Options
are for a 10 year period with an exercise price of $2.34 per share and are
fully vested in six months from grant date. The value of the
option award is calculated based on the fair value of the option per share
($1.79) on the date of grant pursuant to SFAS 123R. Total
option expense for the award is approximately $150,000. In
2008, the option expense recognized for financial statement purposes
totaled approximately $119,994. The remaining $30,006 option
expense will be recognized by February 2008, upon vesting of the stock
option, pursuant to SFAS 123R. See “Note 3” of “Notes to
Consolidated Financial Statements”.
|
2003
Outside Directors Plan
We
believe that it is important for our directors to have a personal interest in
our success and growth and for their interests to be aligned with those of our
stockholders. Therefore, under our 2003 Outside Directors Stock Plan
(“2003 Directors Plan”), each outside director is granted a 10 year option to
purchase up to 30,000 shares of Common Stock on the date such director is
initially elected to the Board of Directors, and receives on each reelection
date an option to purchase up to another 12,000 shares of Common Stock, with the
exercise price being the fair market value of the Common Stock preceding the
option grant date. No option granted under the 2003 Directors Plan is
exercisable until after the expiration of six months from the date the option is
granted and no option shall be exercisable after the expiration of ten years
from the date the option is granted. Options to purchase 510,000
shares of Common Stock have been granted and are outstanding under the 2003
Directors Plan.
In 2008,
we increased our monthly payment of fees to our outside directors from $1,750 to
$2,167, effective October 1, 2008. The monthly additional
compensation for our Audit Committee Chairman was reduced from $2,250 to $1,833
to better align the compensation to the position
responsibilities. The Company periodically reviews compensation paid
to its outside directors against compensation paid by its Peer Group (see
Companies comprising the Peer Group in “Item 11 – Executive Compensation – The
Committee’s Process – Peer Group Assessment”) to its outside directors to insure
that our outside directors are adequately compensated. Each board member
continues to be paid $1,000 for each board meeting attendance as well as $500
for each telephonic conference call. As a member of the Board of
Directors, each director elects to receive either 65% or 100% of the director's
fee in shares of our Common Stock based on 75% of the fair market value of the
Common Stock determined on the business day immediately
preceding
the date that the quarterly fee is due. The balance of each
director’s fee, if any, is payable in cash. In 2008, the fees earned
by our outside directors totaled $274,000. Reimbursements of expenses
for attending meetings of the Board are paid in cash at the time of the
applicable Board meeting. Although Dr. Centofanti is not compensated
for his services provided as a director, Dr. Centofanti is compensated for his
services rendered as an officer of the Company. See “EXECUTIVE
COMPENSATION — Summary Compensation Table.”
As of the
date of this report, we have issued 581,889 shares of our Common Stock in
payment of director fees under the 2003 Directors Plan, covering the period
October 1, 2002, through December 31, 2008.
In the
event of a change of control (as defined in the 2003 Outside Directors Stock
Plan), each outstanding option and award granted under the plans shall
immediately become exercisable in full notwithstanding the vesting or exercise
provisions contained in the stock option agreement.
Compensation
Committee Interlocks and Insider Participation
During
2008, the Compensation and Stock Option Committee for our Board of Directors was
composed of Jack Lahav, Jon Colin, Joe Reeder, and Dr. Charles E.
Young. None of the members of the Compensation and Stock Option
Committee has been an officer or employee of the Company or has had any
relationship with the Company requiring disclosure under the SEC
regulations.
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Security
Ownership of Certain Beneficial Owners
The table
below sets forth information as to the shares of Common Stock beneficially owned
as of March 9, 2009, by each person known by us to be the beneficial owners of
more than 5% of any class of our voting securities.
|
Name
of Beneficial Owner
|
|
Title
Of
Class
|
|
Amount
and
Nature
of
Ownership
|
|
Percent
Of
Class
(1)
|
|
Rutabaga
Capital Management LLC/MA
(2)
|
|
Common
|
|
4,950,178
|
|
9.17%
|
|
Heartland
Advisors, Inc.
Management
(3)
|
|
Common
|
|
3,846,758
|
|
7.13%
|
|
Conus
Partners, Inc.
(4)
|
|
Common
|
|
3,398,665
|
|
6.30%
|
(1) The
number of shares and the percentage of outstanding Common Stock beneficially
owned by a person are based upon 53,985,119 shares of Common Stock issued and
outstanding on March 9, 2009, and the number of shares of Common Stock which
such person has the right to acquire beneficial ownership of within 60 days.
Beneficial ownership by our stockholders has been determined in accordance with
the rules promulgated under Section 13(d) of the Exchange Act.
(2) This
information is based on the Schedule 13G/A, filed with the Securities and
Exchange Commission (“SEC”) on February 5, 2009, which provides that Rutabaga
Capital Management LLC/MA, an investment advisor, has sole voting power over
1,772,000 shares and shared voting power over 3,178,178 shares and sole
dispositive power over all of these shares. The address of Rutabaga
Capital Management LLC/MA is 64 Broad Street, Boston,
MA 02109.
