SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Form
10-Q
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
For
the quarterly period ended September
30, 2007
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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. 111596
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PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Exact
name of registrant as specified in its
charter)
|
Delaware
(State
or other jurisdiction
of
incorporation or organization)
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58-1954497
(IRS
Employer Identification Number)
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|
|
8302
Dunwoody Place, Suite 250, Atlanta, GA
(Address
of principal executive offices)
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30350
(Zip
Code)
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(770)
587-9898
(Registrant’s
telephone number)
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the Registrant (1) has filed all reports required
to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject
to
such filing requirements for the past 90 days.
Yes
T
No
£
|
|
Indicate
by check mark whether the registrant is a large accelerated filer,
an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer £
Accelerated Filer T
Non-accelerated filer £
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|
Indicate
by check mark whether the registrant is a shell company (as defined
in
Rule 12b-2 of the Exchange Act). Yes £
No
T
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|
Indicate
the number of shares outstanding of each of the issuer’s classes of Common
Stock, as of the close of the latest practical
date.
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Class
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Outstanding
at November 5, 2007
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Common
Stock, $.001 Par Value
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53,065,924
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PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
INDEX
PART
I
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FINANCIAL
INFORMATION
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Page
No.
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Item
1.
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Financial
Statements
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Consolidated
Balance Sheets -
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September
30, 2007 (unaudited) and December 31, 2006
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1
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Consolidated
Statements of Operations -
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Three
and Nine Months Ended September 30, 2007 and 2006
(unaudited)
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3
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Consolidated
Statements of Cash Flows -
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Nine
Months Ended September 30, 2007 and 2006 (unaudited)
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4
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Consolidated
Statement of Stockholders’ Equity -
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Nine
Months Ended September 30, 2007 (unaudited)
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5
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Notes
to Consolidated Financial Statements
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6
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Item
2.
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Management’s
Discussion and Analysis of
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Financial
Condition and Results of Operations
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28
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Item
3.
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Quantitative
and Qualitative Disclosures
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About
Market Risk
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56
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Item
4.
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Controls
and Procedures
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57
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PART
II
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OTHER
INFORMATION
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Item
1.
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Legal
Proceedings
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59
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Item
1A.
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Risk
Factors
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60
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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60
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Item
5.
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Other
Information
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60
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Item
6.
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Exhibits
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61
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PART
I - FINANCIAL INFORMATION
ITEM
1. - FINANCIAL STATEMENTS
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS
|
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September
30,
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December
31,
|
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(Amounts
in Thousands, Except for Share Amounts)
|
|
2007
|
|
2006
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|
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(Unaudited)
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ASSETS
|
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Current
assets:
|
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Cash
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$
|
108
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$
|
2,528
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Restricted
cash
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35
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35
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Investment
trading securities
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84
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¾
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Accounts
receivable, net of allowance for doubtful
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10,204
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9,488
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accounts
of $128 and $168
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Unbilled
receivables
|
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11,383
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12,313
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Inventories
|
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322
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|
|
325
|
|
Prepaid
expenses
|
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4,024
|
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|
2,855
|
|
|
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|
41
|
|
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1,596
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Assets
for sale included in current assets, net of allowance
for
|
|
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doubtful
accounts of $274 and $247
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6,069
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7,100
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Total
current assets
|
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32,270
|
|
|
36,240
|
|
|
|
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|
|
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Property
and equipment:
|
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Buildings
and land
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20,534
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11,244
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Equipment
|
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30,125
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20,599
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Vehicles
|
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141
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141
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Leasehold
improvements
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11,458
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|
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11,452
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Office
furniture and equipment
|
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2,267
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1,930
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Construction-in-progress
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1,461
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4,609
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|
|
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65,986
|
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49,975
|
|
Less
accumulated depreciation and amortization
|
|
|
(19,094
|
)
|
|
(16,630
|
)
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Net
property and equipment
|
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46,892
|
|
|
33,345
|
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Property
and equipment included in assets for sale, net of accumulated
depreciation
of $12,583 and $13,341
|
|
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12,568
|
|
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13,281
|
|
|
|
|
|
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Intangibles
and other assets:
|
|
|
|
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Permits
|
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15,625
|
|
|
11,025
|
|
Goodwill
|
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9,418
|
|
|
1,330
|
|
Unbilled
receivable - non-current
|
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3,276
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2,600
|
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Finite
Risk Sinking Fund
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5,961
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4,518
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Other
assets
|
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2,627
|
|
|
1,954
|
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Intangibles
and other assets included in assets for sale
|
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2,369
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2,369
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Total
assets
|
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$
|
131,006
|
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$
|
106,662
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The
accompanying notes are an integral part of these consolidated financial
statements.
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS, CONTINUED
|
|
September
30, 2007
|
|
December
31,
|
|
(Amounts
in Thousands, Except for Share Amounts)
|
|
(Unaudited)
|
|
2006
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
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Current
liabilities:
|
|
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Accounts
payable
|
|
$
|
3,753
|
|
$
|
2,456
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|
Current
environmental accrual
|
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|
360
|
|
|
453
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Accrued
expenses
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|
14,918
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8,118
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Unearned
revenue
|
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|
3,281
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3,575
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Current
liabilities related to asset held for sale
|
|
|
8,006
|
|
|
6,737
|
|
Current
portion of long-term debt
|
|
|
4,078
|
|
|
2,092
|
|
Total
current liabilities
|
|
|
34,396
|
|
|
23,431
|
|
|
|
|
|
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Environmental
accruals
|
|
|
247
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|
|
348
|
|
Accrued
closure costs
|
|
|
8,702
|
|
|
4,825
|
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Other
long-term liabilities
|
|
|
3,411
|
|
|
3,018
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Long-term
liabilities related to assets held for sale
|
|
|
3,722
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3,895
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|
Long-term
debt, less current portion
|
|
|
13,547
|
|
|
5,407
|
|
Total
long-term liabilities
|
|
|
29,629
|
|
|
17,493
|
|
|
|
|
|
|
|
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Total
liabilities
|
|
|
64,025
|
|
|
40,924
|
|
|
|
|
|
|
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Commitments
and Contingencies
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Preferred
Stock of subsidiary, $1.00 par value; 1,467,396
|
|
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1,285
|
|
|
1,285
|
|
shares
authorized, 1,284,730 shares issued and
|
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outstanding,
liquidation value $1.00 per share
|
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Stockholders’
equity:
|
|
|
|
|
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Preferred
Stock, $.001 par value; 2,000,000 shares authorized,
|
|
|
|
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|
no
shares issued and outstanding
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|
¾
|
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|
¾
|
|
Common
Stock, $.001 par value; 75,000,000 shares authorized,
|
|
|
|
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|
|
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53,055,924
and 52,053,744 shares issued, including 0 shares held
|
|
|
|
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and
988,000 shares of treasury stock retired in 2006,
respectively
|
|
|
53
|
|
|
52
|
|
Additional
paid-in capital
|
|
|
95,996
|
|
|
92,980
|
|
Stock
subscription receivable
|
|
|
(39
|
)
|
|
(79
|
)
|
Accumulated
deficit
|
|
|
(30,314
|
)
|
|
(28,500
|
)
|
Total
stockholders' equity
|
|
|
65,696
|
|
|
64,453
|
|
Total
liabilities and stockholders' equity
|
|
$
|
131,006
|
|
$
|
106,662
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
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|
Net
revenues
|
|
$
|
13,840
|
|
$
|
12,088
|
|
$
|
40,298
|
|
$
|
39,025
|
|
Cost
of goods sold
|
|
|
9,574
|
|
|
7,720
|
|
|
26,628
|
|
|
23,671
|
|
Gross
profit
|
|
|
4,266
|
|
|
4,368
|
|
|
13,670
|
|
|
15,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
4,061
|
|
|
3,564
|
|
|
11,535
|
|
|
10,654
|
|
(Gain)
loss on disposal of property and equipment
|
|
|
(4
|
)
|
|
¾
|
|
|
(1
|
)
|
|
1
|
|
Income
from operations
|
|
|
209
|
|
|
804
|
|
|
2,136
|
|
|
4,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
71
|
|
|
100
|
|
|
238
|
|
|
189
|
|
Interest
expense
|
|
|
(476
|
)
|
|
(276
|
)
|
|
(949
|
)
|
|
(995
|
)
|
Interest
expense-financing fees
|
|
|
(48
|
)
|
|
(48
|
)
|
|
(143
|
)
|
|
(144
|
)
|
Other
|
|
|
(41
|
)
|
|
(6
|
)
|
|
(48
|
)
|
|
(39
|
)
|
(Loss)
income from continuing operations before taxes
|
|
|
(285
|
)
|
|
574
|
|
|
1,234
|
|
|
3,710
|
|
Income
tax (benefit) expense
|
|
|
(161
|
)
|
|
(26
|
)
|
|
23
|
|
|
152
|
|
(Loss)
income from continuing operations
|
|
|
(124
|
)
|
|
600
|
|
|
1,211
|
|
|
3,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of taxes
|
|
|
(1,828
|
)
|
|
(270
|
)
|
|
(3,025
|
)
|
|
(724
|
)
|
Net
(loss) income
|
|
|
(1,952
|
)
|
|
330
|
|
|
(1,814
|
)
|
|
2,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock dividends
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
Net
(loss) income applicable to Common Stock
|
|
$
|
(1,952
|
)
|
$
|
330
|
|
$
|
(1,814
|
)
|
$
|
2,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
¾
|
|
$
|
.01
|
|
$
|
.02
|
|
$
|
.08
|
|
Discontinued
operations
|
|
|
(.04
|
)
|
|
¾
|
|
|
(.05
|
)
|
|
(.02
|
)
|
Net
(loss) income per common share
|
|
$
|
(.04
|
)
|
$
|
.01
|
|
$
|
(.03
|
)
|
$
|
.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
¾
|
|
$
|
.01
|
|
$
|
.02
|
|
$
|
.08
|
|
Discontinued
operations
|
|
|
(.04
|
)
|
|
¾
|
|
|
(.05
|
)
|
|
(.02
|
)
|
Net
(loss) income per common share
|
|
$
|
(.04
|
)
|
$
|
.01
|
|
$
|
(.03
|
)
|
$
|
.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of common shares used in computing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,843
|
|
|
50,541
|
|
|
52,349
|
|
|
46,851
|
|
Diluted
|
|
|
52,843
|
|
|
51,430
|
|
|
53,673
|
|
|
47,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
(Amounts
in Thousands)
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(1,814
|
)
|
$
|
2,834
|
|
Loss
on discontinued operations
|
|
|
3,025
|
|
|
724
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
1,211
|
|
|
3,558
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) income to cash provided by (used in)
operations:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,745
|
|
|
2,322
|
|
Provision
(benefit) for bad debt and other reserves
|
|
|
52
|
|
|
(104
|
)
|
(Gain)
loss on disposal of property and equipment
|
|
|
(1
|
)
|
|
1
|
|
Issuance
of Common Stock for services
|
|
|
165
|
|
|
150
|
|
Share
based compensation
|
|
|
288
|
|
|
173
|
|
Changes
in operating assets and liabilities of continuing operations, net
of
|
|
|
|
|
|
|
|
effects
from business acquisitions:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,526
|
|
|
3,177
|
|
Unbilled
receivables
|
|
|
254
|
|
|
(5,067
|
)
|
Prepaid
expenses, inventories and other assets
|
|
|
2,246
|
|
|
858
|
|
Accounts
payable, accrued expenses, and unearned revenue
|
|
|
(2,937
|
)
|
|
(3,781
|
)
|
Cash
provided by continuing operations
|
|
|
5,549
|
|
|
1,287
|
|
Cash
provided by (used in) discontinued operations
|
|
|
481
|
|
|
(1,594
|
)
|
Cash
provided by (used in) operating activities
|
|
|
6,030
|
|
|
(307
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment, net
|
|
|
(2,109
|
)
|
|
(3,322
|
)
|
Proceeds
from sale of plant, property and equipment
|
|
|
7
|
|
|
¾
|
|
Change
in restricted cash, net
|
|
|
¾
|
|
|
(25
|
)
|
Change
in finite risk sinking fund
|
|
|
(1,443
|
)
|
|
(1,133
|
)
|
Cash
used for acquisition consideration, net of cash acquired
|
|
|
(2,685
|
)
|
|
¾
|
|
Cash
used in investing activities of continuing operations
|
|
|
(6,230
|
)
|
|
(4,480
|
)
|
Cash
used in investing activities of discontinued operations
|
|
|
(326
|
)
|
|
(76
|
)
|
Cash
used in investing activities
|
|
|
(6,556
|
)
|
|
(4,556
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
borrowings (repayment) of revolving credit
|
|
|
5,202
|
|
|
(2,447
|
)
|
Principal
repayments of long-term debt
|
|
|
(7,245
|
)
|
|
(1,507
|
)
|
Proceeds
from issuance of stock
|
|
|
399
|
|
|
12,007
|
|
Repayment
of stock subscription receivable
|
|
|
40
|
|
|
8
|
|
Cash
(used in) provided by financing activities of continuing
operations
|
|
|
(1,604
|
)
|
|
8,061
|
|
Principal
repayment of long-term debt for discontinued operations
|
|
|
(290
|
)
|
|
(312
|
)
|
Cash
(used in) provided by financing activities
|
|
|
(1,894
|
)
|
|
7,749
|
|
|
|
|
|
|
|
|
|
(Decrease)
Increase in cash
|
|
|
(2,420
|
)
|
|
2,886
|
|
Cash
at beginning of period
|
|
|
2,528
|
|
|
94
|
|
Cash
at end of period
|
|
$
|
108
|
|
$
|
2,980
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
314
|
|
$
|
691
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Long-term
debt incurred for purchase of property and equipment
|
|
|
613
|
|
|
94
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited,
for the nine months ended September 30, 2007)
(Amounts
in thousands,
|
|
Common
Stock
|
|
Additional Paid-In
|
|
Stock Subscription
|
|
Accumulated
|
|
Total Stockholders'
|
|
except
for share amounts)
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Receivable
|
|
Deficit
|
|
Equity
|
|
Balance
at December 31, 2006
|
|
|
52,053,744
|
|
$
|
52
|
|
$
|
92,980
|
|
$
|
(79
|
)
|
$
|
(28,500
|
)
|
$
|
64,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
¾
|
|
|
|
|
|
¾
|
|
|
¾
|
|
|
(1,814
|
)
|
|
(1,814
|
)
|
Issuance
of Common Stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
services
|
|
|
69,187
|
|
|
|
|
|
165
|
|
|
¾
|
|
|
¾
|
|
|
165
|
|
Issuance
of Common Stock upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of Options
|
|
|
223,786
|
|
|
¾
|
|
|
399
|
|
|
¾
|
|
|
¾
|
|
|
399
|
|
Common
Stock Issued in conjunction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
acquisition
|
|
|
709,207
|
|
|
1
|
|
|
2,164
|
|
|
|
|
|
|
|
|
2,165
|
|
Share
based compensation
|
|
|
¾
|
|
|
|
|
|
288
|
|
|
¾
|
|
|
¾
|
|
|
288
|
|
Repayment
of stock subscription receivable
|
|
|
¾
|
|
|
|
|
|
¾
|
|
|
40
|
|
|
¾
|
|
|
40
|
|
Balance
at September 30, 2007
|
|
|
53,055,924
|
|
$
|
53
|
|
$
|
95,996
|
|
$
|
(39
|
)
|
$
|
(30,314
|
)
|
$
|
65,696
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2007
(Unaudited)
Reference
is made herein to the notes to consolidated financial statements included in
our
Annual Report on Form 10-K for the year ended December 31, 2006.
The
consolidated financial statements included herein have been prepared by the
Company (which may be referred to as we, us or our), without an audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America have been condensed or omitted pursuant to such rules
and regulations, although the Company believes the disclosures which are made
are adequate to make the information presented not misleading. Further, the
consolidated financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as of and for
the periods indicated. The results of operations for the nine months ended
September 30, 2007, are not necessarily indicative of results to be expected
for
the fiscal year ending December 31, 2007.
It
is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in
the
Company’s Annual Report on Form 10-K for the year ended December 31,
2006.
On
May
18, 2007, our Board of Directors authorized management to consider the
divestiture of all or a part of our Industrial Segment. On May 25, 2007, we
entered into a letter of intent (“LOI”) to sell our Industrial Segment to The
Environmental Quality Company (EQ), excluding our facility in Pittsburgh,
Pennsylvania, owned by our subsidiary, Perma-Fix of Pittsburgh, Inc. (“PFP), and
our facility in Detroit, Michigan, owned by our subsidiary, Perma-Fix of
Michigan, Inc. (“PFMI”), two facilities which have been approved as discontinued
operations by our Board of Directors effective November, 8, 2005, and October
4,
2004, respectively. Subsequent to entering into the letter of intent, EQ advised
us that they would be unable to proceed with the transaction as contemplated
by
the letter of intent. We have since received offers and entered into LOIs with
various companies to sell the following facilities within our Industrial
Segment: On August 2, 2007, we entered into a LOI with the Amerex Group, Inc.
to
sell our Perma-Fix Treatment Services, Inc. facility; On September 10, 2007,
we
entered into two separate LOIs with Triumvirate Environmental, Inc., with one
LOI covering the sale of our Perma-Fix Maryland, Inc., Perma-Fix of Fort
Lauderdale, Inc., and Perma-Fix of Orlando, Inc. facilities, and the other
LOI
covering the sale of our Perma-Fix of South Georgia, Inc. facility; On October
2, 2007, we entered into a LOI with OGM, Ltd. to sell our Perma-Fix of Dayton,
Inc. facility. Each of the above LOIs is subject to the completion of due
diligence and the parties entering into a definitive purchase agreements.
