Annual report pursuant to section 13 and 15(d)

DISCONTINUED OPERATIONS AND DIVESTITURES

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DISCONTINUED OPERATIONS AND DIVESTITURES
 12 Months Ended
Dec. 31, 2011
DISCONTINUED OPERATIONS AND DIVESTITURES [Abstract]  
DISCONTINUED OPERATIONS AND DIVESTITURES
NOTE 9
DISCONTINUED OPERATIONS AND DIVESTITURES
Our discontinued operations consist of our Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-Fix of South Georgia, Inc. (“PFSG”), and Perma-Fix of Orlando, Inc. (“PFO”) facilities which met the held for sale criteria under ASC 360, “Property, Plant, and Equipment” on October 6, 2010.  Our discontinued operations also encompass our Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of Dayton, Inc. (“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”) facilities, which we completed the sale of substantially all of the assets on January 8, 2008, March 14, 2008, and May 30, 2008, respectively.  Our discontinued operations also includes three previously shut down locations, Perma-Fix of Pittsburgh, Inc. (“PFP”), Perma-Fix of Michigan, Inc. (“PFMI”), and Perma-Fix of Memphis, Inc. (“PFM”), which were approved as discontinued operations by our Board of Directors effective November 8, 2005, October 4, 2004, and March 12, 1998, respectively.

On August 12, 2011, we completed the sale of our wholly-owned subsidiary, PFFL, pursuant to the terms of a Stock Purchase Agreement, dated June 13, 2011.  In consideration for the sale of 100% of the capital stock of PFFL, the buyer paid us $5,500,000 in cash at closing.  The cash consideration is subject to certain working capital adjustments within one hundred twenty days after closing. The proceeds received were used to pay down our revolver and used for working capital with the remaining excess funds swept into a money market account.  As of December 31, 2011, expenses related to the sale of PFFL totaled approximately $160,000, of which $157,000 has been paid.  As of December 31, 2011, the gain on the sale of PFFL totaled approximately $1,707,000 (net of taxes of $1,067,000), which included a working capital adjustment of $185,000 to be received from the buyer.

On October 14, 2011, we completed the sale of our wholly-owned subsidiary, PFO, pursuant to the terms of an Asset Purchase Agreement, dated August 12, 2011.  In consideration for such assets, the buyer paid us $2,000,000 in cash at the closing and assumed certain liabilities of PFO.  The cash consideration is subject to certain working capital adjustments within one hundred twenty days after closing. The proceeds received were swept into a money market account.  As of December 31, 2011, expenses related to the sale of PFO totaled approximately $37,000, of which $20,000 has been paid.  We recorded a loss on the sale of PFO of $198,000 (net of taxes of $209,000).  No working capital adjustment has been made on the sale of PFO.

We continue to market our PFSG facility for sale.  As required by ASC 360, based on our internal financial valuations, we concluded that no tangible asset impairments existed for PFSG as of December 31, 2011.

The following table summarizes the results of discontinued operations for the years ended December 31, 2011, 2010, and 2009. The gains on disposals of discontinued operations, net of taxes, for 2011, was the result of the divestiture of PFFL and PFO as mentioned above, and 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 “Income (loss) from discontinued operations, net of taxes”.

   
For The Year Ended December 31,
 
Amount in Thousands
 
2011
  
2010
  
2009
 
           
Net revenue
 $6,931  $9,248  $8,283 
Interest expense
  (68)  (84)  (103)
Operating loss from discontinued operations
  (366)  (839)  (76)
Income tax benefit
  (1,143)  (176)  (11)
Gain on disposal of discontinued operations (1)
  1,509   -   - 
Income (loss) from discontinued operations
  2,286   (663)  (65)

(1)
 Net of taxes of $1,276,000 for year ended December 31, 2011.

Operating loss from discontinued operations for the twelve months ended December 31, 2011 included an aggregate increase of $338,000 to the environmental reserve at our PFM and PFMI subsidiary.  Our loss from discontinued operations for the twelve months ended December 31, 2010, included an aggregate increase to our environmental reserve of $1,105,000 at our PFSG and PFD facilities and a $167,000 final settlement we received from a lawsuit that we filed against the buyer of PFTS, A Clean Environment, Inc. (“ACE”), regarding certain liabilities which we believed ACE assumed and agreed to pay under the Purchase Agreement but which ACE had refused to pay. Loss from discontinued operations in 2009 included an increase to environmental reserve of $281,000 at our PFSG facility due to reassessment of our remediation estimates.  It also included a recovery of approximately $400,000 in closure cost after the buyer of PFTS's asset obtained its own financial assurance bond.