(3) This
information is based on the Schedule 13G/A, filed with the SEC on February 11,
2009, which provides that Heartland Advisors, Inc., an investment advisor,
shares voting power over 3,646,935 of such shares and share dispositive power
over all of the shares, and no sole voting or sole dispositive power over any of
the shares. The address of Heartland Advisors, Inc. is 789 North
Water Street, Suite 500, Milwaukee, WI 53202.
(4) This
information is based on the Schedule 13F-HR/A filed with the SEC on February 18,
2009, which provides that Conus Partner, Inc., a hedge fund management
institution, shares voting and dispositive power over such
shares. The address of Conus Partner, Inc. is 49 West 38th Street,
New York, New York 10018.
Capital
Bank represented to us that:
|
|
·
|
As
of February 25, 2009, Capital Bank holds of record as a nominee for, and
as an agent of, certain accredited investors, 3,762,332 shares of our
Common Stock.;
|
|
|
·
|
All
of the Capital Bank's investors are accredited
investors;
|
|
|
·
|
None
of Capital Bank's investors beneficially own more than 4.9% of our Common
Stock and to its best knowledge, none of Capital Bank’s investors act
together as a group or otherwise act in concert for the purpose of voting
on matters subject to the vote of our stockholders or for purpose of
dispositive or investment of such
stock;
|
|
|
·
|
Capital
Bank's investors maintain full voting and dispositive power over the
Common Stock beneficially owned by such investors;
and
|
|
|
·
|
Capital
Bank has neither voting nor investment power over the shares of Common
Stock owned by Capital Bank, as agent for its
investors.
|
|
|
·
|
Capital
Bank believes that it is not required to file reports under Section 16(a)
of the Exchange Act or to file either Schedule 13D or Schedule 13G in
connection with the shares of our Common Stock registered in the name of
Capital Bank.
|
|
|
·
|
Capital
Bank is not the beneficial owner, as such term is defined in Rule 13d-3 of
the Exchange Act, of the shares of Common Stock registered in Capital
Bank’s name because (a) Capital Bank holds the Common Stock as a nominee
only and (b) Capital Bank has neither voting nor investment power over
such shares.
|
Notwithstanding
the previous paragraph, if Capital Bank's representations to us described above
are incorrect or if Capital Bank's investors are acting as a group, then Capital
Bank or a group of Capital Bank's investors could be a beneficial owner of more
than 5% of our voting securities. If Capital Bank is deemed the
beneficial owner of such shares, the following table sets forth information as
to the shares of voting securities that Capital Bank may be considered to
beneficially own on February 25, 2009.
|
Name
of
Record
Owner
|
|
Title
Of
Class
|
|
Amount
and
Nature
of
Ownership
|
|
Percent
Of
Class
(1)
|
|
Capital
Bank Grawe Gruppe (2)
|
|
Common
|
|
3,762,332(2)
|
|
6.97%
|
(1) This
calculation is based upon 53,985,119 shares of Common Stock issued and
outstanding on March 9, 2009 plus the number of shares of Common Stock which
Capital Bank, as agent for certain accredited investors has the right to acquire
within 60 days, which is none.
(2) This
amount is the number of shares that Capital Bank has represented to us that it
holds of record as nominee for, and as an agent of, certain of its accredited
investors. As of the date of this report, Capital Bank has no
warrants or options to acquire, as agent for certain investors, additional
shares of our Common Stocks. Although Capital Bank is the record
holder of the shares of Common Stock described in this note, Capital Bank has
advised us that it does not believe it is a beneficial owner of the Common Stock
or that it is required to file reports under Section 16(a) or Section 13(d) of
the Exchange Act. Because Capital Bank (a) has advised us that it
holds the Common Stock as a nominee only and that it does not exercise voting or
investment power over the Common Stock held in its name and that no one investor
of Capital Bank for which it holds our Common Stock holds more than 4.9% of our
issued and outstanding Common Stock and (b) has not nominated, and has not
sought to nominate, and does not intend to nominate in the future, any person to
serve as a member of our Board of Directors, we do not believe that Capital Bank
is our affiliate. Capital Bank's address is Burgring 16, A-8010 Graz,
Austria.
Security
Ownership of Management
The
following table sets forth information as to the shares of voting securities
beneficially owned as of March 9, 2009, by each of our Directors and named
executive officers and by all of our directors and executive officers as a
group. Beneficial ownership has been determined in accordance with
the rules promulgated under Section 13(d) of the Exchange Act. A
person is deemed to be a beneficial owner of any voting securities for which
that person has the right to acquire beneficial ownership within 60
days.
|
Name
of Beneficial Owner(2)
|
|
Number
of Shares
Of
Common Stock
Beneficially
Owned
|
|
|
Percentage
of
Common
Stock (1)
|
|
|
Dr.