Management considers the sale of the Industrial Segment before June 30, 2008
to
be probable (see Note 7, “Discontinued Operations” as to the terms of the
various LOIs). At May 25, 2007, the Industrial Segment met the held for sale
criteria under Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, and therefore,
certain assets and liabilities of the Industrial Segment are presented as held
for sale, and we have ceased depreciation of the Industrial Segment’s long-lived
assets classified as held for sale. The result of operations and cash flows
of
the Industrial Segment have been reported in the Consolidated Financial
Statements as discontinued operations for all periods presented.
2.
|
Summary
of Significant Accounting
Policies
|
Our
accounting policies are as set forth in the notes to consolidated financial
statements referred to above, with the exception of investment as discussed
below, which was added to our balance sheet in the second quarter of 2007,
as
result of the acquisition of Nuvotec (n/k/a Perma-Fix Northwest, Inc.) and
its
wholly owned subsidiary Pacific EcoSolutions, Inc (PEcoS) (n/k/a Perma-Fix
Northwest Richland, Inc.). See “Note 10 - Acquisition” in “Notes to
“Consolidated Financial Statements” on terms and accounting treatment of the
acquisition.
Investment
Management
determines the appropriate classification of its investments at the time of
acquisition and re-evaluates such determination at each balance sheet date.
The
Company accounts for its investments in debt and equity securities under
Statement of Financial Accounting Standards, (“SFAS”) 115, “Accounting for
Certain Investments in Debt and Equity Securities” which requires certain
securities to be categorized as either trading, available-for-sale, or
held-to-maturity. Available-for-sale securities are carried at fair value,
with
unrealized gains and losses, net of tax, reported as a separate component of
stockholders’ equity. Investments classified as held-to-maturity are carried at
amortized cost. The Company currently has only trading securities with
unrealized gains and losses included in earnings. The Company reviews its
investments quarterly for declines in market value that are other than
temporary. Investments that have declined in market value that are determined
to
be other than temporary, are charged to other income by writing that investment
down to market value.
Recently
Adopted Accounting Pronouncements
FIN
48
Effective
January 1, 2007, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48),
which supplements Statement of Financial Accounting Standards No. 109,
“Accounting for Income Taxes”, by defining the confidence level that a tax
position must meet in order to be recognized in the financial statements. FIN
48
requires that the tax effects of a position be recognized only if it is
“more-likely-than-not” to be sustained based solely on its technical merits as
of the reporting date. The more-likely-than-not threshold represents a positive
assertion by management that a company is entitled to the economic benefits
of a
tax position. If a tax position is not considered more-likely-than-not to be
sustained based solely on its technical merits, no benefits of the tax position
are to be recognized. Moreover, the more-likely-than-not threshold must continue
to be met in each reporting period to support continued recognition of a
benefit. With the adoption of FIN 48, companies are required to adjust their
financial statements to reflect only those tax positions that are
more-likely-than-not to be sustained. Any necessary adjustments would be
recorded directly to retained earnings and reported as a change in accounting
principle. We adopted FIN 48 as of January 1, 2007, and concluded that we have
not taken any uncertain tax positions on any of our open returns filed through
the period ended December 31, 2006, that would
materially distort our financial statements.
We
reassess the validity of our conclusions regarding uncertain income tax
positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause us to change our judgment regarding the likelihood
of a
tax position's sustainability under audit. The impact of this reassessment
for
the third quarter of 2007 did not have any impact on our results of operations,
financial condition, or liquidity.
Reclassifications
Certain
prior period amounts have been reclassified to conform with the current period
presentation. Additionally, prior period balances and results have been
reclassified for the retroactive effect of discontinued operations. Refer to
Note 7.
3.
|
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. 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.
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. In the event a holder of an
accelerated vesting option terminates employment with us prior to the end of
the
original vesting term of such options, we will recognize the compensation
expense at the time of termination.
As
of
September 30, 2007, we had 2,366,667 employee stock options outstanding, which
included 1,534,000 that were outstanding and fully vested at December 31, 2005,
766,000 of the 878,000 employee stock options approved and granted on March
2,
2006, of which 242,000 are vested, and 66,667 of the 100,000 employee stock
options approved and granted on May 15, 2006, of which 33,333 became vested
and
were exercised on May 15, 2007. The weighted average exercise price of the
1,776,000 outstanding and fully vested employee stock options is $1.96 with
a
weighted contractual life of 3.49 years. The employee stock options outstanding
at December 31, 2005 are ten year options, issuable at exercise prices from
$1.25 to $3.00 per share, and expiration dates from October 1, 2007 to October
28, 2014. The employee stock option grants in March and May 2006 are six year
options with a three year vesting period, with exercise prices from $1.85 to
$1.86 per share. We have not granted any employee stock options for the nine
months ended September 30, 2007.
Additionally,
we have 591,000 outstanding director stock options, of which 102,000 were newly
granted ten year options with exercise price of $2.95, with vesting period
of
six months, resulting from the election of our Board of Directors on August
2,
2007. The weighted average exercise price of the 489,000 exercisable director
stock options outstanding as of September 30, 2007, is $1.97 with a weighted
contractual life of 5.92. The director stock options outstanding as of September
30, 2007 are ten year options, issuable at exercise prices ranging from $1.22
to
$2.98 per share and expiration dates from December 8, 2007 to August 2, 2017.
For
the
three and nine months ended September 30, 2007, we recognized share based
compensation expense of approximately $52,000 and $190,000, respectively, for
the employee stock options grants of March 2, 2006 and May 15, 2006, as compared
to $60,000 and $134,000 for the same period ended September 30, 2006. For the
stock option grants on March 2, 2006 and May 15, 2006, 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 three year vesting period. As
SFAS 123R requires that stock-based compensation expense be based on
options that are ultimately expected to vest, approximately $30,000 of the
$190,000 share based compensation expense recognized above for the nine months
ended September 30, 2007, was the result of the difference between our estimated
forfeiture rate of 5.7% and the actual forfeiture rate of 1.7% for the first
year vesting of our March 2, 2006 employee option grant. When estimating
forfeitures, we consider trends of actual option forfeitures. The forfeiture
rates are evaluated, and revised as necessary. We recognized approximately
$75,000 and $98,000 share based compensation expense for our director options
the three and nine months ended September 30, 2007, respectively, as compared
to
$28,000 and $39,000 for the corresponding period ended September 30, 2006.
For
the director option grants on August 2, 2007, 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 six months vesting period. In total, the share
compensation expense for the three and nine months ended September 30, 2007
for
our director and employee stock options impacted our results of operations
by
$127,000 and $288,000, respectively, as compared to $88,000 and $173,000 for
the
corresponding period ended September 30, 2006. We have approximately $625,000
of
total unrecognized compensation cost related to unvested options as of September
30, 2007, of which approximately $172,000 will be recognized in the fourth
quarter of 2007, $261,000 will be recognized in 2008, and the remaining $192,000
in 2009.
For
the
director option grant of August 2, 2007, we calculated a fair value of $2.95
for
each option grant with the following assumptions using the Black-Scholes option
pricing model: no dividend yield; an expected life of ten years; an expected
volatility of 67.60%; and a risk free interest rate of 4.77%. We calculated
a
fair value of $0.868 for each March 2, 2006 option grant on the date of grant
with the following assumptions:
no
dividend yield; an expected life of four years; expected volatility of 54.0%;
and a risk free interest rate of 4.70%. We calculated a fair value of $0.877
for
the May 15, 2006 option grant on the date of grant with the following
assumptions: no dividend yield; an expected life of four years; an expected
volatility of 54.6%; and a risk-free interest rate of 5.03%. We calculated
a
fair value of $1.742 for each July 27, 2006 director option grant on the date
of
the grant with the following assumptions: no dividend yield; an expected life
of
ten years; an expected volatility of 73.31%; and a risk free interest rate
of
4.98%.
Our
computation of expected volatility is based on historical volatility from our
traded common stock. Due to our change in the contractual term and vesting
period, we utilized the
simplified method, defined in the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 107, to calculate the expected term for our 2006 grants.
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.
Basic
EPS
is based on the weighted average number of shares of Common Stock outstanding
during the period. Diluted EPS includes the dilutive effect of potential common
shares.
The
following is a reconciliation of basic net income (loss) per share to diluted
net income (loss) per share for the three and nine months ended September 30,
2007 and 2006:
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
(Amounts
in thousands except per share amounts)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Earnings
per share from continuing operations
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(124
|
)
|
$
|
600
|
|
$
|
1,211
|
|
$
|
3,558
|
|
Preferred
stock dividends
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
(Loss)
income from continuing operations
|
|
|
(124
|
)
|
|
600
|
|
|
1,211
|
|
|
3,558
|
|
applicable
to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock dividends
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
(Loss)
income- diluted
|
|
$
|
(124
|
)
|
$
|
600
|
|
$
|
1,211
|
|
$
|
3,558
|
|
Basic
income per share
|
|
|
¾
|
|
$
|
.01
|
|
$
|
.02
|
|
$
|
.08
|
|
Diluted
income per share
|
|
|
¾
|
|
$
|
.01
|
|
$
|
.02
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
- basic and diluted
|
|
$
|
(1,828
|
)
|
$
|
(270
|
)
|
$
|
(3,025
|
)
|
$
|
(724
|
)
|
Basic
loss per share
|
|
$
|
(.04
|
)
|
$
|
¾
|
|
$
|
(.05
|
)
|
$
|
(.02
|
)
|
Diluted
loss per share
|
|
$
|
(.04
|
)
|
$
|
¾
|
|
$
|
(.05
|
)
|
$
|
(.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic
|
|
|
52,843
|
|
|
50,541
|
|
|
52,349
|
|
|
46,851
|
|
Potential
shares exercisable under stock option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plan
|
|
|
¾
|
|
|
479
|
|
|
771
|
|
|
253
|
|
Potential
shares upon exercise of Warrants
|
|
|
¾
|
|
|
410
|
|
|
553
|
|
|
310
|
|
Weighted
average common shares outstanding - diluted
|
|
|
52,843
|
|
|
51,430
|
|
|
53,673
|
|
|
47,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
shares excluded from above weighted average share calculations
due to
their anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon
exercise of options
|
|
|
217
|
|
|
385
|
|
|
232
|
|
|
1,190
|
|
Upon
exercise of Warrants
|
|
|
¾
|
|
|
1,776
|
|
|
¾
|
|
|
1,776
|
|
Long-term
debt consists of the following at September 30, 2007, and December 31,
2006:
(Amounts
in Thousands)
|
|
September
30, 2007 (Unaudited)
|
|
December
31, 2006
|
|
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%
|
|
|
|
|
|
(8.75%
at September 30, 2007), balance due in November 2008.
|
|
|
5,202
|
|
|
¾
|
|
Term
Loan
dated December 22, 2000, payable in equal monthly
|
|
|
|
|
|
|
|
installments
of principal of $83, balance due in November 2008,
variable
|
|
|
|
|
|
|
|
interest
paid monthly at prime rate plus 1% (9.25% at September 30,
2007).
|
|
|
4,750
|
|
|
5,500
|
|
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 (10.0% on September 30, 2007) and is payable in one lump
|
|
|
|
|
|
|
|
sum
at the end of installment period.
|
|
|
1,034
|
|
|
1,434
|
|
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%
|
|
|
3,520
|
|
|
¾
|
|
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
|
|
|
¾
|
|
Installment
Agreement
dated June 25, 2001, payable in semiannual IRS
|
|
|
|
|
|
|
|
installments
on June 30 and December 31 through December 31, 2008,
|
|
|
|
|
|
|
|
variable
interest accrues at the applicable law rate determined under
the
|
|
|
|
|
|
|
|
Code
Section (10.0% on September 30, 2007) and is payable in one
|
|
|
|
|
|
|
|
lump
sum at the end of installment period.
|
|
|
253
|
|
|
353
|
|
Various
capital lease and promissory note obligations, payable 2007
to
|
|
|
|
|
|
|
|
2012,
interest at rates ranging from 5.0% to 15.7%.
|
|
|
1,262
|
|
|
1,042
|
|
|
|
|
18,521
|
|
|
8,329
|
|
Less
current portion of long-term debt
|
|
|
4,078
|
|
|
2,092
|
|
Less
long-term debt related to assets held for sale
|
|
|
896
|
|
|
830
|
|
|
|
$
|
13,547
|
|
$
|
5,407
|
|
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,
as amended. The Agreement provides for a term loan (“Term Loan”) in the amount
of $7,000,000, which requires monthly installments of $83,000 with the remaining
unpaid principal balance due on May 31, 2008. The Agreement also provides for
a
revolving line of credit (“Revolving Credit”) with a maximum principal amount
outstanding at any one time of $18,000,000, as amended. The Revolving Credit
advances are subject to limitations of an amount up to the sum of (a) up to
85%
of Commercial Receivables aged 90 days or less from invoice date, (b) up to
85%
of Commercial Broker Receivables aged up to 120 days from invoice date, (c)
up
to 85% of acceptable Government Agency Receivables aged up to 150 days from
invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60
days, less (e) reserves the Agent reasonably deems proper and necessary. As
of
September 30, 2007, the excess availability under our Revolving Credit was
$7,418,000 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 Bank. 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 (k/n/a
Perma-Fix of 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 Bank, which extended the
due
date of the $25 million 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 Bank, which extended
the due date of the $25 million 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.
Promissory
Notes
In
conjunction with our acquisition of M&EC, M&EC issued a promissory note
for a principal amount of $3.7 million to Performance Development Corporation
(“PDC”), dated June 25, 2001, for monies advanced to M&EC for certain
services performed by PDC. The promissory note is payable over eight years
on a
semi-annual basis on June 30 and December 31. The principal repayments for
2007
will be approximately $400,000 semi-annually. Interest is accrued at the
applicable law rate (“Applicable Rate”) pursuant to the provisions of section
6621 of the Internal Revenue Code of 1986 as amended (10% on September 30,
2007)
and payable in one lump sum at the end of the loan period. On September 30,
2007, the outstanding balance was $3,026,000 including accrued interest of
approximately $1,992,000. Pursuant to the agreement the accrued interest is
to
be paid at the end of the term, and as such, is recorded as a long-term
liability. PDC has directed M&EC to make all payments under the promissory
note directly to the Internal Revenue Service (“IRS”) to be applied to PDC’s
obligations under its installment agreement with the IRS.
In
conjunction with our acquisition of Nuvotec (n/k/as Perma-Fix Northwest, Inc.)
and PEcoS (n/k/a as Perma-Fix Northwest Richland, Inc.), which was completed
on
June 13, 2007, we entered into a promissory note for a principal amount of
$4.0
million 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 years 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%. On September 30, 2007, the outstanding
principal balance was $3,520,000.
Installment
Agreement
Additionally,
M&EC entered into an installment agreement with the IRS for a principal
amount of $923,000 effective June 25, 2001, for certain withholding taxes owed
by M&EC. The installment agreement is payable over eight years on a
semiannual basis on June 30 and December 31. The principal repayments for 2007
will be approximately $100,000 semiannually. Interest is accrued at the
Applicable Rate, and is adjusted on a quarterly basis and payable in lump sum
at
the end of the installment period. On September 30, 2007, the rate was 10%.
On
September 30, 2007, the outstanding balance was $734,000 including accrued
interest of approximately $481,000. The accrued interest is to be paid at the
end of the term, and as such, is recorded as a long-term liability, pursuant
to
the terms of the agreement.
In
conjunction with our acquisition of Nuvotec (n/k/as Perma-Fix Northwest, Inc.)
and PEcoS (n/k/a as Perma-Fix Northwest Richland, Inc.), which was completed
on
June 13, 2007, pursuant to the Agreement and Plan of Merger, dated April 27,
2007, which was subsequently amended 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, $2.5 million,
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. As of September 30, 2007, we had accrued
interest of approximately $58,000.
6.
|
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
In
the
normal course of conducting our business, we are involved in various litigation.
There has been no material change in legal proceedings from those disclosed
previously in the Company’s Form 10-K for the year ended December 31, 2006,
and
our
Form 10-Qs for the periods ended March 31, 2007 and June 30, 2007, except as
follows:
Perma-Fix
of Dayton, Inc. (“PFD”)
As
previously disclosed, our subsidiary, Perma-Fix of Dayton, Inc., is defending
a
lawsuit styled Barbara
Fisher v. Perma-Fix of Dayton, Inc.,
in the
United States District Court, Southern District of Ohio (the “Fisher Lawsuit”).
This citizen’s suit was brought under the Clean Air Act alleging, among other
things, violations by PFD of state and federal clean air statutes connected
with
the operation of PFD’s facility located in Dayton, Ohio. As further previously
disclosed, the U.S. Department of Justice, on behalf of the Environmental
Protection Agency, intervened in the Fisher Lawsuit alleging, among other
things, substantially similar violations alleged in the Fisher Lawsuit (the
“Government’s Lawsuit”).
We
also
previously disclosed that PFD has reached an agreement in principle with the
government to settle the Government’s Lawsuit, whereby PFD has agreed to take
specific action to address relevant air pollution regulations and permit
requirements and to pay a civil penalty of $800,000. If the Government Lawsuit
settlement is finalized, we anticipate the penalty to consist of two
components:
· |
cash
payment to the appropriate regulatory authority;
and
|
· |
supplemental
environmental projects consisting of one or more capital
projects.
|
We
are
negotiating with the DOJ and EPA to complete a formal consent decree (settlement
agreement) to finalize the settlement of the Government’s Lawsuit in accordance
with the agreement in principle and to meet the government’s approval
requirements (including public notice and comment).