Assets related to discontinued operations total $2,343,000 and $7,433,000 as of December 31, 2011, and 2010, respectively, and liabilities related to discontinued operations total $3,972,000 and $5,747,000 as of December 31, 2011 and 2010, respectively.

The following table presents the major classes of assets and liabilities of discontinued operations that are classified as held for sale as of December 31, 2011 and 2010.  The held for sale assets and liabilities may differ at the closing of a sale transaction from the reported balances as of December 31, 2011:

   
December 31,
  
December 31,
 
(Amounts in Thousands) 
 
2011
  
2010
 
        
Accounts receivable, net (1)
 $385  $1,760 
Inventories
  25   131 
Other assets
  22   1,295 
Property, plant and equipment, net (2)
  1,650   4,209 
Total assets held for sale
 $2,082  $7,395 
Accounts payable
 $190  $705 
Accrued expenses and other liabilities
  577   1,170 
Note payable
  105   407 
Environmental liabilities
  1,497   1,500 
Total liabilities held for sale
 $2,369  $3,782 

(1)
net of allowance for doubtful account of $48,000 and $97,000 as of December 31, 2011, and 2010, respectively.

(2)
net of accumulated depreciation of $62,000 and $755,000 as of December 31, 2011, and 2010, respectively.

The following table presents the major classes of assets and liabilities of discontinued operations that are not held for sale as of December 31, 2011 and 2010:

   
December 31,
  
December 31,
 
(Amounts in Thousands) 
 
2011
  
2010
 
        
Other assets
 $261  $38 
Total assets of discontinued operations
 $261  $38 
Accrued expenses and other liabilities
 $1,083  $1,209 
Accounts payable
  15   - 
Environmental liabilities
  505   756 
Total liabilities of discontinued operations
 $1,603  $1,965 

Environmental Liabilities
We have four remediation projects currently in progress at four of our discontinued operations, PFD, PFM, PFSG, and PFMI. 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.  We recognized our best estimate of such environmental liabilities upon the acquisition of our facilities, as part of the acquisition cost.

At December 31, 2011, we had total accrued environmental remediation liabilities of $2,002,000 of which $1,138,000 is recorded as a current liability, which reflects a decrease of $254,000 from the December 31, 2010, balance of $2,256,000.  The net decrease represents payment of approximately $592,000 on remediation projects and increases in reserve of approximately $288,000 at PFM and $50,000 at PFMI due to reassessment of our remediation reserves.  The December 31, 2011, current and long-term accrued environmental balance is recorded as follows (in thousands):

   
Current
Accrual
  
Long-term
Accrual
  
Total
 
PFD
 $224  $135  $359 
PFM
  74   15   89 
PFSG
  783   714   1,497 
PFMI
  57   -   57 
Total Liability
 $1,138  $864  $2,002 

PFD
In June 1994, we acquired PFD, which we divested in March 2008.  Prior to our acquisition of PFD in 1994, the former owners of PFD had merged Environmental Processing Services, Inc. (“EPS”) with PFD. In acquiring PFD in 1994, we were indemnified by the seller 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 was separate and apart from the property on which PFD's facility was located.  Upon the sale of substantially all of the assets of PFD in March 2008, we retained the environmental liability of PFD as it related only to the remediation of the EPS site.  We have pursued remedial activities for this Leased Property since we acquired PFD and after evaluating various technologies, have received approval from the Ohio Environmental Protection Agency for the final remedial process.  Final remediation is also expected to begin in 2012. We incurred remedial expenditures of $89,000 in 2011. We have accrued approximately $359,000, at December 31, 2011, for the estimated, remaining costs of remediating the Leased Property, which will extend approximately over the next six years.

PFM
In acquiring PFM in 1993, 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 2011, remediation of the remaining contaminated soil was completed leaving only treatment of the aquifer.  In 2011, we incurred remediation expenditure of $481,000 and increase the reserve by $288,000 due to reassessment of the reserve. We have accrued approximately $89,000 at December 31, 2011, for closure which we anticipate spending over the next five 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 evaluation, 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 2011, we incurred remedial expenditures of approximately $2,000.    We have accrued approximately $1,497,000 at December 31, 2011, to complete remediation of the facility, which we anticipate spending over approximately the next ten years.

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.  During 2006, based on state-mandated criteria, we began implementing the modified methodology to remediate the facility.  We have completed the remediation activities.  In 2010, as required under the Consent Order, a closure plan was submitted, which is currently under final review, with approval expected in 2012.  In 2011, we incurred remediation expenditure of $20,000 and increased the reserve by $50,000 due to reassessment of the reserve. As of December 31, 2011, we have $57,000 accrued for the closure, and it is anticipated that closure activities, with the exception of post-closure monitoring, will be completed in 2012.

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.