Louis F. Centofanti (3)
|
|
|
1,289,934
|
(3) |
|
|
2.37 |
% |
|
Jon
Colin (4)
|
|
|
215,663
|
(4) |
|
|
* |
|
|
Robert
L. Ferguson (5)
|
|
|
316,450
|
(5) |
|
|
* |
|
|
Jack
Lahav
(6)
|
|
|
832,699
|
(6) |
|
|
1.54 |
% |
|
Joe
Reeder (7)
|
|
|
942,831
|
(7) |
|
|
1.74 |
% |
|
Larry
M. Shelton (8)
|
|
|
83,767
|
(8)
|
|
|
* |
|
|
Dr.
Charles E. Young (9)
|
|
|
128,978
|
(9)
|
|
|
* |
|
|
Mark
A. Zwecker (10)
|
|
|
385,252
|
(10)
|
|
|
* |
|
|
Steven
Baughman (11)
|
|
|
366,675
|
(11)
|
|
|
* |
|
|
Larry
McNamara (12)
|
|
|
520,000
|
(12)
|
|
|
* |
|
|
Robert
Schreiber, Jr. (13)
|
|
|
244,369
|
(13)
|
|
|
* |
|
|
Ben
Naccarato (14)
|
|
|
25,000
|
(14)
|
|
|
* |
|
|
Directors
and Executive Officers as a Group (11 persons)
|
|
|
4,984,943
|
(15) |
|
|
8.97 |
% |
*Indicates
beneficial ownership of less than one percent (1%).
(1) See
footnote (1) of the table under “Security Ownership of Certain Beneficial
Owners”.
(2) The
business address of each person, for the purposes hereof, is c/o Perma-Fix
Environmental Services, Inc., 8302 Dunwoody Place, Suite 250, Atlanta, Georgia
30350.
(3) These
shares include (i) 605,934 shares held of record by Dr. Centofanti; (ii) options
to purchase 370,000 shares which are immediately exercisable; and 314,000 shares
held by Dr. Centofanti's wife. Dr. Centofanti has sole voting and
investment power of these shares, except for the shares held by Dr. Centofanti's
wife, over which Dr. Centofanti shares voting and investment power.
(4)
Mr. Colin has sole voting and investment power over these shares which include:
(i) 123,663 shares held of record by Mr. Colin, and (ii) options to purchase
92,000 shares of Common Stock, which are immediately exercisable.
(5) Mr.
Ferguson has sole voting and investment power over these shares which include:
(i) 223,386 shares of Common Stock held of record by Mr. Ferguson, (ii) 27,046
shares held in Mr. Ferguson’s individual retirement account, (iii) 24,018 shares
held by Ferguson Financial Group LLC (“FFG LLC”), of which Mr. Ferguson is the
manager; and (iv) options to purchase 42,000 shares, which are immediately
exercisable.
(6) Mr.
Lahav has sole voting and investment power over these shares which include: (i)
740,699 shares of Common Stock held of record by Mr. Lahav; (ii) options to
purchase 92,000 shares, which are immediately exercisable.
(7) Mr.
Reeder has sole voting and investment power over these shares which include: (i)
855,831shares of Common Stock held of record by Mr. Reeder, and (ii) options to
purchase 87,000 shares, which are immediately exercisable.
(8) Mr.
Shelton has sole voting and investment power over these shares which include:
(i) 29,767 shares of Common Stock held of record by Mr. Shelton, and (ii)
options to purchase 54,000 shares, which are immediately
exercisable.
(9) Dr.
Young has sole voting and investment power over these shares which include: (i)
38,978 shares held of record by Dr. Young; and (ii) options to purchase 90,000
shares, which are immediately exercisable.
(10) Mr.
Zwecker has sole voting and investment power over these shares which include:
(i) 293,252 shares of Common Stock held of record by Mr. Zwecker; and (ii)
options to purchase 92,000 shares, which are immediately
exercisable.
(11) Mr.
Baughman has sole voting and investment power over these shares.
(12) Mr.
McNamara has sole voting and investment power over these shares which include:
options to purchase 520,000 shares, which are immediately
exercisable.
(13) Mr.
Schreiber has joint voting and investment power, with his spouse, over 104,369
shares of Common Stock beneficially held and sole voting and investment power
over options to purchase 140,000 shares, which are immediately
exercisable.
(14) Mr.
Naccarato has sole voting and investment power over these shares which include:
options to purchase 25,000 shares, which are immediately
exercisable.
(15)
Shares do not reflect shares held of record by Mr. Baughman as Mr.
Baughman resigned as Chief Financial Officer, Vice President, and Secretary of
the Board of Directors effective October 31, 2008.