Recently,
we reached an agreement in principle to settle the Fisher Lawsuit, whereby
PFD
would pay a total of $1,325,000. The purpose of the proposed settlement is
to
avoid the uncertainties and expense of continuing the litigation and to settle
and compromise on any and all claims that the Fisher Plaintiff could have raised
against PFD.
Settlement
of the Fisher Lawsuit is subject to, among other things, execution and court
acceptance of a definitive settlement agreement. Our insurer has agreed to
contribute $500,000 toward the settlement cost of the Fisher Lawsuit.
Discussions are ongoing with our insurer as to whether, and to what extent
any
additional contribution may be made in connection with the settlement of the
Fisher Lawsuit and as to whether any contribution will be made in connection
with the settlement of the Government Lawsuit.
As
of the
date of this report, we have therefore recorded a total of $1,625,000 of
reserves in our discontinued operations for PFD to settle the Fisher Lawsuit
and
the Government Lawsuit. The Company recorded $825,000 in the third quarter
of
2007.
As
previously reported, on April 12, 2007 our insurer agreed to reimburse PFD
for
reasonable defense costs of litigation incurred prior to our insurer’s
assumption of the defense, but this agreement to defend and indemnify PFD was
subject to the our insurer’s reservation of its rights to deny indemnity
pursuant to various policy provisions and exclusions, including, without
limitation, payment of any civil penalties and fines, as well as our insurer’s
right to recoup any defense cost it has advanced if our insurer later determines
that its policy provides no coverage. When, our
insurer withdrew
its prior coverage denial and agreed to defend and indemnify PFD in the above
described lawsuits, subject to certain reservation of rights, we had incurred
more than $2.5
million in costs in vigorously defending against the Fisher Lawsuit and the
Government Lawsuit. To date, our insurer has reimbursed PFD $2.5
million for legal defense fees and disbursements, which we recorded as a
recovery within our discontinued operations in the second quarter of 2007.
Partial reimbursement from our insurer of $750,000 was received on July 11,
2007. A second reimbursement of approximately $1.75 million was received on
August 17, 2007. Our insurer has advised us that they will reimburse us for
approximately another $82,000 in legal fees and disbursements, subject to our
insurer’s reservation of rights as noted above. We anticipate receiving this
additional reimbursement in the fourth quarter of 2007.
Perma-Fix
of Orlando, Inc. (“PFO”)
Recently,
PFO has been named as a defendant in four cases related to a series of toxic
tort cases, the “Brottem Litigation” that are pending in the Circuit Court of
Seminole County, Florida. All of the cases involve allegations of toxic chemical
exposure at a former telecommunications manufacturing facility located in Lake
Mary, Florida, known generally as the “Rinehart Road Plant”. PFO is presently a
defendant, together with numerous other defendants, in the following four cases:
Brottem
v. Siemens, et al.; Canada v. Siemens et al.; Bennett v. Siemens et
al.
and the
recently filed Culbreath
v. Siemens et al.
All of
the cases seek unspecified money damages for alleged personal injuries or
wrongful death. With the exception of PFO, the named defendants are all present
or former owners of the subject property, including several prominent
manufacturers that operated the Rinehart Road Plant. The allegations in all
of
the cases are essentially identical.
The
basic
allegations are that PFO provided “industrial waste management services” to the
Defendants and that PFO negligently “failed to prevent” the discharge of toxic
chemicals or negligently “failed to warn” the plaintiffs about the dangers
presented by the improper handling and disposal of chemicals at the facility.
The complaints make no attempt to specify the time and manner of the alleged
exposures in connection with PFO’s “industrial waste management services.” PFO
has moved to dismiss for failure to state a cause of action.
At
this
time, the cases involve a large number of claims involving personal injuries.
At
this very early stage, it is not possible to accurately assess PFO’s potential
liability. Our insurer has agreed to defend and indemnify us in these lawsuits,
excluding our deductible of $250,000, subject to a reservation of rights to
deny
indemnity pursuant to various provisions and exclusions under our policy.
Insurance
We
believe we maintain insurance coverage adequate for our needs and which is
similar to, or greater than, the coverage maintained by other companies of
our
size in the industry. There can be no assurances, however, those liabilities,
which may be incurred by us, 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, 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 million of financial
assurance coverage of which the coverage amount totals $30,096,000 at September
30, 2007, and has available capacity to allow for annual inflation and other
performance and surety bond requirements. This finite risk insurance policy
required an upfront payment of $4.0 million, 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 2007, we paid our fourth 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 September 30, 2007,
we
have recorded $5,702,000 in our sinking fund on the balance sheet, which
includes interest earned of $505,000 on the sinking fund as of September 30,
2007. Interest income for the three and nine months ended September 30, 2007,
was $69,000 and $193,000, respectively.
In
August
2007, we entered into a second finite risk insurance policy for our Perma-Fix
Northwest Richland, Inc. facility, which was acquired on June 13, 2007. The
policy provides an initial $7.8 million 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 $8.2 million. 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 $4.4 million, consisting
of
an annual payment of $1.4 million, and two annual payments of $1.5 million,
starting July 31, 2007. In July 2007, we paid the first of our three annual
payments of $1.4 million, of which $1.1 million represented premium on the
policy and the remaining $258,000 was deposited into a sinking fund account.
Each of the two remaining $1.5 million payments will consist of $176,000 in
premium with the remaining $1.3 million to be deposited into a sinking fund.
As
of September 30, 2007, we have recorded $259,000 in our sinking fund on the
balance sheet, which includes interest earned of $1,000 on the sinking fund
as
of September 30, 2007.
7.
|
Discontinued
Operations
|
Our
Industrial Segment has sustained losses in each year since 2000. The facilities
in our Industrial Segment provide on-and-off site treatment, storage, processing
and disposal of hazardous and non-hazardous industrial waste, and wastewater.
Certain of our facilities within the Industrial Segment provide waste management
services to governmental agencies. On May 18, 2007, our Board of Directors
authorized management to consider the divestiture of all or a part of our
Industrial Segment. On May 25, 2007, we entered into a letter of intent (“LOI”)
to sell our Industrial Segment to The Environmental Quality Company (EQ),
excluding our facility in Pittsburgh, Pennsylvania, owned by our subsidiary,
Perma-Fix of Pittsburgh, Inc. (“PFP), and our facility in Detroit, Michigan,
owned by our subsidiary, Perma-Fix of Michigan, Inc. (“PFMI”), two facilities
which have been approved as discontinued operations by our Board of Directors
effective November, 8, 2005, and October 4, 2004, respectively. Subsequent
to
entering into the letter of intent, EQ advised us that they would be unable
to
proceed with the transaction as contemplated by the letter of intent. We have
since received offers and entered into LOIs with various companies to sell
the
following facilities within our Industrial Segment: On August 2, 2007, we
entered into a LOI with the Amerex Group, Inc. to sell Perma-Fix Treatment
Services, Inc. facility for $2.2 million and assumption of certain liabilities;
On September 10, 2007, we entered into two separate LOIs with Triumvirate
Environmental, Inc., with one LOI covering the sale of substantially all of
the
assets of Perma-Fix Maryland, Inc., Perma-Fix of Fort Lauderdale, Inc., and
Perma-Fix of Orlando, Inc. facilities for approximately $12.0 million, plus
assumption of certain liabilities, and the other LOI covering the sale of
substantially all of the assets of Perma-Fix of South Georgia, Inc. facility
for
approximately $1.1 million, and assumption of certain liabilities; On October
2,
2007, we entered into a LOI with OGM, Ltd. to sell the business and
substantially all of the assets of Perma-Fix of Dayton, Inc. for approximately
$3.0 million and assumption of certain liabilities. Each of the above LOIs
is
subject to the completion of due diligence, parties entering into a definitive
purchase agreement, and approval of our lender and approval of the Board of
Directors of the parties thereto. Management considers the sale of the
Industrial Segment before June 30, 2008 to be probable.
At
May
25, 2007, the Industrial Segment met the held for sale criteria under Statement
of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”, and therefore, certain assets and
liabilities of the Industrial Segment are presented as held for sale, and we
have ceased depreciation of the Industrial Segment’s long-lived assets
classified as held for sale. The result of operations and cash flows of the
Industrial Segment have been reported in the Consolidated Financial Statements
as discontinued operations for all periods presented.
We
performed an updated internal analysis on the tangible and intangible assets
to
test for impairment in the Industrial Segment based on the new LOIs entered
into
as discussed above, as required by Statement of Financial Accounting Standard
(SFAS) 144, “Accounting for the Impairment or disposal of Long-Lived Assets” and
SFAS 142, “Goodwill and Other Intangible Assets”. Our analysis, as required by
SFAS 144, included the comparison of the offered sale price less cost to sale
to
the carrying value of the investment under each LOI separately. Based on our
analysis, we concluded that the carrying value of the tangible assets for
Perma-Fix Dayton, Inc. facility exceeded its fair value, less cost to sell.
Consequently, we recorded $564,000 in tangible asset impairment loss in the
third quarter of 2007 which is included in “Loss from discontinued operations,
net of taxes” on our Consolidated Statements of Operations. We also performed
financial valuations on the intangible assets of the Industrial Segment to
test
for impairment as required by SFAS 142. We concluded that no other tangible
and
intangible impairments existed as of September 30, 2007.
The
following table summarizes the results of discontinued operations for the three
and nine months ended September 30, 2007, and 2006. These results are included
in our Consolidated Statements of Operations as part of our “Loss from
discontinued operations, net of taxes”.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
(Amounts
in Thousands)
|
|
September
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
7,960
|
|
$
|
9,178
|
|
$
|
23,347
|
|
$
|
26,874
|
|
Operating
loss from discontinued operations
|
|
$
|
(1,826
|
)
|
$
|
(270
|
)
|
$
|
(3,023
|
)
|
$
|
(724
|
)
|
Income
tax provision
|
|
|
2
|
|
|
¾
|
|
$
|
2
|
|
|
¾
|
|
Loss
from discontinued operations
|
|
$
|
(1,828
|
)
|
$
|
(270
|
)
|
$
|
(3,025
|
)
|
$
|
(724
|
)
|
As
previously disclosed in the second quarter of 2007, the Company’s insurer
withdrew its prior denial of coverage and agreed to defend and indemnify
Perma-Fix and its Dayton, Ohio subsidiary in the previously disclosed lawsuit
brought against the Dayton, Ohio subsidiary by a citizens’ group, styled
Barbara
Fisher v. Perma-Fix of Dayton, Inc.
and the
federal government (DOJ/USEPA) alleging, among other things, that our Dayton
subsidiary was operating without appropriate air permits. Our insurer’s
agreement was subject to a reservation of rights to deny indemnity pursuant
to
various provisions and exclusions under the policy, including, without
limitation, payment of any civil penalties and fines, and the insurer’s right to
recoup any defense cost it has advanced in the event that the policy provides
no
coverage. We were advised by our insurer in the second quarter of 2007 that
we
would be reimbursed approximately $2.5 million previously spent to defend this
litigation, which we recorded as a recovery within discontinued operations
in
the second quarter of 2007, in accordance with EITF (Emerging Issues Task Force)
01-10. We received $750,000 of the $2.5 million on July 11, 2007. We received
the second reimbursement of approximately $1.75 million on August 17, 2007.
Our
insurer has advised us that they will reimburse us for approximately another
$82,000 in legal fees and disbursements in defending this litigation. We
anticipate receiving this additional reimbursement in the fourth quarter of
2007.
As
previously reported, on April 25, 2007, PFD reached an agreement in principal
(“AIP”) with DOJ/USEPA representatives to settle all of the United States’
claims, and under the AIP, PFD has agreed to take specific action to address
relevant air pollution regulations and to pay a civil penalty of $800,000.
As a
result, we recorded $800,000 of reserves in discontinued operations in the
second quarter of 2007 for the anticipated settlement. Recently,
we reached an agreement in principle to settle the Fisher Lawsuit which requires
PFD to pay a total of $1,325,000. The purpose of the proposed settlement is
to
avoid the uncertainties and expense of continuing the litigation and to settle
and compromise on any and all claims that the Fisher Plaintiff could have raised
against PFD. Settlement of the Fisher Lawsuit is subject to, among other things,
execution of a definitive settlement agreement and approval and entry of the
definitive settlement agreement by the court. Our insurer has agreed to
contribute $500,000 toward the settlement cost of the Fisher Lawsuit.
Discussions are ongoing with our insurer as to whether, and to what extent
any
additional contribution may be made in connection with the settlement of the
Fisher Lawsuit and as to whether any contribution will be made in connection
with the settlement of the Government Lawsuit.
As
of the
date of this report, we have therefore recorded a total of $1,625,000 of
reserves in our discontinued operations for settlement by PFD of the Fisher
Lawsuit and the Government Lawsuit. The Company recorded $825,000 of reserve
in
the third quarter of 2007 within our discontinued operations based on the
anticipated settlement cost to PFD for the Fisher Lawsuit. See
“--Known Trends and Uncertainties-Certain Legal Proceedings” in Management’s
Discussion and Analysis of Financial Condition and Results of Operations for
more detailed discussion of the agreements in principle, issues with our insurer
as to these agreements, and conditions precedent to these
settlements.
Asset
and
liabilities related to discontinued operations total $21,006,000 and $11,728,000
as of September 30, 2007, respectively and $22,750,000 and $10,632,000 as of
December 31, 2006, respectively.
The
following table presents Industrial Segment’s major classes of assets and
liabilities classified as held for sale as of September 30, 2007, and December
31, 2006:
(Amounts
in Thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Account
receivable, net
|
|
$
|
4,915
|
|
$
|
5,768
|
|
Inventories
|
|
|
391
|
|
|
522
|
|
Other
assets
|
|
|
3,132
|
|
|
3,179
|
|
Property,
plant and equipment, net
|
|
|
12,568
|
|
|
13,281
|
|
Total
assets held for sale
|
|
$
|
21,006
|
|
$
|
22,750
|
|
Account
payable
|
|
$
|
2,247
|
|
$
|
2,132
|
|
Accrued
expenses and other liabilities
|
|
|
4,857
|
|
|
3,760
|
|
Deferred
revenue
|
|
|
¾
|
|
|
¾
|
|
Note
payable
|
|
|
896
|
|
|
830
|
|
Environmental
liabilities
|
|
|
1,146
|
|
|
1,094
|
|
Total
liabilities held for sale
|
|
$
|
9,146
|
|
$
|
7,816
|
|
The
table
above represents the respective assets and liabilities that are held for sale
as
of September 30, 2007, and December 31, 2006 which excludes certain liabilities,
consisting of the pension liability at Perma-Fix Michigan (see discussion below)
and the environmental liabilities at Perma-Fix of Michigan and Perma-Fix Dayton.
Pension liability of $1,287,000 and environmental liabilities of $1,295,000
are
excluded from liabilities held for sale as of September 30, 2007, and pension
liability of $1,433,000 and environmental liabilities of $1,383,000 are excluded
from liabilities held for sale as of December 31, 2006. The held for sale asset
and liabilities balances as of September 30, 2007 may differ from the respective
balances at closing.
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 $707,000 for closure costs since September 30, 2004,
of
which $78,000 has been spent during the nine months of 2007 and $74,000 was
spent in 2006. We have $575,000 accrued for the closure, as of September 30,
2007, and we anticipate spending $78,000 in the fourth quarter of 2007 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 September 30, 2007, PFMI has a pension payable of $1,287,000. 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 $158,000 that we expect to pay over the next
year.
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 two operating segments, which are defined as each business line
that we operate. This however, excludes corporate headquarters, which does
not
generate revenue, and our discontinued operations, which include our facilities
in our Industrial Segment. (See “Note 7 - Discontinued Operations” to “Notes to
Consolidated Financial Statements”.
Our
operating segments are defined as follows:
The
Nuclear Waste Management Services 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 our newly acquired facility , Perma-Fix of Northwest, which
was
purchased in June 2007.
The
Consulting Engineering Services segment provides environmental engineering
and
regulatory compliance services through Schreiber, Yonley & Associates, Inc.
which includes oversight management of environmental restoration projects,
air
and soil sampling and compliance and training activities to industrial and
government customers, as well as, engineering and compliance support needed
by
our other segments.
Our
discontinued operations encompass our facilities in our Industrial Waste
Management Services Segment which provides on-and-off site treatment, storage,
processing and disposal of hazardous and non-hazardous industrial waste, and
wastewater through our six facilities; Perma-Fix Treatment Services, Inc.,
Perma-Fix of Dayton, Inc., Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of
Orlando, Inc., Perma-Fix of South Georgia, Inc., and Perma-Fix of Maryland,
Inc.
We provide through certain of our facilities various waste management services
to certain governmental agencies. Our discontinued operations also include
PFMI
and PFP, two non-operational facilities.
The
following table presents certain financial information in thousands by business
segment as of and for the three and nine months ended September 30, 2007 and
2006, for our operating segments.