Equity
Compensation Plans
The
following table sets forth information as of December 31, 2008, with respect to
our equity compensation plans.
|
|
|
Equity
Compensation Plan
|
|
Plan
Category
|
|
Number
of securities to
be
issued upon exercise
of
outstanding options
warrants
and rights
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and
rights
|
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected in
column
(a)
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans
Approved
by stockholders
|
|
3,417,347
|
|
$2.03
|
|
1,104,669
|
|
Equity
compensation plans not
Approved
by stockholders
|
|
—
|
|
—
|
|
—
|
|
Total
|
|
3,417,347
|
|
$2.03
|
|
1,104,669
|
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Lawrence
Properties LLC
During
February 2006, our Board of Directors approved and we entered into a lease
agreement, whereby we lease property from Lawrence Properties LLC, a company
jointly owned by the president of Schreiber, Yonley and Associates, Robert
Schreiber, Jr. and his spouse. Mr. Schreiber is a member of our
executive management team. The lease is for a term of five years from
June 1, 2006. We pay monthly rent expense of $10,000, which we
believe is lower than costs charged by unrelated third party
landlords. Additional rent will be assessed for any increases over
the initial lease commencement year for property taxes or assessments and
property and casualty insurance premiums.
Mr.
David Centofanti
Mr. David
Centofanti serves as our Director of Information Services. For such
services, he received total compensation in 2008 of approximately $162,000. Mr.
David Centofanti is the son of our Chief Executive Officer and Chairman of our
board, Dr. Louis F. Centofanti. We believe the compensation received
by Mr. Centofanti for his technical expertise which he provides to the Company
is competitive and comparable to compensation we would have to pay to an
unaffiliated third party with the same technical expertise.
Mr.
Robert L. Ferguson
On June
13, 2007, we acquired Nuvotec and Nuvotec's wholly owned subsidiary, PEcoS (our
PFNWR facility), pursuant to the terms of the Merger Agreement, between us,
Nuvotec, PEcoS, and our wholly owned subsidiary. At the time of the
acquisition, Robert L. Ferguson was the Chairman, Chief Executive Officer, and
individually or through entities controlled by him, the owner of approximately
21.29% of Nuvotec’s outstanding common stock. In connection with the
acquisition, Mr. Ferguson was nominated to serve as a Director and subsequently
elected as a Director at our Annual Meeting of Stockholders held in August
2007. Mr. Ferguson was reelected to serve as a Director at our August
2008 Annual Meeting of Stockholders.
As
consideration for the acquisition, Mr. Ferguson: (a) received a total of
$224,560 cash and 192,783 shares of Perma-Fix Common Stock in July 2007 as a
former shareholder of Nuvotec who is “accredited” under the rules of Regulation
D under the Act, (b) is entitled to receive certain contingent consideration
under the terms of the acquisition as described below, (c) guaranteed $4,000,000
of bank debt, which was paid off by Perma-Fix in December 2008, and a $1,750,000
line of credit assumed by us in the acquisition, which the $1,750,000 line of
credit was released when we replaced the financial assurance of PEcoS deposited
with the State of Washington with our financial assurance, and (d) as a former
shareholder of Nuvotec, is due his proportionate share of a $2,500,000 note
payable by the Company to the former shareholders of Nuvotec. The
foregoing consideration includes the amounts and shares paid and payable to
entities controlled by Mr. Ferguson.
The EPA
alleged that prior to the date that we acquired the PEcoS facility in June 2007,
the PEcoS facility was in violation of certain regulatory provisions relating to
the facility’s handling of certain hazardous waste and PCB
waste. During May 2008, the EPA advised the facility as to these
alleged violations that a total penalty of $317,500 is appropriate to settle the
alleged violations. On September 26, 2008, PFNWR entered into a
consent agreement with the EPA to resolve the allegations and to pay a penalty
amount of $304,500. Under the consent agreement, PFNWR neither admits
nor denies the specific EPA allegations. Under the agreements
relating to our acquisition of Nuvotec and PEcoS, we are required, if certain
revenue targets are met, to pay to the former shareholders of Nuvotec an
earn-out amount not to exceed $4,400,000 over a four year period ending June 30,
2011, with the first $1,000,000 of the earn-out amount to be placed into an
escrow account to satisfy certain indemnification obligations to us of Nuvotec,
PEcoS, and the former shareholders of Nuvotec, which includes Mr. Robert
Ferguson. We may claim reimbursement of the penalty, plus out of
pocket expenses, paid or to be paid by us in connection with this matter from
the escrow account. As of the date of this report, we have not been
required to pay any earn-out to the former shareholders of Nuvotec or deposit
any amount into the escrow account pursuant to the
agreement. Irrespective of the fact no amounts have been deposited
into the escrow account, the former shareholders of Nuvotec agreed to pay and
have paid $152,250 of the $304,500 penalty in satisfaction of their obligation
under the indemnity provision in connection with the settlement with the
EPA. Under the agreement between the Company and the former
shareholders of Nuvotec, the $152,250 penalty paid by the former shareholders of
Nuvotec can be recouped by the Nuvotec shareholder by adding it to the potential
$4,400,000 earn-out payment. The $152,250 can only be recouped if the
$4,400,000 has been entirely earned. The $304,500 was paid to the EPA
on November 18, 2008.
The
Company’s Audit Committee acts under its Audit Committee Charter and reviews all
related party transactions involving our directors and executives.
Director
Independence
See “Item
10 of Part III – Directors, Executive Officers and Corporate Governance”
regarding the independence of our Directors.
|
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Audit
Fees
The
aggregate fees and expenses billed by BDO Seidman, LLP (“BDO”) for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal years ended December 31, 2008 and 2007, for the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for those fiscal years, and for review of documents filed with the Securities
and Exchange Commission for those fiscal years were approximately $548,000 and
$557,000, respectively. Audit fees for 2008 and 2007 include
approximately $179,000 and $175,000, respectively, in fees related to the audit
of internal control over financial reporting.
Audit-Related
Fees
BDO
audited the Company’s 401(K) Plan during 2008 and billed $15,000. BDO
was not engaged to provide audit-related services to the Company for the fiscal
year ended December 31, 2007.
Tax
Services
BDO was
not engaged to provide tax services to the Company for the fiscal years ended
December 31, 2008 and 2007.
All
Other Fees
BDO was
engaged to provide services for other corporate related matters for the fiscal
year ended December 31, 2008, and 2007, resulting in fees totaling approximately
$40,000 and $12,000, respectively.
The Audit
Committee of the Company's Board of Directors has considered whether BDO’s
provision of the services described above for the fiscal years ended December
31, 2008 and 2007, is compatible with maintaining its independence.
Engagement
of the Independent Auditor
The Audit
Committee is responsible for approving all engagements with BDO and any members
of the BDO Alliance network of firms to perform audit or non-audit services for
us, prior to engaging these firms to provide those services. All of
the services under the headings Audit Fees, Audit Related Fees, Tax Services,
and All Other Fees were approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X of the Exchange Act. The
Audit Committee's pre-approval policy provides as follows:
|
·
|
The
Audit Committee will review and pre-approve on an annual basis any known
audit, audit-related, tax and all other services, along with acceptable
cost levels, to be performed by BDO and any members of the BDO Alliance
network of firms. The Audit Committee may revise the pre-approved services
during the period based on subsequent determinations. Pre-approved
services typically include: Audits, quarterly reviews, regulatory filing
requirements, consultation on new accounting and disclosure standards,
employee benefit plan audits, reviews and reporting on management's
internal controls and specified tax matters.
|
|
·
|
Any
proposed service that is not pre-approved on the annual basis requires a
specific pre-approval by the Audit Committee, including cost level
approval.
|
|
·
|
The
Audit Committee may delegate pre-approval authority to one or more of the
Audit Committee members. The delegated member must report to the Audit
Committee, at the next Audit Committee meeting, any pre-approval decisions
made.
|
|
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
The
following documents are filed as a part of this report:
|
(a)(1)
|
Consolidated
Financial Statements
|
|
|
|
|
|
See
Item 8 for the Index to Consolidated Financial
Statements.
|
|
|
|
|
(a)(2)
|
Financial
Statement Schedules
|
|
|
|
|
|
See
Item 8 for the Index to Consolidated Financial Statements (which includes
the Index to Financial Statement Schedules)
|
|
|
|
|
(a)(3)
|
Exhibits
|
|
|
|
|
|
The
Exhibits listed in the Exhibit Index are filed or incorporated by
reference as a part of this report.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Perma-Fix
Environmental Services, Inc.
|
By
|
/s/
Dr. Louis F. Centofanti
|
|
Date
|
March
30, 2009
|
|
|
Dr.
Louis F. Centofanti
|
|
|
|
|
|
Chairman
of the Board
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Ben Naccarato
|
|
Date
|
March
30, 2009
|
|
|
Ben
Naccarato
|
|
|
|
|
|
Chief
Financial Officer
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in
capacities and on the dates indicated.
|
By
|
/s/
Dr. Louis F. Centofanti
|
|
Date
|
March
30, 2009
|
|
|
Dr.