Segment
Reporting for the Quarter Ended September 30, 2007
|
|
Nuclear
|
|
|
Engineering
|
|
Segments
Total
|
|
Corporate(2)
|
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
13,211
|
|
(3
|
)
|
$
|
629
|
|
$
|
13,840
|
|
|
¾
|
|
|
|
$
|
13,840
|
|
Intercompany
revenues
|
|
|
1,036
|
|
|
|
|
305
|
|
|
1,341
|
|
|
¾
|
|
|
|
|
1,341
|
|
Gross
profit
|
|
|
4,035
|
|
|
|
|
231
|
|
|
4,266
|
|
|
¾
|
|
|
|
|
4,266
|
|
Interest
income
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
71
|
|
|
|
|
71
|
|
Interest
expense
|
|
|
240
|
|
|
|
|
¾
|
|
|
240
|
|
|
236
|
|
|
|
|
476
|
|
Interest
expense-financing fees
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
48
|
|
|
|
|
48
|
|
Depreciation
and amortization
|
|
|
1,092
|
|
|
|
|
10
|
|
|
1,102
|
|
|
16
|
|
|
|
|
1,118
|
|
Segment
profit (loss)
|
|
|
1,319
|
|
|
|
|
70
|
|
|
1,389
|
|
|
(1,513
|
)
|
|
|
|
(124
|
)
|
Segment
assets(1)
|
|
|
95,319
|
|
|
|
|
2,012
|
|
|
97,331
|
|
|
33,675
|
|
(4
|
)
|
|
131,006
|
|
Expenditures
for segment assets
|
|
|
488
|
|
|
|
|
¾
|
|
|
488
|
|
|
4
|
|
|
|
|
492
|
|
Total
long-term debt
|
|
|
7,665
|
|
|
|
|
8
|
|
|
7,673
|
|
|
9,952
|
|
(5
|
)
|
|
17,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reporting for the Quarter Ended September 30, 2006
|
|
|
Nuclear
|
|
|
|
|
Engineering
|
|
|
Segments
Total
|
|
|
Corporate(2)
|
|
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
11,023
|
|
(3
|
)
|
$
|
1,065
|
|
$
|
12,088
|
|
|
¾
|
|
|
|
$
|
12,088
|
|
Intercompany
revenues
|
|
|
579
|
|
|
|
|
172
|
|
|
751
|
|
|
¾
|
|
|
|
|
751
|
|
Gross
profit
|
|
|
4,127
|
|
|
|
|
241
|
|
|
4,368
|
|
|
¾
|
|
|
|
|
4,368
|
|
Interest
income
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
100
|
|
|
|
|
100
|
|
Interest
expense
|
|
|
127
|
|
|
|
|
¾
|
|
|
127
|
|
|
149
|
|
|
|
|
276
|
|
Interest
expense-financing fees
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
48
|
|
|
|
|
48
|
|
Depreciation
and amortization
|
|
|
784
|
|
|
|
|
10
|
|
|
794
|
|
|
14
|
|
|
|
|
808
|
|
Segment
profit (loss)
|
|
|
1,997
|
|
|
|
|
95
|
|
|
2,092
|
|
|
(1,492
|
)
|
|
|
|
600
|
|
Segment
assets(1)
|
|
|
67,653
|
|
|
|
|
2,407
|
|
|
70,060
|
|
|
35,363
|
|
(4
|
)
|
|
105,423
|
|
Expenditures
for segment assets
|
|
|
1,994
|
|
|
|
|
8
|
|
|
2,002
|
|
|
25
|
|
|
|
|
2,027
|
|
Total
long-term debt
|
|
|
2,515
|
|
|
|
|
17
|
|
|
2,532
|
|
|
5,750
|
|
(5
|
)
|
|
8,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reporting for the Nine Months Ended September 30,
2007
|
|
|
Nuclear
|
|
|
|
|
Engineering
|
|
|
Segments
Total
|
|
|
Corporate(2)
|
|
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
38,560
|
|
(3
|
)
|
$
|
1,738
|
|
$
|
40,298
|
|
|
¾
|
|
|
|
$
|
40,298
|
|
Intercompany
revenues
|
|
|
2,328
|
|
|
|
|
845
|
|
|
3,173
|
|
|
¾
|
|
|
|
|
3,173
|
|
Gross
profit
|
|
|
13,106
|
|
|
|
|
564
|
|
|
13,670
|
|
|
¾
|
|
|
|
|
13,670
|
|
Interest
income
|
|
|
1
|
|
|
|
|
¾
|
|
|
¾
|
|
|
237
|
|
|
|
|
238
|
|
Interest
expense
|
|
|
462
|
|
|
|
|
1
|
|
|
463
|
|
|
486
|
|
|
|
|
949
|
|
Interest
expense-financing fees
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
143
|
|
|
|
|
143
|
|
Depreciation
and amortization
|
|
|
2,666
|
|
|
|
|
27
|
|
|
2,693
|
|
|
52
|
|
|
|
|
2,745
|
|
Segment
profit (loss)
|
|
|
5,625
|
|
|
|
|
162
|
|
|
5,787
|
|
|
(4,576
|
)
|
|
|
|
1,211
|
|
Segment
assets(1)
|
|
|
95,319
|
|
|
|
|
2,012
|
|
|
97,331
|
|
|
33,675
|
|
(4
|
)
|
|
131,006
|
|
Expenditures
for segment assets
|
|
|
2,337
|
|
|
|
|
13
|
|
|
2,350
|
|
|
17
|
|
|
|
|
2,367
|
|
Total
long-term debt
|
|
|
7,665
|
|
|
|
|
8
|
|
|
7,673
|
|
|
9,952
|
|
(5
|
)
|
|
17,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reporting for the Nine Months Ended September 30,
2006
|
|
|
Nuclear
|
|
|
|
|
Engineering
|
|
|
Segments
Total
|
|
|
Corporate(2)
|
|
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
36,288
|
|
(3
|
)
|
|
2,737
|
|
|
39,025
|
|
|
¾
|
|
|
|
$
|
39,025
|
|
Intercompany
revenues
|
|
|
1,848
|
|
|
|
|
413
|
|
|
2,261
|
|
|
¾
|
|
|
|
|
2,261
|
|
Gross
profit
|
|
|
14,662
|
|
|
|
|
692
|
|
|
15,354
|
|
|
¾
|
|
|
|
|
15,354
|
|
Interest
income
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
189
|
|
|
|
|
189
|
|
Interest
expense
|
|
|
362
|
|
|
|
|
1
|
|
|
363
|
|
|
632
|
|
|
|
|
995
|
|
Interest
expense-financing fees
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
144
|
|
|
|
|
144
|
|
Depreciation
and amortization
|
|
|
2,254
|
|
|
|
|
30
|
|
|
2,284
|
|
|
38
|
|
|
|
|
2,322
|
|
Segment
profit (loss)
|
|
|
8,078
|
|
|
|
|
246
|
|
|
8,324
|
|
|
(4,766
|
)
|
|
|
|
3,558
|
|
Segment
assets(1)
|
|
|
67,653
|
|
|
|
|
2,407
|
|
|
70,060
|
|
|
35,363
|
|
(4
|
)
|
|
105,423
|
|
Expenditures
for segment assets
|
|
|
3,212
|
|
|
|
|
59
|
|
|
3,271
|
|
|
50
|
|
|
|
|
3,321
|
|
Total
long-term debt
|
|
|
2,515
|
|
|
|
|
17
|
|
|
2,532
|
|
|
5,750
|
|
(5
|
)
|
|
8,282
|
|
(1) |
Segment
assets have been adjusted for intercompany accounts to reflect actual
assets for each segment.
|
(2) |
Amounts
reflect the activity for corporate headquarters not included in the
segment information.
|
(3)
|
The
consolidated revenues within the Nuclear segment include the LATA/Parallax
revenues for the three and nine months ended September 30, 2007,
which
total $2,029,000 or 14.7% and $7,167,000 or 17.8% of total revenues,
respectively. LATA/Parallax revenues for same periods in 2006 were
$2,672,000 or 22.1% and $7,344,000 or 18.8%.
|
(4)
|
Amount
includes assets from our discontinued operations of $21,006,000 and
$23,944,000 as of September 30, 2007 and 2006, respectively.
|
(5)
|
Includes
the balance outstanding from our revolving line of credit and term
loan,
which is utilized by all of our
segments.
|
In
July
2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation
No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 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 48 requires a company to evaluate whether the tax
position taken by a company will more likely than not be sustained upon
examination by the appropriate taxing authority. It also provides guidance
on
how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006.
We
adopted FIN 48 as of January 1, 2007. As a result of the implementation of
FIN
48, we have concluded that we have not taken any uncertain tax positions on
any
of our open income tax returns filed through the period ended December 31,
2006
that would materially distort our financial statement. Our methods of accounting
are based on established income tax principles approved in the Internal Revenue
Code (IRC) and are properly calculated and reflected within our income tax
returns. In addition, we have filed income tax returns in all applicable
jurisdictions in which we had material nexus warranting an income tax return
filing.
We
re-assess the validity of our conclusions regarding uncertain income tax
positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause us to change our judgment regarding the likelihood
of a
tax position's sustainability under audit. The impact of this reassessment
for
the third quarter of 2007 did not have any impact on our results of operations,
financial condition or liquidity.
10.
|
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 voting 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 Perma-Fix Environmental Services Inc. (PESI). 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. The
strategic addition of Nuvotec provides the Company with immediate access to
treat some of the most complex nuclear waste streams in the nation and should
provide significant growth opportunity in the coming years.
Under
the
terms of the Merger Agreement, the purchase price paid by the Company in
connection with the acquisition was $17.0 million, consisting of as follows:
(a) |
$2.3
million in cash at closing of the merger, with $1.5 million payable
to
unaccredited shareholders and $0.8 million 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:
|
· |
$2.5
million, 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 $2.0 million 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 $2.2
million, 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 $9.4 million of debt, $8.9 million 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 $5.4
million of this debt resulting in debt remaining of $4.0
million.
|
(d) |
Transaction
costs totaling $0.6 million.
|
In
addition to the above, an agreement to a contingency of an earn-out amount
not
to exceed $4.4 million 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 combined Nuclear Segment. The first $1.0 million 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. As of September 30,
2007
the Company has not made or accrued any earn-out payments to Nuvotec
shareholders because such revenue targets have not been met.
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. 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 $8.1
million, was allocated to goodwill which is not amortized but subject to an
annual impairment test. The Company has not yet finalized the allocation of
the
purchase price to the net assets acquired in this acquisition. As such the
estimated purchase price allocation is preliminary and subject to further
revision. The following table summarizes the preliminary purchase price to
the
net assets acquired in this acquisition as of September 30, 2007.
(Amounts
in thousands)
|
|
|
|
Cash
|
|
$
|
2,300
|
|
Assumed
debt
|
|
|
9,412
|
|
Installment
payments
|
|
|
2,500
|
|
Common
Stock of the Company
|
|
|
2,165
|
|
Transaction
costs
|
|
|
602
|
|
Total
consideration
|
|
$
|
16,979
|
|
The
following table presents the allocation of the preliminary acquisition cost,
including professional fees and other related acquisition costs, to the assets
and liabilities assumed based on their fair values:
(Amounts
in thousands)
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
2,834
|
|
Property,
plant and equipment
|
|
|
13,978
|
|
Permits
|
|
|
4,500
|
|
Goodwill
|
|
|
8,067
|
|
Total
assets acquired
|
|
|
29,379
|
|
Current
liabilities
|
|
|
(8,632
|
)
|
Non-current
liabilties
|
|
|
(3,768
|
)
|
Total
liabilities assumed
|
|
|
(12,400
|
)
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
16,979
|
|
The
results of operations of Nuvotec (n/k/a Perma-Fix Northwest, Inc.) and PEcoS
(n/k/a Perma-Fix Northwest Richland, Inc.) have been included in Perma-Fix’s
consolidated financial statements from the date of the closing of the
acquisition, which was June 13, 2007. The following unaudited pro forma
financial information presents the combined results of operations of combining
Nuvotec and PEcoS and Perma Fix as though the acquisition had occurred as of
the
beginning of the periods presented. As Perma-Fix provides a valuation allowance
on substantially all of its deferred tax assets, any deferred tax impact
resulting from the reevaluation of the fixed assets has not been recognized.
The
pro forma financial information does not necessarily represent the results
of
operations that would have occurred had Nuvotec and PEcoS and Perma Fix been
a
single company during the periods presented, nor does Perma Fix believe that
the
pro forma financial information presented is necessarily representative of
future operating results.
(Amounts
in Thousands, Except per Shares)
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
2007
|
|
2006
|
|
Net
revenues
|
|
$
|
13,840
|
|
$
|
16,748
|
|
Net
(loss) income
|
|
$
|
(124
|
)
|
$
|
2,089
|
|
Net
income per share - basic
|
|
|
¾
|
|
$
|
.04
|
|
Net
income per share - diluted
|
|
|
¾
|
|
$
|
.04
|
|
Weighted
average shares outstanding - basic
|
|
|
52,843
|
|
|
50,541
|
|
Weighted
average shares outstanding - diluted
|
|
|
52,843
|
|
|
51,430
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
2007
|
|
2006
|
|
Net
revenues
|
|
$
|
44,736
|
|
$
|
49,905
|
|
Net
income
|
|
$
|
633
|
|
$
|
5,573
|
|
Net
income per share - basic
|
|
|
.01
|
|
$
|
.12
|
|
Net
income per share - diluted
|
|
|
.01
|
|
$
|
.12
|
|
Weighted
average shares outstanding - basic
|
|
|
52,349
|
|
|
46,851
|
|
Weighted
average shares outstanding - diluted
|
|
|
53,673
|
|
|
47,414
|
|
During
the nine months ended September 30, 2007, we issued 223,786 shares of our Common
Stock upon exercise of 226,084 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 the nine months ended September 30,
2007
related to warrant and option exercises totaled approximately $439,000, which
includes $399,000 from employee stock option exercises and $40,000 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.
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 borrowings 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.
The
summary of the Company’s total Plans as of September 30, 2007 as compared to
September 30, 2006 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 Janury 1, 2007
|
|
|
2,816,750
|
|
$
|
1.86
|
|
|
|
|
|
|
|
Granted
|
|
|
102,000
|
|
|
2.95
|
|
|
|
|
|
|
|
Exercised
|
|
|
226,084
|
|
|
1.80
|
|
|
|
|
$
|
238,671
|
|
Forfeited
|
|
|
34,999
|
|
|
1.83
|
|
|
|
|
|
|
|
Options
outstanding End of Period
|
|
|
2,657,667
|
|
|
1.91
|
|
|
4.8
|
|
$
|
3,086,524
|
|
Options
Exercisable at September 30, 2007
|
|
|
1,965,000
|
|
$
|
1.87
|
|
|
4.6
|
|
$
|
2,358,911
|
|
Options
Vested and expected to be vested at September 30, 2007
|
|
|
2,613,127
|
|
$
|
1.91
|
|
|
4.8
|
|
$
|
3,032,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Term
|
|
Aggregate
Intrinsic Value
|
|
Options
outstanding January 1, 2006
|
|
|
2,546,750
|
|
$
|
1.79
|
|
|
|
|
|
|
|
Granted
|
|
|
1,068,000
|
|
|
1.88
|
|
|
|
|
|
|
|
Exercised
|
|
|
401,500
|
|
|
1.32
|
|
|
|
|
$
|
277,193
|
|
Forfeited
|
|
|
224,500
|
|
|
2.07
|
|
|
|
|
|
|
|
Options
outstanding End of Period
|
|
|
2,988,750
|
|
|
1.86
|
|
|
5.5
|
|
$
|
742,028
|
|
Options
Exercisable at September 30, 2006
|
|
|
1,930,750
|
|
$
|
1.85
|
|
|
5.4
|
|
$
|
537,748
|
|
Options
Vested and expected to be vested at September 30, 2006
|
|
|
2,939,274
|
|
$
|
1.86
|
|
|
5.5
|
|
$
|
731,638
|
|
The
following tables summarize information about options under the plans outstanding
at September 30, 2007 and 2006:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Description
and Range of Exercise Prices at September 30, 2007
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Equity Plan
|
|
|
9,000
|
|
|
1.0
|
|
$
|
1.25
|
|
|
9,000
|
|
|
1.0
|
|
$
|
1.25
|
|
($1.25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
Stock Option Plan
|
|
|
1,187,500
|
|
|
4.1
|
|
|
1.85
|
|
|
1,187,500
|
|
|
4.1
|
|
|
1.85
|
|
($1.25
- $2.19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Stock Option Plan
|
|
|
870,167
|
|
|
4.5
|
|
|
1.84
|
|
|
279,500
|
|
|
4.8
|
|
|
1.80
|
|
($1.44
- $1.86)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
Outside Director Stock Option Plan
|
|
|
165,000
|
|
|
3.2
|
|
|
2.05
|
|
|
165,000
|
|
|
3.2
|
|
|
2.05
|
|
($1.22
- $2.98)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
Outside Director Stock Option Plan
|
|
|
426,000
|
|
|
7.9
|
|
|
2.18
|
|
|
324,000
|
|
|
7.3
|
|
|
1.94
|
|
($1.70-
$2.95)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Description
and Range of Exercise Prices at September 30, 2006
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Equity Plan
|
|
|
12,000
|
|
|
2.0
|
|
$
|
1.25
|
|
|
12,000
|
|
|
2.0
|
|
$
|
1.25
|
|
($1.25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
Stock Option Plan
|
|
|
1,399,750
|
|
|
5.1
|
|
|
1.86
|
|
|
1,399,750
|
|
|
5.1
|
|
|
1.86
|
|
($1.00-
$2.19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Stock Option Plan
|
|
|
1,053,000
|
|
|
5.7
|
|
|
1.83
|
|
|
85,000
|
|
|
5.4
|
|
|
1.85
|
|
($1.44
- $1.86)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
Outside Director Stock Option Plan
|
|
|
200,000
|
|
|
3.6
|
|
|
2.00
|
|
|
200,000
|
|
|
3.6
|
|
|
2.00
|
|
($1.22
- $2.98)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
Outside Director Stock Option Plan
|
|
|
324,000
|
|
|
8.3
|
|
|
1.94
|
|
|
234,000
|
|
|
7.7
|
|
|
1.85
|
|
In
connection with the acquisition of Nuvotec (n/k/a Perma-Fix Northwest, Inc.)