Louis F. Centofanti, Director
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Jon Colin
|
|
Date
|
March
30, 2009
|
|
|
Jon
Colin, Director
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Robert L. Ferguson
|
|
Date
|
March
30, 2009
|
|
|
Robert
L. Ferguson, Director
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Jack Lahav
|
|
Date
|
March
30, 2009
|
|
|
Jack
Lahav, Director
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Joe R. Reeder
|
|
Date
|
March
30, 2009
|
|
|
Joe
R. Reeder, Director
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Larry M. Shelton
|
|
Date
|
March
30, 2009
|
|
|
Larry
M. Shelton, Director
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Charles E. Young
|
|
Date
|
March
30, 2009
|
|
|
Charles
E. Young, Director
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
Mark A. Zwecker
|
|
Date
|
March
30, 2009
|
|
|
Mark
A. Zwecker, Director
|
|
|
|
|
|
|
|
|
|
SCHEDULE
II
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
For the
years ended December 31, 2008, 2007, and 2006
(Dollars
in thousands)
|
Description
|
|
Balance
at
Beginning
of Year
|
|
|
Additions
Charged to Costs, Expenses and Other
|
|
|
Deductions
|
|
|
Balance
at
End
of Year
|
|
|
Year
ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
operations
|
|
$ |
203 |
|
|
$ |
187 |
|
|
$ |
57 |
|
|
$ |
333 |
|
|
Allowance
for doubtful accounts-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
opertions
|
|
$ |
204 |
|
|
$ |
(28 |
) |
|
$ |
176 |
|
|
$ |
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts-
|
|
$ |
250 |
|
|
$ |
165 |
|
|
$ |
212 |
|
|
$ |
203 |
|
|
continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts-
|
|
$ |
165 |
|
|
$ |
41 |
|
|
$ |
2 |
|
|
$ |
204 |
|
|
discontinued
opertions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
operations
|
|
$ |
366 |
|
|
$ |
(33 |
) |
|
$ |
83 |
|
|
$ |
250 |
|
|
Allowance
for doubtful accounts-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
opertions
|
|
$ |
236 |
|
|
$ |
97 |
|
|
$ |
168 |
|
|
$ |
165 |
|
EXHIBIT
INDEX
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger dated April 27, 2007, by and among Perma-Fix
Environmental Services, Inc., Nuvotec USA, Inc., Pacific EcoSolutions,
Inc. and PESI Transitory, Inc., which is incorporated by reference from
Exhibit 2.1 to the Company’s Form 8-K, filed May 3, 2007. The
Company will furnish supplementally a copy of any omitted exhibits or
schedule to the Commission upon request.
|
|
2.2
|
|
First
Amendment to Agreement and Plan of Merger, dated June 13, 2007, by and
among Perma-Fix Environmental Services, Inc., Nuvotec USA, Inc., Pacific
EcoSolutions, Inc., and PESI Transitory, Inc., which is incorporated by
reference from Exhibit 2.2 to the Company’s Form 8-K, filed June 19,
2007. The Company will furnish supplementally a copy of any
omitted exhibits or schedule to the Commission upon
request.
|
|
2.3
|
|
Asset
Purchase Agreement by and among Triumvirate Environmental Services, Inc.,
Triumvirate Environmental (Baltimore), LLC, Perma-Fix Environmental
Services, Inc., and Perma-Fix of Maryland, Inc. dated January 18, 2008,
which is incorporated by reference from Exhibit 2.3 to the Company’s Form
10-K for year ended December 31, 2007, filed with the SEC on April 1,
2008. Schedules and exhibits to the Agreement are listed in the
Agreement, and the Company will furnish supplementally a copy of any
omitted exhibits or schedule to the Commission upon
request.
|
|
2.4
|
|
Asset
Purchase Agreement by and among Perma-Fix of Dayton, Inc., Perma-Fix
Environmental Services, Inc., and OGM, Ltd., dated March 14, 2008, as
incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K,
filed March 20, 2008. The Company will furnish supplementally a
copy of any omitted exhibits or schedule to the Commission upon
request.
|
|
2.4
|
|
Asset
Purchase Agreement by and among Perma-Fix of Treatment Services, Inc.,
Perma-Fix Environmental Services, Inc., and A Clean Environmental
Services, Inc., dated May 14, 2008, as incorporated by reference from
Exhibit 99.1 to the Company’s Form 8-K, filed May 20, 2008. The
Company will furnish supplementally a copy of any omitted exhibits or
schedule to the Commission upon request.
|
|
3(i)
|
|
Restated
Certificate of Incorporation, as amended.
|
|
3(ii)
|
|
Bylaws
of Perma-Fix Environmental Services, Inc., as amended on October 30, 2007,
as incorporated by reference from Exhibit 3(ii) to the Company’s Form 10-Q
for the quarter ended September 30, 2007.
|
|
4.1
|
|
Specimen
Common Stock Certificate as incorporated by reference from Exhibit 4.3 to
the Company's Registration Statement, No. 33-51874.
|
|
4.2
|
|
Loan
and Security Agreement by and between the Company, subsidiaries of the
Company as signatories thereto, and PNC Bank, National Association, dated
December 22, 2000, as incorporated by reference from Exhibit 99.1 to the
Company's Form 8-K dated December 22, 2000.
|
|
4.3
|
|
First
Amendment to Loan Agreement and Consent, dated January 30, 2001, between
the Company and PNC Bank, National Association as incorporated by
reference from Exhibit 99.7 to the Company's Form 8-K dated January 31,
2001.
|
|
4.4
|
|
Amendment
No. 1 to Revolving Credit, Term Loan and Security Agreement, dated as of
June 10, 2002, between the Company and PNC Bank is incorporated by
reference from Exhibit 4.3 to the Company's Form 10-Q for the quarter
ended September 30, 2002.
|
|
4.5
|
|
Amendment
No. 2 to Revolving Credit, Term Loan and Security Agreement, dated as of
May 23, 2003, between the Company and PNC Bank, as incorporated by
reference from Exhibit 4.4 to the Company's Form 10-Q for the quarter
ended June 30, 2003, and filed on August 14, 2003.