and
PEcoS (n/k/a Perma-Fix Northwest Richland, Inc.), which was completed on June
13, 2007, the Company owns 24,000 shares of Common Stock of IsoRay Inc. The
amount owned represents less than 1% of the issued and outstanding shares of
IsoRay, Inc. as of September 12, 2007. The Company has no unique voting rights
and no ability to exercise significant influence over IsoRay, Inc. As of
September 30, 2007, the fair value of the 24,000 shares of Common Stock totaled
approximately $84,000. During the three months ended September 30, 2007, we
recognized a loss of $37,000 as result of our adjustment of the shares to its
fair market value at September 30, 2007
13.
|
Letters
of Intent (LOI)
|
On
May
18, 2007, our Board of Directors authorized management to consider the
divestiture of all or a part of our Industrial Segment. On May 25, 2007, we
entered into a letter of intent (“LOI”) to sell our Industrial Segment to The
Environmental Quality Company (EQ), excluding our facility in Pittsburgh,
Pennsylvania, owned by our subsidiary, Perma-Fix of Pittsburgh, Inc. (“PFP), and
our facility in Detroit, Michigan, owned by our subsidiary, Perma-Fix of
Michigan, Inc. (“PFMI”), two facilities which have been approved as discontinued
operations by our Board of Directors effective November, 8, 2005, and October
4,
2004, respectively. Subsequent to entering into the letter of intent, EQ advised
us that they would be unable to proceed with the transaction as contemplated
by
the letter of intent. We have since received offers and entered into LOIs with
various companies to sell the following facilities within our Industrial
Segment:
· |
On
August 2, 2007, we entered into a LOI with the Amerex Group, Inc.
to sell
the Perma-Fix Treatment Services, Inc. facility, located in Tulsa,
Oklahoma. Under this LOI, Amerex will pay to us $2.2 million and
assume
certain liabilities of Perma-Fix Treatment. The purchase price is
subject
to adjustment under certain
conditions.
|
· |
On
September 10, 2007, we entered into two separate LOIs with Triumvirate
Environmental, Inc. One of the LOIs covers the sale of assets of
Perma-Fix
of Maryland, Perma-Fix of Fort Lauderdale, and Perma-Fix of Orlando
for
approximately $12.0 million, plus assumption by the purchaser of
certain
liabilities of these companies, and the second LOI covers the sale
of the
assets of Perma-Fix of South Georgia for approximately $1.1 million,
plus
assumption of certain liabilities. The purchase price under both
LOIs is
subject to adjustment under certain
conditions.
|
· |
On
October 2, 2007, the Company entered into a letter of intent with
OGM,
Ltd. (“OGM”) to sell the business and certain assets of its subsidiary,
Perma-Fix of Dayton, Inc. (“PFD”), located in Dayton, Ohio. Under this
letter of intent OGM will pay to us $3.0 million and assume certain
liabilities and obligations of PFD. The purchase price is subject
to
adjustment under certain conditions. This letter of intent is subject
to
OGM obtaining suitable arrangements to finance the purchase price.
|
The
letter of intent further provides that the definitive agreement shall provide,
among other things, that:
· |
each
of the parties shall provide the other with certain indemnifications,
and
|
· |
in
the event that on or before closing date of the definitive purchase
agreement a settlement agreement resolving the citizen’s suit portion of
the lawsuit styled Fisher,
et al., v. PFD
(the “Lawsuit”) as previously disclosed by the Company, has not been
entered into by the parties and approved by the court and/or a consent
decree has not been entered into between PFD and the U.S. Department
of
Justice (“DOJ”) and the U.S. Environmental Protection Agency (“EPA”)
resolving the government’s allegations in the Lawsuit (see Footnote 6 to
“Notes to Consolidated Financial Statements” - “Commitments and
Contingenices - Legal”), then OGM would not be obligated to close the
purchase transaction unless the Company and PFD agree to indemnify
OGM
against any liabilities or damages incurred by OGM as a result of
the
failure of the Company and/or PFD to settle the citizen’s suit portion of
the Lawsuit on terms substantially similar to the terms of a proposed
settlement agreement attached to the definitive agreement or enter
into a
consent decree with the EPA and/or DOJ on terms substantially similar
to
the terms of a proposed consent decree attached as an exhibit to
the
definitive agreement.
|
Each
of
the LOIs entered into, as noted above, is subject to the completion of due
diligence and the parties entering into a definitive purchase agreement.
14.
|
Related
Party Transaction
|
The
compensation committee of our board of directors unanimously recommended to
the
full board of directors, and, based on such recommendation, our board of
directors approved on the same day, that Joe R. Reeder, a member of our board
of
directors, with Mr. Reeder abstaining, be paid an additional director’s fee of
$160,000 as compensation for his services as the board’s representative in
negotiating the agreement in principle to settle the claims brought by the
United States, on behalf of the EPA, against PFD, our Dayton, Ohio, subsidiary,
and resolution of certain other matters relating to that lawsuit. As a fee
payable to Mr. Reeder for his services as a member of our board of directors,
payment of the fee is governed by the terms of our 2003 Outsider Directors
Stock
Plan (the “2003 Directors Plan”). In accordance with the terms of the 2003
Directors Plan, fees payable to a non-employee director may be paid, at the
election of the director, either 65% or 100% in shares of our common stock,
with
any balance payable in cash. The number of shares to be issued under the 2003
Directors Plan in lieu of cash fees is determined by dividing the amount of
the
fee by 75% of the closing sales price of our common stock on the business day
immediately preceding the date that the fee is due. Mr. Reeder has elected
to
receive 100% of such fee in shares of our common stock in lieu of cash. Our
director fees for the third quarter are payable at our next Annual Shareholders’
Meeting in 2008. Based on the closing price of $2.89 per share on October 30,
2007, Mr. Reeder is entitled to receive under the terms of the 2003 Directors
Plan, 73,818 shares of our common stock as payment for his services relating
to
the PFD litigation, in lieu of the cash amount of $160,000.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART
I, ITEM 2
Forward-looking
Statements
Certain
statements contained within this report may be deemed “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(collectively, the “Private Securities Litigation Reform Act of 1995”). All
statements in this report other than a statement of historical fact are
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors, which could cause actual results and
performance of the Company to differ materially from such statements. The words
“believe,” “expect,” “anticipate,” “intend,” “will,” and similar expressions
identify forward-looking statements. Forward-looking statements contained herein
relate to, among other things,
·
|
improve
our operations and liquidity;
|
|
|
·
|
anticipated
improvement in the financial performance of the
Company;
|
|
|
·
|
ability
to comply with the Company’s general working capital requirements;
|
|
|
·
|
ability
to be able to continue to borrow under the Company’s revolving line of
credit;
|
|
|
·
|
anticipate
a full repayment of our Term Loan by November 2008;
|
|
|
·
|
we
anticipate the environmental liabilities for all the Industrial Segment
facilities noted above will be part of the divestiture with the exception
of PFM, PFD, and PFMI, which will remain the financial obligations
of the
Company. While no assurances can be made that we will be able to
do so, we
expect to fund the expenses to remediate the three sites from funds
generated internally;
|
|
|
·
|
each
of the LOIs entered into is subject to the completion of due diligence
and
the parties entering into a definitive purchase
agreement.
|
|
|
·
|
the
purchase price under the LOI is subject to adjustment under certain
conditions;
|
|
|
·
|
this
letter of intent is subject to OGM obtaining suitable arrangements
to
finance the purchase price;
|
|
|
·
|
under
our insurance contracts, we usually accept self-insured retentions,
which
we believe is appropriate for our specific business
risks;
|
|
|
·
|
we
believe we maintain insurance coverage adequate for our needs and
which is
similar to, or greater than the coverage maintained by other companies
of
our size in the industry;
|
|
|
·
|
LATA/Parallax
can terminate the contract with us at any time for convenience, which
could have a material adverse effect on our operations;
|
|
|
·
|
we
could be a potentially responsible party for the costs of the cleanup
notwithstanding any absence of fault on our part;
|
|
|
·
|
we
anticipate full repayment of our Revolver November 2008;
|
|
|
·
|
ability
to remediate certain contaminated sites for projected
amounts;
|
|
|
·
|
ability
to fund budgeted capital expenditures during 2007;
|
|
|
·
|
we
anticipate funding these capital expenditures by a combination of
lease
financing and internally generated funds.
|
|
|
·
|
expanding
within the mixed waste market, as well as more complex waste
streams;
|
|
|
·
|
growth
of our Nuclear segment;
|
|
|
·
|
efforts
to complete a formal settlement agreement (consent decree) and to
meet the
DOJ/EPA official approval requirements (including public notice and
comment) are on-going;
|
|
|
·
|
cost
estimates associated with taking action to address air pollution
control
regulations and permit requirements will depend on specific details
of the
consent decree;
|
|
|
·
|
based
on the current status of the Corrective Action, we believe that the
remaining reserve is adequate to cover the liability;
|
|
|
·
|
the
agreement in principle (“AIP”) states that PFD will pay a civil penalty of
$800,000; however, if the Government Lawsuit settlement is finalized,
we
anticipate the penalty to consist of two components;
|
|
|
·
|
settlement
of the Fisher Lawsuit is subject to , among other things, execution
of a
definitive settlement agreement and approval and entry of the definitive
settlement agreement by the court;
|
|
|
·
|
our
insurer has advised us that they will reimburse us approximately
another
$82,000 in legal and out of pocket defense costs, subject to our
insurer
reservation of rights as noted above. We anticipate receiving this
reimbursement in the fourth quarter of 2007;
|
|
|
·
|
discussions
are ongoing with our insurer as to whether, and to what extent any
additional contribution may be made in connection with the settlement
of
the Fisher Lawsuit and as to whether any contribution will be made
in
connection with the settlement of the Government
Lawsuit;
|
|
|
·
|
we
anticipate most of these reserves being paid off when the Industrial
Segment is sold, but should that not take place in the short term
future,
these reserves would have an adverse effect on our liquidity position;
|
|
|
·
|
we
expect backlog levels to continue to fluctuate within acceptable
levels
throughout 2007, subject to the complexity of the waste streams and
timing
of receipts and processing of materials;
|
|
|
·
|
at
this very early stage, it is not possible to accurately assess PFO’s
potential liability. Our insurer has agreed to defend and indemnify
us in
these lawsuits, excluding our deductible of $250,000, subject to
a
reservation of rights to deny indemnity pursuant to various provisions
and
exclusions under our policy; and
|
|
|
·
|
this
level of backlog material continues to position the Nuclear Segment
well,
from a processing revenue perspective, as it provides for continued
and
more consistent processing during slower
seasons.
|
While
the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance such expectations will prove to have
been correct. There are a variety of factors, which could cause future outcomes
to differ materially from those described in this report, including, but not
limited to:
·
|
general
economic conditions;
|
|
|
·
|
material
reduction in revenues;
|
|
|
·
|
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 a certain
Dayton,
Ohio, property formerly leased by the Company or the Company’s facilities
at Memphis, Tennessee; Valdosta, Georgia; Detroit, Michigan; and
Tulsa,
Oklahoma, 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 less than
expected;
|
|
|
·
|
the
requirement to use internally generated funds for purposes not presently
anticipated;
|
|
|
·
|
inability
to continue to be profitable on an annualized basis;
|
|
|
·
|
the
inability of the Company to maintain the listing of its Common Stock
on
the NASDAQ;
|
|
|
·
|
the
determination that PFMI and PFSG was responsible for a material amount
of
remediation at certain superfund sites;
|
|
|
·
|
execution
of final agreement with EPA with regard to PFD lawsuit;
|
|
|
·
|
terminations
of contracts with federal agencies or subcontracts involving federal
agencies, or reduction in amount of waste delivered to the Company
under
the contracts or subcontracts;
|
|
|
·
|
AIG’s
agreement to defend and Indemnify us in connection with the PFD litigation
is subject to the AIG’s reservation of its rights to deny indemnity
pursuant to various policy provisions and exclusions, including without
limitation, payment of any civil penalties and fines, as well as
AIG’s
right to recoup any defense costs it has advanced if AIG later determines
that its policy provides no coverage; and
|
|
|
·
|
the
factors listed in our 2006 Annual Report on 10-K under “Special Notes
Regarding Forward-Looking Statements”.
|
|
|
The
Company undertakes no obligations to update publicly any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Overview
We
provide services through two reportable operating segments. The Nuclear Waste
Management Services segment (“Nuclear segment”) provides treatment, storage,
processing and disposal services of mixed waste (waste containing both hazardous
and low-level radioactive materials) and low-level radioactive wastes, including
research, development and on-site and off-site waste remediation. The presence
of nuclear and low-level radioactive constituents within the waste streams
processed by this segment create different and unique operational, processing
and permitting/licensing requirements from those contained within the Industrial
segment. Our Consulting Engineering Services segment (“Engineering segment”)
provides a wide variety of environmental related consulting and engineering
services to both industry and government. These services include oversight
management of environmental restoration projects, air and soil sampling,
compliance reporting, surface and subsurface water treatment design for removal
of pollutants, and various compliance and training activities.
The
third
quarter of 2007 reflected a revenue increase of $1,752,000 or 14.5% from the
same period of 2006. Excluding the revenue of $3,513,000 of our newly acquired
Perma-Fix Northwest Richland, Inc., (PFNWR) facility on June 13, 2007, the
Nuclear Segment revenue decreased 12.0% from the same period of 2006 due to
lower receipts throughout the segment. We also saw a 40.9% decrease in revenue
at our Engineering Segment. The third quarter 2007 gross profit, excluding
the
gross profit of $1,790,000 of our PFNW facility, decreased by $1,892,000 or
43.3% from the same period of 2006. Excluding the gross profit and revenue
of
our PFNWR facility, gross profit as a percentage of revenue decreased from
36.1%
to 24.0%. The reduction in gross profit was due primarily with the Nuclear
Segment experiencing lower revenue from receipts of waste coupled with a change
in revenue mix to lower margin waste streams. The Nuclear Segment gross profit
fell 45.6%. During the third quarter, SG&A, excluding our PFNWR’s SG&A
of approximately $657,000, decreased by 4.2%. The decrease is due to payroll
and
general expense reductions in administrative and Nuclear Segment, offset by
increase of bad debt expense in our Engineering Segment. We continue to pursue
growth within the Nuclear Segment by, among other things, expansion within
the
mixed waste market, as well as more complex waste streams. This growth is
demonstrated by the acquisition of Nuvotec USA Inc. (n/k/a Perma-Fix Northwest,
Inc.) and its wholly owned subsidiary Pacific EcoSolutions Inc. (n/k/a Perma-Fix
Northwest Richland, Inc.) on June 13, 2007. For the quarter ended September
30,
2007, Perma-Fix Northwest Richland, Inc. had net revenue and operating income
of
approximately $3,513,000 and $1,143,000, respectively. Our
interest expense was higher in the quarter as we started to utilize our revolver
resulting from the acquisition of Perma-Fix Northwest, Inc. and Perma-Fix
Northwest Richland, Inc. on June 13, 2007 and payment of interest on debt
incurred from the acquisition. Overall, net loss available to common
shareholders was $1,952,000 for the three months ended September 30, 2007,
compared to net income of $330,000 for the same period of 2006. Our net loss
for
the three months ended September 30, 2007, included
a large
reserve of $825,000 from discontinued operations related to a lawsuit for our
Perma-Fix Dayton, Inc. facility (see “Commitments and Contingencies - Legal” in
this Management’s Discussion and Analysis of Financial Condition and Results of
Operation) and $564,000 in tangible asset impairment of $564,000 in our
Perma-Fix Dayton, Inc. facility (see “Note 7 - Discontinued Operations” in
“Notes to Consolidated Financial Statements”
Our
Industrial Segment has sustained losses in each year since 2000. The facilities
in our Industrial Segment provide on-and-off site treatment, storage, processing
and disposal of hazardous and non-hazardous industrial waste, and wastewater.
Certain of our facilities within the Industrial Segment provide waste management
services to governmental agencies. On May 18, 2007, our Board of Directors
authorized management to consider the divestiture of all or a part of our
Industrial Segment. On May 25, 2007, we entered into a letter of intent (“LOI”)
to sell our Industrial Segment to The Environmental Quality Company (EQ),
excluding our facility in Pittsburgh, Pennsylvania, owned by our subsidiary,
Perma-Fix of Pittsburgh, Inc. (“PFP), and our facility in Detroit, Michigan,
owned by our subsidiary, Perma-Fix of Michigan, Inc. (“PFMI”), two facilities
which have been approved as discontinued operations by our Board of Directors
effective November, 8, 2005, and October 4, 2004, respectively. Subsequent
to
entering into the letter of intent, EQ advised us that they would be unable
to
proceed with the transaction as contemplated by the letter of intent. We have
since received offers and entered into LOIs with various companies to sell
the
following facilities within our Industrial Segment: On August 2, 2007, we
entered into a LOI with the Amerex Group, Inc. to sell Perma-Fix Treatment
Services, Inc. facility for $2.2 million and assumption of certain liabilities;
On September 10, 2007, we entered into two separate LOIs with Triumvirate
Environmental, Inc., with one LOI covering the sale of substantially all of
the
assets of Perma-Fix Maryland, Inc., Perma-Fix of Fort Lauderdale, Inc., and
Perma-Fix of Orlando, Inc. facilities for approximately $12.0 million, plus
assumption of certain liabilities, and the other LOI covering the sale of
substantially all of the assets of Perma-Fix of South Georgia, Inc. facility
for
approximately $1.1 million, and assumption of certain liabilities; On October
2,
2007, we entered into a LOI with OGM, Ltd. to sell the business and
substantially all of the assets of Perma-Fix of Dayton, Inc. for approximately
$3.0 million and assumption of certain liabilities. Each of the above LOIs
is
subject to the completion of due diligence, parties entering into a definitive
purchase agreement, and approval of our lender and approval of the Board of
Directors of the parties thereto. Management considers the sale of the
Industrial Segment before June 30, 2008 to be probable.