|
|
4.6
|
|
Amendment
No. 3 to Revolving Credit, Term Loan, and Security Agreement, dated as of
October 31, 2003, between the Company and PNC Bank, as incorporated by
reference from Exhibit 4.5 to the Company's Form 10-Q for the quarter
ended September 30, 2003, and filed on November 10,
2003.
|
|
4.7
|
|
Amendment
No. 4 to Revolving Credit, Term Loan, and Security Agreement, dated as of
March 25, 2005, between the Company and PNC Bank as incorporated by
reference from Exhibit 4.12 to the Company's Form 10-K for the year ended
December 31, 2004.
|
|
4.8
|
|
Letter
from PNC Bank regarding intent to waive technical default on the Loan and
Security Agreement with PNC Bank due to resignation of Chief Financial
Officer.
|
|
4.9
|
|
Amendment
No. 6 to Revolving Credit, Term Loan, and Security Agreement, dated as of
June 12, 2007, between the Company and PNC Bank as incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q for the quarter
ended June 30, 2007.
|
|
4.10
|
|
Amendment
No. 7 to Revolving Credit, Term Loan, and Security Agreement, dated as of
July 18, 2007, between the Company and PNC Bank as incorporated by
reference from Exhibit 4.2 to the Company's Form 10-Q for the quarter
ended June 30, 2007.
|
|
4.11
|
|
Amendment
No. 8 to Revolving Credit, Term Loan, and Security Agreement, dated as of
November 2, 2007, between the Company and PNC Bank as incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q for the quarter
ended September 30, 2007.
|
|
4.12
|
|
Amendment
No. 9 to Revolving Credit, Term Loan, and Security Agreement, dated as of
December 18, 2007, between the Company and PNC Bank, as incorporated by
reference from Exhibit 4.14 to the Company’s Form 10-K for the year ended
December 31, 2007.
|
|
4.13
|
|
Amendment
No. 10 to Revolving Credit, Term Loan, and Security Agreement, dated as of
March 26, 2008, between the Company and PNC Bank, as incorporated by
reference from Exhibit 4.15 to the Company’s Form 10-K for the year ended
December 31, 2007.
|
|
4.14
|
|
Amendment
No. 11 to Revolving Credit, Term Loan, and Security Agreement, dated as of
July 25, 2008, between the Company and PNC Bank, as incorporated by
reference from Exhibit 4.1 to the Company’s Form 10-Q for the quarter
ended June 30, 2008 filed on August 11, 2008.
|
|
4.15
|
|
Amendment
No. 12 to Revolving Credit, Term Loan, and Security Agreement, dated as of
July 25, 2008, between the Company and PNC Bank, as incorporated by
reference from Exhibit 4.2 to the Company’s Form 10-Q for the quarter
ended June 30, 2008 filed on August 11, 2008.
|
|
4.16
|
|
Amendment
No. 13 to Revolving Credit, Term Loan, and Security Agreement, dated as of
March 5, 2009, between the Company and PNC Bank, as incorporated by
reference from Exhibit 99.1 to the Company’s Form 8-K filed on March 11,
2009.
|
|
4.17
|
|
Rights
Agreement dated as of May 2, 2008 between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent, as incorporated by
reference from Exhibit 4.1 to the Company’s Form 8-K filed on May 8,
2008.
|
|
4.18
|
|
Letter
Agreement dated September 29, 2008, between the Company and Continental
Stock Transfer & Trust Company, as incorporated by reference from
Exhibit 4.3 to the Company’s Form 8-A/A filed on October 2,
2008.
|
|
10.1
|
|
1992
Outside Directors' Stock Option Plan of the Company as incorporated by
reference from Exhibit 10.4 to the Company's Registration Statement, No.
33-51874.
|
|
10.2
|
|
First
Amendment to 1992 Outside Directors' Stock Option Plan as incorporated by
reference from Exhibit 10.29 to the Company's Form 10-K for the year ended
December 31, 1994.
|
|
10.3
|
|
Second
Amendment to the Company's 1992 Outside Directors' Stock Option Plan, as
incorporated by reference from the Company's Proxy Statement, dated
November 4, 1994.
|
|
10.4
|
|
Third
Amendment to the Company's 1992 Outside Directors' Stock Option Plan as
incorporated by reference from the Company's Proxy Statement, dated
November 8, 1996.
|
|
10.6
|
|
Fourth
Amendment to the Company's 1992 Outside Directors' Stock Option Plan as
incorporated by reference from the Company's Proxy Statement, dated April
20, 1998.
|
|
10.5
|
|
1993
Non-qualified Stock Option Plan as incorporated by reference from the
Company's Proxy Statement, dated October 12, 1993.
|
|
10.6
|
|
401(K)
Profit Sharing Plan and Trust of the Company as incorporated by reference
from Exhibit 10.5 to the Company's Registration Statement, No.