Results
of Operations
The
reporting of financial results and pertinent discussions are tailored to two
reportable segments: Nuclear and Engineering. The table below should be used
when reviewing management’s discussion and analysis for the three and nine
months ended September 30, 2007 and 2006:
Consolidated
(amounts in thousands)
|
|
|
Three
Months Ending September 30,
|
|
|
Nine
Months Ending September 30,
|
|
|
|
|
2007
|
|
|
%
|
|
|
2006
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
2006
|
|
|
%
|
|
Net
revenues
|
|
$
|
13,840
|
|
|
100.0
|
|
$
|
12,088
|
|
|
100.0
|
|
$
|
40,298
|
|
|
100.0
|
|
$
|
39,025
|
|
|
100.0
|
|
Cost
of goods sold
|
|
|
9,574
|
|
|
69.2
|
|
|
7,720
|
|
|
63.9
|
|
|
26,628
|
|
|
66.1
|
|
|
23,671
|
|
|
60.7
|
|
Gross
profit
|
|
|
4,266
|
|
|
30.8
|
|
|
4,368
|
|
|
36.1
|
|
|
13,670
|
|
|
33.9
|
|
|
15,354
|
|
|
39.3
|
|
Selling,
general and administrative
|
|
|
4,061
|
|
|
29.3
|
|
|
3,564
|
|
|
29.5
|
|
|
11,535
|
|
|
28.6
|
|
|
10,654
|
|
|
27.3
|
|
Loss
(gain) on disposal of property & equipment
|
|
|
(4
|
)
|
|
―
|
|
|
―
|
|
|
―
|
|
|
(1
|
)
|
|
―
|
|
|
1
|
|
|
―
|
|
Income
from operations
|
|
$
|
209
|
|
|
1.5
|
|
$
|
804
|
|
|
6.6
|
|
$
|
2,136
|
|
|
5.3
|
|
$
|
4,699
|
|
|
12.0
|
|
Interest
expense
|
|
$
|
(476
|
)
|
|
(3.4
|
)
|
$
|
(276
|
)
|
|
(2.3
|
)
|
$
|
(949
|
)
|
|
(2.4
|
)
|
$
|
(995
|
)
|
|
(2.5
|
)
|
Interest
expense-financing fees
|
|
|
(48
|
)
|
|
(.3
|
)
|
|
(48
|
)
|
|
(.4
|
)
|
|
(143
|
)
|
|
(.4
|
)
|
|
(144
|
)
|
|
(.4
|
)
|
Other
income (expense)
|
|
|
(41
|
)
|
|
(.3
|
)
|
|
(6
|
)
|
|
―
|
|
|
(48
|
)
|
|
.1
|
|
|
(39
|
)
|
|
(.1
|
)
|
(Loss)
income from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
(124
|
)
|
|
(.9
|
)
|
|
600
|
|
|
5.0
|
|
|
1,211
|
|
|
3.0
|
|
|
3,558
|
|
|
9.1
|
|
Preferred
Stock dividends
|
|
|
―
|
|
|
―
|
|
|
―
|
|
|
―
|
|
|
―
|
|
|
―
|
|
|
―
|
|
|
―
|
|
Summary
-
Three and Nine Months Ended September 30, 2007 and 2006
Net
Revenues
Consolidated
revenues increased $1,752,000 for the three months ended September 30, 2007,
compared to the three months ended September 30, 2006, as follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
%
Change
|
|
Nuclear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
waste
|
|
$
|
3,673
|
|
|
26.6
|
|
$
|
3,973
|
|
|
32.9
|
|
$
|
(300
|
)
|
|
(7.6
|
)
|
Hazardous/Non-hazardous
|
|
|
1,069
|
|
|
7.7
|
|
|
829
|
|
|
6.8
|
|
|
240
|
|
|
29.0
|
|
Other
nuclear waste
|
|
|
2,646
|
|
|
19.1
|
|
|
1,920
|
|
|
15.9
|
|
|
726
|
|
|
37.8
|
|
Bechtel
Jacobs
|
|
|
281
|
|
|
2.0
|
|
|
1,629
|
|
|
13.5
|
|
|
(1,348
|
)
|
|
(82.8
|
)
|
LATA/Parallax
|
|
|
2,029
|
|
|
14.7
|
|
|
2,672
|
|
|
22.1
|
|
|
(643
|
)
|
|
(24.1
|
)
|
Acquisition
(PFNWR)
|
|
|
3,513
|
|
|
25.4
|
|
|
¾
|
|
|
¾
|
|
|
3,513
|
|
|
100.0
|
|
Total
|
|
|
13,211
|
|
|
95.5
|
|
|
11,023
|
|
|
91.2
|
|
|
2,188
|
|
|
19.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
629
|
|
|
4.5
|
|
|
1,065
|
|
|
8.8
|
|
|
(436
|
)
|
|
(40.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,840
|
|
|
100.1
|
|
$
|
12,088
|
|
|
100.0
|
|
$
|
1,752
|
|
|
14.5
|
|
The
Nuclear Segment experienced $2,188,000
increase
in
revenue for the three months ended September
30, 2007
over the same period in 2006.
Total
revenue within the Nuclear Segment included $3,513,000 of revenue of our
Perma-Fix Northwest Richland, Inc. facility, which was acquired on June 13,
2007. Excluding the revenue of our Perma-Fix Northwest Richland, Inc. facility,
revenue from our Nuclear Segment decreased approximately $1,325,000 or 12.0%
as
compared to the same period of 2006. Revenue
from government generators decreased
$300,000 or 7.6% due to overall lower government receipt. Hazardous and
non-hazardous revenue increased approximately $240,000 or 29.0% due to
combination of increases of volume of approximately 17.0% and average price
per
drum of approximately 12.0%. Revenue from LATA/Parallax decreased $643,000
or
24.1% for the three month ended September 30, 2007 as compared to the same
period of 2006. The decrease for LATA/Parallax is due to significant progress
made by LATA/Parallax on the completion of legacy waste removal actions as
part
of their clean-up project at Portsmouth for the Department of Energy, resulting
in a decrease of $917,000 in revenue as compared to the same period last year.
However, with the opening of our SouthBay facility, revenues related to receipt,
processing, and disposal of our LATA/Parallax Portsmouth Special Waste contract
increased by approximately $274,000. 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. Bechtel Jacobs will continue to ship lower volume
of
newly generated wastes until final contract expiration in the year 2009 to
2010.
The
backlog of stored waste at September 30, 2007 was $13,721,000 compared to
$12,492,000 as of December 31, 2006. Excluding the backlog at Perma-Fix
Northwest Richland, Inc.’s facility of $4,558,000, the backlog was down
$3,329,000 reflecting the decrease in receipts that occurred in the third
quarter. We expect backlog levels to continue to fluctuate within acceptable
levels throughout 2007, subject to the complexity of the waste streams and
timing of receipts and processing of materials. This level of backlog material
continues to position the Nuclear Segment well, from a processing revenue
perspective, as it provides for continued and more consistent processing during
slower seasons. Revenue from the Engineering Segment decreased during the third
quarter of 2007. Billable hours were lower due in part to a large event project
in 2006 which did not repeat in 2007 and more hours were spent supporting the
divestiture of the Industrial Segment facilities that are for sale.
Consolidated
revenues increased $1,273,000 for the nine months ended September 30, 2007,
compared to the nine months ended September 30, 2006, as follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
%
Change
|
|
Nuclear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
waste
|
|
$
|
11,310
|
|
|
28.1
|
|
$
|
12,267
|
|
|
31.4
|
|
$
|
(957
|
)
|
|
(7.8
|
)
|
Hazardous/Non-hazardous
|
|
|
4,236
|
|
|
10.5
|
|
|
2,538
|
|
|
6.6
|
|
|
1,698
|
|
|
66.9
|
|
Other
nuclear waste
|
|
|
10,042
|
|
|
24.9
|
|
|
9,247
|
|
|
23.7
|
|
|
795
|
|
|
8.6
|
|
Bechtel
Jacobs
|
|
|
1,094
|
|
|
2.7
|
|
|
4,892
|
|
|
12.5
|
|
|
(3,798
|
)
|
|
(77.6
|
)
|
LATA/Parallax
|
|
|
7,167
|
|
|
17.8
|
|
|
7,344
|
|
|
18.8
|
|
|
(177
|
)
|
|
(2.4
|
)
|
Acquisition
(PFNWR)
|
|
|
4,711
|
|
|
11.7
|
|
|
¾
|
|
|
¾
|
|
|
4,711
|
|
|
100.0
|
|
Total
|
|
|
38,560
|
|
|
95.7
|
|
|
36,288
|
|
|
93.0
|
|
|
2,272
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
1,738
|
|
|
4.3
|
|
|
2,737
|
|
|
7.0
|
|
|
(999
|
)
|
|
(36.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,298
|
|
|
100.0
|
|
$
|
39,025
|
|
|
100.0
|
|
$
|
1,273
|
|
|
3.3
|
|
The
Nuclear Segment experienced approximately
$2,272,000 increase
in
revenue for the nine
months
ended September
30, 2007
over the same period in 2006.
Total
revenue within the Nuclear Segment included approximately $4,711,000 of revenue
of our Perma-Fix Northwest Richland, Inc. facility, which was acquired on June
13, 2007. Excluding the revenue of our Northwest Richland, Inc. facility,
revenue from our Nuclear Segment decreased approximately $2,439,000 or 6.7%
as
compared to the same period of 2006. Excluding government revenue of
approximately $2,324,000 from the new acquisition of our Perma-fix Northwest
Richland, Inc. facility, revenue from government generators decreased
approximately 7.8% due to lower overall government receipt. We saw significant
increases of revenue from hazardous and non hazardous waste streams due to
a
combination of increases in both volume and price per unit. Revenues from the
LATA/Parallax Portsmouth contract awarded in the first quarter of 2006
contributed approximately $3,797,000 revenues for the nine months ended
September 30, 2007, compared to $1,627,000 for the same period of 2006. Our
revenue from Bechtel Jacobs decreased due to their nearing completion of the
project at Oak Ridge, as discussed above. We continue in our efforts to process
the backlog of their waste, and assist them in completing their milestones.
The
Engineering Segment experienced a decrease in revenue during the first nine
months of 2007, as a result of lower billable hours, a large event project
in
2006 which did not repeat in 2007, and increased internal work supporting
corporate objectives, such as due diligence requirement related to the
acquisition of Perma-Fix Northwest, Inc. and Perma-Fix Northwest Richland,
Inc.
in June 2007 and the divestiture of the Industrial Segment facilities that
are
for sale.
Cost
of Goods Sold
Cost
of
goods sold increased $1,854,000 for the quarter ended September 30, 2007,
compared to the quarter ended September 30, 2006, as follows:
(In
thousands)
|
|
2007
|
|
% Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
Nuclear
|
|
$
|
7,453
|
|
|
56.4
|
|
$
|
6,896
|
|
|
62.6
|
|
|
557
|
|
Engineering
|
|
|
398
|
|
|
63.3
|
|
|
824
|
|
|
77.4
|
|
|
(426
|
)
|
Acquisition
(PFNWR)
|
|
|
1,723
|
|
|
13.0
|
|
|
¾
|
|
|
¾
|
|
|
1,723
|
|
Total
|
|
$
|
9,574
|
|
|
69.2
|
|
$
|
7,720
|
|
|
55.8
|
|
|
1,854
|
|
Excluding
the cost of goods sold of approximately $1,723,000 for our Perma-Fix Northwest
Richland, Inc., facility, we saw an increase in cost of goods sold in the
Nuclear Segment and a decrease in the Engineering Segment. The Nuclear Segment
cost increased by approximately $557,000, which is attributable to higher
material, labor, lab expense, and outside contractor costs related to the
processing of wastes for the Portsmouth contract. The Engineering Segment saw
a
decrease in their cost of goods sold due to decrease in revenue. Included within
cost of goods sold is depreciation and amortization expense of $1,081,000 and
$740,000 for the three months ended September 30, 2007, and 2006, respectively.
Cost
of
goods sold increased $2,957,000 for the nine months ended September 30, 2007,
compared to the nine months ended September 30, 2006, as follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
Nuclear
|
|
$
|
22,899
|
|
|
59.4
|
|
$
|
21,626
|
|
|
59.6
|
|
|
1,273
|
|
Engineering
|
|
|
1,173
|
|
|
67.5
|
|
|
2,045
|
|
|
74.7
|
|
|
(872
|
)
|
Acquisition
(PFNWR)
|
|
|
2,556
|
|
|
6.6
|
|
|
¾
|
|
|
¾
|
|
|
2,556
|
|
Total
|
|
$
|
26,628
|
|
|
66.1
|
|
$
|
23,671
|
|
|
60.7
|
|
|
2,957
|
|
We
saw an
increase in cost of goods sold of approximately $1,273,000 in the Nuclear
Segment, excluding cost of goods sold of approximately $2,556,000 for our
Perma-Fix Northwest Richland, Inc. facility, and a decrease in the Engineering
Segment. The increase in cost of goods sold within our Nuclear Segment is due
to
higher materials, labor, lab expense, and outside contractor costs related
to
the processing and disposal of wastes. The Engineering Segment saw a decrease
in
their cost of goods sold as a result of their decreased revenues for the nine
months. Revenue in 2006 for the Engineering Segment included an event project
with high reimbursable expenses. Such revenue and reimbursable expenses have
not
recurred in 2007. Included within cost of goods sold is depreciation and
amortization expense of $2,649,000 and $2,192,000 for the nine months ended
September 30, 2007, and 2006, respectively.
Gross
Profit
Gross
profit for the quarter ended September 30, 2007, decreased over 2006, as
follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
Nuclear
|
|
$
|
2,245
|
|
|
17.0
|
|
$
|
4,127
|
|
|
37.4
|
|
$
|
(1,882
|
)
|
Engineering
|
|
|
231
|
|
|
36.7
|
|
|
241
|
|
|
22.6
|
|
|
(10
|
)
|
Acquisition
(PFNWR)
|
|
|
1,790
|
|
|
13.5
|
|
|
¾
|
|
|
¾
|
|
|
1,790
|
|
Total
|
|
$
|
4,266
|
|
|
30.8
|
|
$
|
4,368
|
|
|
36.1
|
|
$
|
(102
|
)
|
The
Nuclear Segment gross profit, excluding approximately $1,790,000 from the new
Perma-Fix Northwest Richland, Inc. facility, saw a decrease from prior year
primarily due to a shift in the mix of waste streams handled. High activity
waste streams such as mercury and thermal waste were lower in 2007. They were
replaced by lower margin field service work from the LATA/Parallax Portsmouth
contract as well as lower margin waste streams. In addition, surcharges were
significantly lower in 2007 which had a large impact on gross profit and gross
margin. 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. Though this increased gross profit,
it had a downward effect on gross margin.
Gross
profit for the nine months ended September 30, 2007, decreased $1,684,000 over
2006, as follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
Nuclear
|
|
$
|
10,950
|
|
|
28.4
|
|
$
|
14,662
|
|
|
40.4
|
|
$
|
(3,712
|
)
|
Engineering
|
|
|
564
|
|
|
32.5
|
|
|
692
|
|
|
25.3
|
|
|
(128
|
)
|
Acquisition
(PFNWR)
|
|
|
2,156
|
|
|
5.6
|
|
|
¾
|
|
|
¾
|
|
|
2,156
|
|
Total
|
|
$
|
13,670
|
|
|
33.9
|
|
$
|
15,354
|
|
|
39.3
|
|
$
|
(1,684
|
)
|
The
Nuclear Segment gross profit was down approximately $3,712,000, excluding the
gross profit of our Perma-Fix Northwest Richland, Inc. facility of approximately
$2,156,000. The decrease in gross profit in the Nuclear Segment is a result
of
the lower margin revenue processed. As with the 3rd
quarter,
lower volume of high activity waste was replaced with lower margin field work,
and surcharges were down from prior year. The Engineering Segment gross profit
decreased though its gross profit percentage increased. As with the third
quarter, the decrease was from lower margin pass through revenue which improved
gross profits.
Selling,
General and Administrative
Selling,
general and administrative (“SG&A”)
expenses
increased $497,000 for the three months ended September 30, 2007, as compared
to
the corresponding period for 2006, as follows:
|
|
|
|
%
|
|
|
|
%
|
|
|
|
(In
thousands)
|
|
2007
|
|
Revenue
|
|
2006
|
|
Revenue
|
|
Change
|
|
Administrative
|
|
$
|
1,363
|
|
|
¾
|
|
$
|
1,458
|
|
|
¾
|
|
$
|
(95
|
)
|
Nuclear
|
|
|
2,537
|
|
|
19.2
|
|
|
1,961
|
|
|
17.8
|
|
|
576
|
|
Engineering
|
|
|
161
|
|
|
25.6
|
|
|
145
|
|
|
13.6
|
|
|
16
|
|
Total
|
|
$
|
4,061
|
|
|
29.3
|
|
$
|
3,564
|
|
|
29.5
|
|
$
|
497
|
|
Our
SG&A expenses decreased slightly within the administrative and Nuclear
Segment, excluding SG&A expenses of $657,000 for our Perma-Fix Northwest
Richland, Inc. facility and increased in the Engineering Segment. The decreases
in administrative is due to decrease in payroll, as we continue to put efforts
into cutting costs. The decrease in the Nuclear Segment is due to payroll and
general costs. The Engineering Segment increase was the result of an increase
to
bad debt expense. Included in SG&A expenses is depreciation and amortization
expense of $37,000 and $68,000 for the three months ended September 30, 2007,
and 2006, respectively.
SG&A
expenses
increased $881,000 for the nine months ended September 30, 2007, as compared
to
the corresponding period for 2006, as follows:
|
|
|
|
%
|
|
|
|
%
|
|
|
|
(In
thousands)
|
|
2007
|
|
Revenue
|
|
2006
|
|
Revenue
|
|
Change
|
|
Administrative
|
|
$
|
4,167
|
|
|
¾
|
|
$
|
4,143
|
|
|
¾
|
|
$
|
24
|
|
Nuclear
|
|
|
6,965
|
|
|
18.1
|
|
|
6,066
|
|
|
16.7
|
|
|
899
|
|
Engineering
|
|
|
403
|
|
|
23.2
|
|
|
445
|
|
|
16.3
|
|
|
(42
|
)
|
Total
|
|
$
|
11,535
|
|
|
28.6
|
|
$
|
10,654
|
|
|
27.3
|
|
$
|
881
|
|
Our
SG&A expenses remained fairly flat in the administrative area and Nuclear
Segment, excluding SG&A expenses of approximately $852,000 for our Perma-Fix
Northwest Richland, Inc. facility. The Engineering Segment decrease was the
result of decrease in commission expense due to decrease in profitability offset
by increase in bad debt expense. Included in SG&A expenses is depreciation
and amortization expense of $96,000 and $130,000 for the nine months ended
September 30, 2007, and 2006, respectively.
Interest
Income
Interest
income decreased $29,000 and increased $49,000 for the three and nine months
ended September 30, 2007, as compared to the same period ended September 30,
2006, respectively. The decrease for the three months is due to interest earned
from excess cash received in 2006 from warrant and option exercises which we
held in a sweep account. This excess cash did not exist for the same period
of
2007, as we are currently in a net borrowing position as a result of the
acquisition of Perma-Fix Northwest Richland, Inc., and Perma-Fix Northwest,
Inc.
in June 2007. The increase for the nine months ended is attributed to interest
on the finite risk sinking fund which was increased by $1,000,000 in February
of
2007. In addition, the Company had additional cash in its sweep account which
earned interest until June 2007, when we completed the acquisition of Perma-Fix
Northwest Richland, Inc. and Perma-Fix Northwest.
Interest
Expense
Interest
expense increased $200,000 for the quarter ended September 30, 2007, and
decreased $46,000 for the nine months ended September 30, 2007, as compared
to
the corresponding periods of 2006.
|
|
Three
Months
|
|
Nine
Months
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Change
|
|
2007
|
|
2006
|
|
Change
|
|
PNC
interest
|
|
$
|
220
|
|
$
|
146
|
|
$
|
74
|
|
$
|
467
|
|
$
|
596
|
|
$
|
(129
|
)
|
Other
|
|
|
256
|
|
|
130
|
|
|
126
|
|
|
482
|
|
|
399
|
|
|
83
|
|
Total
|
|
$
|
476
|
|
$
|
276
|
|
$
|
200
|
|
$
|
949
|
|
$
|
995
|
|
$
|
(46
|
)
|
The
increase for the three month period is due to the increased use of our revolver
resulting from the acquisition of Perma-Fix Northwest Richland, Inc. and
Perma-Fix Northwest, Inc. in June 2007, as well as additional interests on
external debt incurred resulting from the acquisition. The small decrease for
the nine month period is the net result of the decrease in PNC interest as
the
revolver was utilized throughout the first six months of 2006 but not in the
same period of 2007 offset by interests incurred on debt resulting from the
acquisition.
Interest
Expense - Financing Fees
Interest
expense-financing fees remained constant for the three and nine months ended
September 30, 2007, as compared to the corresponding period of 2006.
Discontinued
Operations
Our
Industrial Segment has sustained losses in each year since 2000. The facilities
in our Industrial Segment provide on-and-off site treatment, storage, processing
and disposal of hazardous and non-hazardous industrial waste, and wastewater.
Certain of our facilities within the Industrial Segment provide waste management
services to governmental agencies. On May 18, 2007, our Board of Directors
authorized management to consider the divestiture of all or a part of our
Industrial Segment. On May 25, 2007, we entered into a letter of intent (“LOI”)
to sell our Industrial Segment to The Environmental Quality Company (EQ),
excluding our facility in Pittsburgh, Pennsylvania, owned by our subsidiary,
Perma-Fix of Pittsburgh, Inc. (“PFP), and our facility in Detroit, Michigan,
owned by our subsidiary, Perma-Fix of Michigan, Inc. (“PFMI”), two facilities
which have been approved as discontinued operations by our Board of Directors
effective November, 8, 2005, and October 4, 2004, respectively. Subsequent
to
entering into the letter of intent, EQ advised us that they would be unable
to
proceed with the transaction as contemplated by the letter of intent. We have
since received offers and entered into LOIs with various companies to sell
the
following facilities within our Industrial Segment: On August 2, 2007, we
entered into a LOI with the Amerex Group, Inc. to sell Perma-Fix Treatment
Services, Inc. facility for $2.2 million and assumption of certain liabilities;
On September 10, 2007, we entered into two separate LOIs with Triumvirate
Environmental, Inc., with one LOI covering the sale of substantially all of
the
assets of Perma-Fix Maryland, Inc., Perma-Fix of Fort Lauderdale, Inc., and
Perma-Fix of Orlando, Inc. facilities for approximately $12.0 million, plus
assumption of certain liabilities, and the other LOI covering the sale of
substantially all of the assets of Perma-Fix of South Georgia, Inc. facility
for
approximately $1.1 million, and assumption of certain liabilities; On October
2,
2007, we entered into a LOI with OGM, Ltd. to sell the business and
substantially all of the assets of Perma-Fix of Dayton, Inc. for approximately
$3.0 million and assumption of certain liabilities. Each of the above LOIs
is
subject to the completion of due diligence, parties entering into a definitive
purchase agreement, and approval of our lender and approval of the Board of
Directors of the parties thereto. Management considers the sale of the
Industrial Segment before June 30, 2008 to be probable.
At
May
25, 2007, the Industrial Segment met the held for sale criteria under Statement
of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”, and therefore, certain assets and
liabilities of the Industrial Segment are presented as held for sale, and we
have ceased depreciation of the Industrial Segment’s long-lived assets
classified as held for sale. The result of operations and cash flows of the
Industrial Segment have been reported in the Consolidated Financial Statements
as discontinued operations for all periods presented.
We
performed an updated internal analysis on the tangible and intangible assets
to
test for impairment in the Industrial Segment based on the new LOIs entered
into
as discussed above, as required by Statement of Financial Accounting Standard
(SFAS) 144, “Accounting for the Impairment or disposal of Long-Lived Assets” and
SFAS 142, “Goodwill and Other Intangible Assets”. Our analysis, as required by
SFAS 144, included the comparison of the offered sale price less cost to sell
to
the carrying value of the investment under each LOI separately. Based on our
analysis, we concluded that the carrying value of the tangible assets for
Perma-Fix Dayton, Inc. facility exceeded its fair value, less cost to sale.
Consequently, we recorded $564,000 in tangible asset impairment loss in the
third quarter of 2007 which is included in “Loss from discontinued operations,
net of taxes” on our Consolidated Statements of Operations. We also performed
financial valuations on the intangible assets of the Industrial Segment to
test
for impairment as required by SFAS 142. We concluded that no other tangible
and
intangible impairments existed as of September 30, 2007.
The
following table summarizes the results of discontinued operations for the three
and nine months ended September 30, 2007, and 2006. These results are included
in our Consolidated Statements of Operations as part of our “Loss from
discontinued operations, net of taxes”.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
(Amounts
in Thousands)
|
|
September
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
7,960
|
|
$
|
9,178
|
|
$
|
23,347
|
|
$
|
26,874
|
|
Operating
loss from discontinued operations
|
|
$
|
(1,826
|
)
|
$
|
(270
|
)
|
$
|
(3,023
|
)
|
$
|
(724
|
)
|
Income
tax provision
|
|
$
|
2
|
|
$
|
¾
|
|
$
|
2
|
|
|
¾
|
|
Loss
from discontinued operations
|
|
$
|
(1,828
|
)
|
$
|
(270
|
)
|
$
|
(3,025
|
)
|
$
|
(724
|
)
|
As
previously disclosed in the second quarter of 2007, the Company’s insurer
withdrew its prior denial of coverage and agreed to defend and indemnify
Perma-Fix and its Dayton, Ohio subsidiary in the previously disclosed lawsuit
brought against the Dayton, Ohio subsidiary by a citizens’ group, styled
Barbara
Fisher v. Perma-Fix of Dayton, Inc.
and the
federal government (DOJ/USEPA) alleging, among other things, that our Dayton
subsidiary was operating without appropriate air permits. Our insurer’s
agreement was subject to a reservation of rights to deny indemnity pursuant
to
various provisions and exclusions under the policy, including, without
limitation, payment of any civil penalties and fines, and the insurer’s right to
recoup any defense cost it has advanced in the event that the policy provides
no
coverage. We were advised by our insurer in the second quarter of 2007 that
we
would be reimbursed approximately $2.5 million previously spent to defend this
litigation, which we recorded as a recovery within discontinued operations
in
the second quarter of 2007, in accordance with EITF (Emerging Issues Task Force)
01-10. We received $750,000 of the $2.5 million on July 11, 2007. We received
the second reimbursement of approximately $1.75 million on August 17, 2007.
Our
insurer has advised us that they will reimburse us for approximately another
$82,000 in legal fees and disbursements in defending this litigation. We
anticipate receiving this additional reimbursement in the fourth quarter of
2007.
As
previously reported, on April 25, 2007, PFD reached an agreement in principal
(“AIP”) with DOJ/USEPA representatives to settle all of the United States’
claims, and under the AIP, PFD has agreed to take specific action to address
relevant air pollution regulations and to pay a civil penalty of $800,000.
As a
result, we recorded $800,000 of reserves in discontinued operations in the
second quarter of 2007 for the anticipated settlement. Recently,
we reached an agreement in principle to settle the Fisher Lawsuit which requires
PFD to pay a total of $1,325,000. The purpose of the proposed settlement is
to
avoid the uncertainties and expense of continuing the litigation and to settle
and compromise on any and all claims that the Fisher Plaintiff could have raised
against PFD. Settlement of the Fisher Lawsuit is subject to, among other things,
execution of a definitive settlement agreement and approval and entry of the
definitive settlement agreement by the court. Our insurer has agreed to
contribute $500,000 toward the settlement cost of the Fisher Lawsuit.
Discussions are ongoing with our insurer as to whether, and to what extent
any
additional contribution may be made in connection with the settlement of the
Fisher Lawsuit and as to whether any contribution will be made in connection
with the settlement of the Government Lawsuit.
As
of the
date of this report, we have therefore recorded a total of $1,625,000 of
reserves in our discontinued operations for settlement by PFD of the Fisher
Lawsuit and the Government Lawsuit. The Company recorded $825,000 of reserve
in
the third quarter of 2007 within our discontinued operations based on the
anticipated settlement cost to PFD for the Fisher Lawsuit. See
“--Known Trends and Uncertainties-Certain Legal Proceedings” in Management’s
Discussion and Analysis of Financial Condition and Results of Operations for
more detailed discussion of the agreements in principle, issues with our insurer
as to these agreements, and conditions precedent to these
settlements.
Asset
and
liabilities related to discontinued operations total $21,006,000 and $11,728,000
as of September 30, 2007, respectively and $22,750,000 and $10,632,000 as of
December 31, 2006, respectively.
The
following table presents Industrial Segment’s major classes of assets and
liabilities classified as held for sale as of September 30, 2007, and December
31, 2006:
(Amounts
in Thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Account
receivable, net
|
|
$
|
4,915
|
|
$
|
5,768
|
|
Inventories
|
|
|
391
|
|
|
522
|
|
Other
assets
|
|
|
3,132
|
|
|
3,179
|
|
Property,
plant and equipment, net
|
|
|
12,568
|
|
|
13,281
|
|
Total
assets held for sale
|
|
$
|
21,006
|
|
$
|
22,750
|
|
Account
payable
|
|
$
|
2,247
|
|
$
|
2,132
|
|
Accrued
expenses and other liabilities
|
|
|
4,857
|
|
|
3,760
|
|
Deferred
revenue
|
|
|
¾
|
|
|
¾
|
|
Note
payable
|
|
|
896
|
|
|
830
|
|
Environmental
liabilities
|
|
|
1,146
|
|
|
1,094
|
|
Total
liabilities held for sale
|
|
$
|
9,146
|
|
$
|
7,816
|
|
The
table
above represents the respective assets and liabilities that are held for sale
as
of September 30, 2007, and December 31, 2006 which excludes certain liabilities,
consisting of the pension liability at Perma-Fix Michigan (see discussion below)
and the environmental liabilities at Perma-Fix of Michigan and Perma-Fix Dayton.
Pension liability of $1,287,000 and environmental liabilities of $1,295,000
are
excluded from liabilities held for sale as of September 30, 2007, and pension
liability of $1,433,000 and environmental liabilities of $1,383,000 are excluded
from liabilities held for sale as of December 31, 2006. The held for sale asset
and liabilities balances as of September 30, 2007 may differ from the respective
balances at closing.
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 $707,000 for closure costs since September 30, 2004,
of
which $78,000 has been spent during the nine months of 2007 and $74,000 was
spent in 2006. We have $575,000 accrued for the closure, as of September 30,
2007, and we anticipate spending $78,000 in the fourth quarter of 2007 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 September 30, 2007, PFMI has a pension payable of $1,287,000. 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 $158,000 that we expect to pay over the next
year.
Liquidity
and Capital Resources of the Company
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
September 30, 2007, we had cash of $108,000. The following table reflects the
cash flow activities during the first nine months of 2007.
(In
thousands)
|
|
2007
|
|
Cash
provided by continuing operations
|
|
$
|
5,549
|
|
Cash
provided by discontinued operations
|
|
|
481
|
|
Cash
used in investing activities of continuing operations
|
|
|
(6,230
|
)
|
Cash
used in investing activities of discontinued operations
|
|
|
(326
|
)
|
Cash
used in financing activities of continuing operations
|
|
|
(1,604
|
)
|
Principal
repayment of long-term debt for discontinued operations
|
|
|
(290
|
)
|
Decrease
in cash
|
|
$
|
(2,420
|
)
|
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. The cash balance at September 30, 2007, 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 $10,204,000, an
increase of $716,000 over the December 31, 2006, balance of $9,488,000.
Perma-Fix Northwest Richland, Inc. accounted for $1,182,000 of the increase.
Excluding the increase for our Perma-Fix Northwest Richland, Inc. facility,
the
decrease in account receivable of approximately $268,000 in our Nuclear Segment
relates to increased collection efforts to improve our liquidity position.
The
Engineering Segment also experienced a decrease of $198,000 which relates to
lower revenue in 2007.
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 September 30, 2007, unbilled receivables totaled $14,659,000, a decrease
of $254,000 from the December 31, 2006, balance of $14,913,000. Perma-Fix
Northwest Richland, Inc. facility accounted for $726,000 of the unbilled as
of
September 30, 2007. Excluding the unbilled receivables of our Perma-Fix
Northwest Richland, Inc. facility, the reduction of $980,000 of the unbilled
receivable was the result of continued efforts to reduce this balance. Our
ability to invoice is impacted by delays related to the final shipment of wastes
to end disposal sites that are due to shipment approvals needed from generators,
and the complexity of the current contracts, which requires greater levels
of
documentation and additional testing for final invoicing. These delays usually
take several months to resolve 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 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 September 30, 2007 is $11,383,000, a decrease
of
$930,000 from the balance of $12,313,000 as of December 31, 2006. The long
term
portion as of September 30, 2007 is $3,276,000, an increase of $676,000 from
the
balance of $2,600,000 as of December 31, 2006.
As
of
September 30, 2007, total consolidated accounts payable was $3,753,000, an
increase of $1,297,000 from the December 31, 2006, balance of $2,456,000.
Perma-Fix Northwest Richland, Inc. accounted for $852,000 of this increase.
The
remaining increase of $445,000 is the result of 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. We continue to manage
payment terms with our vendors to maximize our cash position throughout all
segments.
Accrued
Expenses as of September 30, 2007, totaled $14,918,000, an increase of
$6,800,000 over the December 31, 2006, balance of $8,118,000. Accrued expenses
are made up of disposal and processing cost accruals, accrued compensation,
interest payable, insurance payable and certain tax accruals. Perma-Fix
Northwest Richland, Inc. accounted for $ 4,666,000 of this balance. The
remainder of the increase is primarily due to increase in our insurance payable
resulting from renewal of the Company’s general insurance policies.
The
working capital position at September 30, 2007, was a negative $2,126,000,
which
includes the working capital of our discontinued operations, as compared to
a
working capital position of $12,809,000 at December 31, 2006. Working capital
related to Perma-Fix Northwest Richland, Inc. totaled a negative $5,415,000
and
is was heavily impacted by the current portion of a short term loan of
$2,000,000 which was set up for the acquisition as a “bridge” until we
restructure our credit facility. In addition, a large disposal accrual related
to the legacy waste acquired increased our current liabilities by $4,235,000.
Other reductions to our current assets which impacted our working capital was
the annual cash payment to the finite risk sinking fund of $1,000,000, our
semi-annual payment to the IRS related to our note at our M&EC facility, and
additional cash requirements related to the acquisition of Perma-Fix Northwest
Richland, Inc. and Perma-Fix Northwest, Inc. Our working capital position
continues to experience the negative impact of certain liabilities associated
with discontinued operations.