33-51874.
|
|
10.7
|
|
Subcontract
Change Notice between East Tennessee Materials and Energy Corporation and
Bechtel Jacobs Company, LLC, No. BA-99446/7 and 8F, dated July 2, 2002,
are incorporated by reference from Exhibit 10.24 to the Company's
Registration Statement No.
333-70676.
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10.8
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Option
Agreement, dated July 31, 2001, among the Company, AMI, and BEC is
incorporated by reference from Exhibit 99.8 to the Company's Form 8-K,
dated July 30, 2001.
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10.9
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Promissory
Note, dated June 7, 2001, issued by M&EC in favor of Performance
Development Corporation is incorporated by reference from Exhibit 10.1 to
the Company's Form 8-K, dated June 15, 2001.
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10.10
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First
Amendment to East Tennessee Material & Energy Corporation Promissory
Note, dated December 29, 2008, as incorporated by reference from Exhibit
10.1 to the Company’s Form 8-K filed on December 30,
2008.
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10.11
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2003
Outside Directors' Stock Plan of the Company as incorporated by reference
from Exhibit B to the Company's 2003 Proxy Statement.
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10.12
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First
Amendment to 2003 Outside Directors Stock Plan, as incorporated by
reference from Appendix “A” to the Company’s 2008 Proxy Statement dated
July 3, 2008.
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10.13
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2004
Stock Option Plan of the Company as incorporated by reference from Exhibit
B to the Company's 2004 Proxy Statement.
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10.14
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Basic
agreement between East Tennessee Materials and Energy Corporation and
Bechtel Jacobs Company, LLC No. BA-99446F, dated September 20, 2005, as
incorporated by reference from Exhibit 10.1 to our Form 10-Q for the
quarter ended September 30, 2005. Attachments to this extended
agreement will be provided to the Commission upon
request.
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10.15
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Basic
agreement between East Tennessee Materials and Energy Corporation and
Bechtel Jacobs Company, LLC No. BA-99447F, dated September 20, 2005, as
incorporated by reference from Exhibit 10.2 to our Form 10-Q for the
quarter ended September 30, 2005. Attachments to this extended
agreement will be provided to the Commission upon
request.
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10.16
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Settlement
Agreement, dated December 19, 2007, by and between Barbara Fisher
(“Fisher”) and Perma-Fix of Dayton, Inc, as incorporated by reference from
Exhibit 10.28 to the Company’s Form 10-K for the year ended December 31,
2007 filed with the SEC on April 1, 2008.
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10.17
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Consent
Decree, dated December 12, 2007, between United States of America and
Perma-Fix of Dayton, Inc., as incorporated by reference from Exhibit 10.29
to the Company’s Form 10-K for the year ended December 31, 2007 filed with
the SEC on April 1, 2008.
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10.18
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Shared
Resource Agreement (Subcontract) between an environmental engineering firm
and East Material & Energy Corp. Inc. dated May 27, 2008, as
incorporated by reference from Exhibit 10.1 to the company’s Form 10-Q for
the quarter ended June 30, 2008 filed on August 11,
2008.
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10.19
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Consent
Agreement dated September 26, 2008 between Perma-Fix Northwest Richland,
Inc. and the U.S. Environmental Protection Agency, as incorporated by
reference from Exhibit 10.1 to the Company’s Form 10-Q for the quarter
ended September 30, 2008 filed on November 10, 2008.
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10.20
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Second
Amendment to Agreement and Plan of Merger, dated November 18, 2008 by and
among Perma-Fix Northwest, Inc., Perma-Fix Northwest Richland, Inc.,
Perma-Fix Environmental Services, Inc., and Robert L. Ferguson, an
individual, and William N. Lampson, an individual, as Representatives, as
incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K
filed with the SEC on November 21, 2008.
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10.21
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2008
Incentive Compensation Plan for Vice President, Chief Financial Officer,
effective January 1, 2008, as incorporated by reference from Exhibit 10.1
to the Company’s Form 8-K filed on August 11, 2008.
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10.22
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2008
Incentive Compensation Plan for Chief Operating Officer, effective January
1, 2008, as incorporated by reference from Exhibit 10.2 to the Company’s
Form 8-K filed on August 11, 2008.
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10.23
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2008
Incentive Compensation Plan for Chief Executive Officer, effective January
1, 2008, as incorporated by reference from Exhibit 10.3 to the Company’s
Form 8-K filed on August 11, 2008.
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21.1
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List
of Subsidiaries
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23.1
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Consent
of BDO Seidman, LLP
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31.1
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Certification
by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
pursuant to Rule 13a-14(a) or 15d-14(a).
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31.2
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Certification
by Ben Naccarato, Chief Financial Officer of the Company pursuant to Rule
13a-14(a) or 15d-14(a).
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32.1
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Certification
by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
furnished pursuant to 18 U.S.C. Section 1350.
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32.2
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Certification
by Ben Naccarato, Chief Financial Officer of the Company furnished
pursuant to 18 U.S.C. Section
1350.
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