Investing
Activities
Our
purchases of capital equipment for the nine-month period ended September 30,
2007, totaled approximately $3,309,000 of which $2,367,000 and $942,000 was
for
our continuing and discontinuing operations, respectively. Of the total capital
spending, $258,000 and $355,000 was financed for our continuing and discontinued
operations, respectively, resulting in total net purchases of $2,696,000 funded
out of cash flow. These expenditures were for expansion and improvements to
the
operations principally within the Nuclear and Industrial Segments. These capital
expenditures were funded by the cash provided by operations. We budgeted capital
expenditures of approximately $4,137,000 for fiscal year 2007, which includes
an
estimated $2,929,000 to complete certain current projects committed at December
31, 2006, as well as other identified capital and permit compliance purchases.
Our purchases during the first nine months of 2007 include approximately
$1,151,000 of those projects committed at December 31, 2006. 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, 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 million of financial
assurance coverage of which the coverage amount totals $30,096,000 at September
30, 2007, and has available capacity to allow for annual inflation and other
performance and surety bond requirements. This finite risk insurance policy
required an upfront payment of $4.0 million, 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 2007, we paid our fourth 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 September 30, 2007,
we
have recorded $5,702,000 in our sinking fund on the balance sheet, which
includes interest earned of $505,000 on the sinking fund as of September 30,
2007. Interest income for the three and nine months ended September 30, 2007,
was $69,000 and $193,000, respectively. 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 Perma-Fix
Northwest Richland, Inc. facility, which was acquired on June 13, 2007. The
policy provides an initial $7.8 million 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 $8.2 million. 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 $4.4 million, consisting
of
an annual payment of $1.4 million, and two annual payments of $1.5 million,
starting July 31, 2007. In July 2007, we paid the first of our three annual
payments of $1.4 million, of which $1.1 million represented premium on the
policy and the remaining $258,000 was deposited into a sinking fund account.
Each of the two remaining $1.5 million payments will consist of $176,000 in
premium with the remaining $1.3 million to be deposited into a sinking fund.
As
of September 30, 2007, we have recorded $259,000 in our sinking fund on the
balance sheet, which includes interest earned of $1,000 on the sinking fund
as
of September 30, 2007.
Financing
Activities
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,
as amended. The Agreement provides for a term loan (“Term Loan”) in the amount
of $7,000,000, which requires monthly installments of $83,000 with the remaining
unpaid principal balance due on May 31, 2008. The Agreement also provides for
a
revolving line of credit (“Revolving Credit”) with a maximum principal amount
outstanding at any one time of $18,000,000, as amended. The Revolving Credit
advances are subject to limitations of an amount up to the sum of (a) up to
85%
of Commercial Receivables aged 90 days or less from invoice date, (b) up to
85%
of Commercial Broker Receivables aged up to 120 days from invoice date, (c)
up
to 85% of acceptable Government Agency Receivables aged up to 150 days from
invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60
days, less (e) reserves the Agent reasonably deems proper and necessary. As
of
September 30, 2007, the excess availability under our Revolving Credit was
$7,418,000 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 Bank. 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 Bank, which extended the
due
date of the $25 million 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 Bank, which extended
the due date of the $25 million 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.
In
conjunction with our acquisition of M&EC, M&EC issued a promissory note
for a principal amount of $3.7 million to Performance Development Corporation
(“PDC”), dated June 25, 2001, for monies advanced to M&EC for certain
services performed by PDC. The promissory note is payable over eight years
on a
semi-annual basis on June 30 and December 31. The principal repayments for
2007
will be approximately $400,000 semi-annually. Interest is accrued at the
applicable law rate (“Applicable Rate”) pursuant to the provisions of section
6621 of the Internal Revenue Code of 1986 as amended (10% on September 30,
2007)
and payable in one lump sum at the end of the loan period. On September 30,
2007, the outstanding balance was $3,026,000 including accrued interest of
approximately $1,992,000. Pursuant to the agreement the accrued interest is
to
be paid at the end of the term, and as such, is recorded as a long-term
liability. PDC has directed M&EC to make all payments under the promissory
note directly to the Internal Revenue Service (“IRS”) to be applied to PDC’s
obligations under its installment agreement with the IRS.
Additionally,
M&EC entered into an installment agreement with the IRS for a principal
amount of $923,000 effective June 25, 2001, for certain withholding taxes owed
by M&EC. The installment agreement is payable over eight years on a
semiannual basis on June 30 and December 31. The principal repayments for 2007
will be approximately $100,000 semiannually. Interest is accrued at the
Applicable Rate, and is adjusted on a quarterly basis and payable in lump sum
at
the end of the installment period. On September 30, 2007, the rate was 10%.
On
September 30, 2007, the outstanding balance was $734,000 including accrued
interest of approximately $481,000. The accrued interest is to be paid at the
end of the term, and as such, is recorded as a long-term liability, pursuant
to
the terms of the agreement.
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.), which was completed
on
June 13, 2007, we entered into a promissory note for a principal amount of
$4.0
million 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 years 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%. On September 30, 2007, the outstanding
principal balance was $3,520,000.
Additionally,
In conjunction with our acquisition of Nuvotec (n/k/a Perma-Fix of Northwest,
Inc.) and PEcoS (n/k/a Perma-Fix Northwest Richland, Inc.), pursuant to the
Agreement and Plan of Merger, dated April 27, 2007, which was subsequently
amended 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, $2.5 million, 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. As of September 30, 2007, we had accrued interest
of
approximately $58,000.
During
the nine months ended September 30, 2007, we issued 223,786 shares of our Common
Stock upon exercise of 226,084 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. We also had 1,775,638 warrants to purchase shares of our Common Stock
expiring on March 22, 2007. Total proceeds received during the nine months
ended
September 30, 2007 related to warrant and option exercises totaled approximately
$439,000, which includes $399,000 from employee stock option exercises and
$40,000 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
summary, the acquisition of Nuvotec (n/k/a Perma-Fix Northwest, Inc.) and its
wholly owned subsidiary PEcoS (n/k/a Perma-Fix Northwest Richland, Inc.) in
the
second quarter continues to impact our liquidity in the third quarter. We
continue to draw funds from our revolver to make the payments on debt that
we
assumed as result of the acquisition. 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 also continue to have a
negative impact related to reserves from our discontinued operations and assets
held for sale. We anticipate most of these reserves being paid off when the
Industrial Segment is sold, but should that not take place in the short term
future, these reserves would have an adverse effect on our liquidity position.
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 voting 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 Perma-Fix Environmental Services Inc. (PESI). 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. The
strategic addition of Nuvotec provides the Company with immediate access to
treat some of the most complex nuclear waste streams in the nation and should
provide significant growth opportunity in the coming years.
Under
the
terms of the Merger Agreement, the purchase price paid by the Company in
connection with the acquisition was $17.0 million, consisting of as follows:
(a) |
$2.3
million in cash at closing of the merger, with $1.5 million payable
to
unaccredited shareholders and $0.8 million 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:
|
· |
$2.5
million, 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 $2.0 million 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 $2.2
million, 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 $9.4 million of debt, $8.9 million 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 $5.4
million of this debt resulting in debt remaining of $4.0 million.
|
(d) |
Transaction
costs totaling $0.6 million.
|
In
addition to the above, an agreement to a contingency of an earn-out amount
not
to exceed $4.4 million 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 combined Nuclear Segment. The first $1.0 million 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. As of September 30,
2007
the Company has not made or accrued any earn-out payments to Nuvotec
shareholders because such revenue targets have not been met.
See
“Note
10” to “Notes to Consolidated Financial Statements” on our accounting treatment
of the acquisition.
Contractual
Obligations
The
following table summarizes our contractual obligations at September 30, 2007,
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
|
|
2007
|
|
2008
- 2010
|
|
2011
- 2012
|
|
After
2012
|
|
Long-term
debt
|
|
$
|
18,521
|
|
$
|
2,078
|
|
$
|
15,420
|
|
$
|
1,021
|
|
|
2
|
|
Interest
on long-term debt (1)
|
|
|
3,098
|
|
|
—
|
|
|
3,029
|
|
|
69
|
|
|
—
|
|
Interest
on variable rate debt (2)
|
|
|
1,452
|
|
|
321
|
|
|
1,131
|
|
|
¾
|
|
|
¾
|
|
Operating
leases
|
|
|
3,396
|
|
|
547
|
|
|
2,207
|
|
|
601
|
|
|
41
|
|
Finite
risk policy (3)
|
|
|
8,061
|
|
|
¾
|
|
|
6,053
|
|
|
2,008
|
|
|
¾
|
|
Pension
withdrawal liability (4)
|
|
|
1,287
|
|
|
¾
|
|
|
517
|
|
|
448
|
|
|
322
|
|
Environmental
contingencies (5)
|
|
|
3,048
|
|
|
380
|
|
|
1,581
|
|
|
545
|
|
|
542
|
|
Purchase
obligations (6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
contractual obligations
|
|
$
|
38,863
|
|
$
|
3,326
|
|
$
|
29,938
|
|
$
|
4,692
|
|
$
|
907
|
|
(1) |
Our
IRS Note and PDC Note agreements call for interest to be paid at
the end
of the term, December 2008. In conjunction with our acquisition of
Nuvotec
and PEcoS (now known as Perma-fix of Northwest, Inc.), which was
completed
on June 13, 2007, pursuant to the Agreement and Plan of Merger, dated
April 27, 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, $2.5 million, 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 1%
and 1/2% over the prime rate of interest, 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
0.25% in each of the years 2007 through 2008. We anticipate a full
repayment of our Term Loan by November 2008. In addition, we anticipate
a
full repayment of our Revolver by November 2008. As result of the
acquisition of our new Perma-Fix Northwest facility on June 13, 2007,
we
have entered into a promissory note for a principal amount $4.0 million
to
KeyBank National Association which has variable interest rate of
1.125%
over the prime rate, and as such, we also have assumed an increase
in
prime rate of 0.25% through July 2009, when the note is
due.
|
(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.
|
(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 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 to prepare the
consolidated financial statements:
Revenue
Recognition Estimates:
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 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. As the waste moves through these processing phases
and
revenues are recognized, the correlating costs are incurred. Although we use
our
best estimates and all available information to accurately determine these
disposal expenses, the risk does exist that the accrual could prove to be
inadequate in the event the waste requires re-treatment. 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. Changes to total estimated revenues, contract costs and
percent complete, if any, are recorded in the period they are first determined.
Estimated losses, if any, on uncompleted contracts are recorded in the period
in
which it is first determined a loss is apparent.
Industrial
waste revenues (Discontinued Operations).
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. As we continue to enhance our waste tracking systems within
the
segment we will continue to review and reevaluate our revenue recognition
policy.
Consulting
revenues.
Consulting revenues are recognized as services are rendered, as is consistent
with industry standards. 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.
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 un-collectable amounts. All accounts receivable balances after
60
days from the invoice date are regularly reviewed based on current credit
worthiness, and that portion, deemed un-collectable, if any, are computed.
Specific accounts 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 91-120 days,
and
40% over 120 days), based on a historical valuation, that allows us to calculate
the total reserve required. This allowance was approximately 0.3%, and 0.6%
of
revenue and approximately 1.7%, and 2.7% of accounts receivable for 2006, and
2005, respectively.
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. Prior to our adoption of SFAS 142, effective January 1, 2002, goodwill
had been amortized over 20 to 40 years and permits amortized over 10 to 20
years. Effective January 1, 2002, we discontinued amortizing our indefinite
life
intangible assets (goodwill and permits). Goodwill and intangible assets that
have indefinite useful lives are tested annually for impairment, and are tested
for impairment more frequently if events and circumstances indicate that the
asset might be impaired. An impairment loss is recognized to the extent that
the
carrying amount exceeds the asset’s fair value, less cost to sell. For goodwill
the impairment determination is made at the reporting unit level 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 FASB Statement No. 141,
Business
Combinations.
The
residual fair value after this allocation is the impaired fair value of the
reporting unit goodwill. On January 1, 2002, upon adopting SFAS 142 we obtained
an initial financial valuation of our intangible assets, which indicated no
impairment to our indefinite life intangible assets. Our annual financial
valuations performed as of October 1, 2006 and October 1, 2005 indicated no
impairments.
On
May
18, 2007, the Company’s Board of Directors approved the divestiture of our
Industrial Segment. On May 25, 2007, we entered into a letter of intent (“LOI”)
to sell our Industrial Segment to The Environmental Quality Company (EQ),
excluding our facility in Pittsburgh, Pennsylvania, owned by our subsidiary,
Perma-Fix of Pittsburgh, Inc. (“PFP), and our facility in Detroit, Michigan,
owned by our subsidiary, Perma-Fix of Michigan, Inc. (“PFMI”), two facilities
which have been approved as discontinued operations by our Board of Directors
effective November, 8, 2005, and October 4, 2004, respectively. Subsequent
to
entering into the letter of intent, EQ advised us that they would be unable
to
proceed with the transaction as contemplated by the letter of intent. We have
since received offers and entered into LOIs with various companies to sell
the
following facilities within our Industrial Segment: On August 2, 2007, we
entered into a LOI with the Amerex Group, Inc. to sell Perma-Fix Treatment
Services, Inc. facility for $2.2 million and assumption of certain liabilities;
On September 10, 2007, we entered into two separate LOIs with Triumvirate
Environmental, Inc., with one LOI covering the sale of substantially all of
the
assets of Perma-Fix Maryland, Inc., Perma-Fix of Fort Lauderdale, Inc., and
Perma-Fix of Orlando, Inc. facilities for approximately $12.0 million, plus
assumption of certain liabilities, and the other LOI covering the sale of
substantially all of the assets of Perma-Fix of South Georgia, Inc. facility
for
approximately $1.1 million, and assumption of certain liabilities; On October
2,
2007, we entered into a LOI with OGM, Ltd. to sell the business and
substantially all of the assets of Perma-Fix of Dayton, Inc. for approximately
$3.0 million and assumption of certain liabilities. Each of the above LOIs
is
subject to the completion of due diligence, parties entering into a definitive
purchase agreement, and approval of our lender and approval of the Board of
Directors of the parties thereto. As result of the LOIs, we performed updated
financial valuations on the intangible assets of the Industrial Segment to
test
for impairment as required by Statement of Financial Accounting Standards 142,
“Goodwill and Other Intangible Assets”. The result of this test indicated no
impairments as of September 30, 2007.
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
fifty 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 life 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.
In
accordance with Statement 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 by 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. As result of the approved divestiture of our
Industrial Segment by our Board of Directors and the subsequent letters of
intents entered between us and the various companies as noted above, we
performed updated financial valuations on the tangibles on the Industrial
Segment to test for impairment as required by Statement of Financial Accounting
Standards 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
Our analysis included the comparison of the offered sale price less cost to
sell
to the carrying value of the investment under each LOI separately in the
Industrial Segment. Based on our analysis, we concluded that the carrying value
of the tangible assets for Perma-Fix Dayton, Inc. facility exceeded its fair
value, less cost to sell. Consequently, we recorded $564,000 in tangible asset
impairment loss in the third quarter of 2007 which is included in “Loss from
discontinued operations, net of taxes” on our Consolidated Statements of
Operations. We concluded that no other tangible asset impairments existed as
of
September 30, 2007.
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 2007 and 2006, have been approximately 2.9%, and
2.7%, 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. However, except for the Michigan
and Pittsburgh facilities, we have no current intention to close any of our
facilities.
Accrued
Environmental Liabilities.
We have
five 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. Circumstances that could affect the outcome
include new technologies being developed every day to reduce our overall costs,
or increased contamination levels that could arise as we complete remediation
which could increase our costs, neither of which we anticipate at this time.
Significant changes in regulations could also adversely or favorably affect
our
costs to remediate existing sites or potential future sites, which cannot be
reasonably quantified. We have also accrued a long-term environmental liability
for our PFMD facility acquired in March 2004, which is not a permitted facility,
so we are currently under no obligation to clean up the
contamination.
Disposal
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. Disposal sites available to us are limited. An
increase or decrease in available sites or 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. 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.
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. In the event a holder of an
accelerated vesting option terminates employment with us prior to the end of
the
original vesting term of such options, we will recognize the compensation
expense at the time of termination.
We
recognize compensation expense based on the fair value at grant date using
the
Black-Scholes valuation model, using a straight-line amortization method over
the option’s vesting period. As SFAS 123R requires that stock-based
compensation expense be based on options that are ultimately expected to vest,
stock-based compensation has been reduced for estimated forfeitures, which
is
estimated using historical trends of actual option forfeitures.
FIN
48
In
July
2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation
No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 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 48 requires a company to evaluate whether the tax
position taken by a company will more likely than not be sustained upon
examination by the appropriate taxing authority. It also provides guidance
on
how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We adopted FIN 48 as of January 1, 2007.
The
impact of our reassessment of our tax positions in accordance with FIN 48 did
not have any impact on the result of operations, financial condition or
liquidity. See Note “Income Taxes” in “Notes to Consolidated Financial
Statements” for impact of FIN 48 on our financial statement.
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. 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 governmental budgets are still being
finalized, planning for the new year is occurring and we enter the holiday
season. More recently, due to our efforts to work with the various government
customers to smooth these shipment more evenly throughout the year, we have
seen
much less fluctuation in the quarters, with receipts in the fourth quarter
2006
actually higher than the third quarter. In 2007, the US Congress did not pass
the fiscal year 2007 budget which resulted in providing funding through a
continuing resolution that sets budgets to the previous year and restricts
start
up of new projects; as such, receipts for third quarter 2007 were lower as
compared to the third quarter of 2006. In addition, our revenue recognition
policy further reduces this impact on our revenue. See “Revenue Recognition
Estimates” in this “Management Discussion and Analysis of Financial Condition
and Results of Operations”.
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. Our Engineering Segment
relies more on commercial customers though this segment makes up a very small
percentage of our revenue.
Significant
Customers.
While
our revenues are principally derived from numerous and varied customers, we
have
a significant relationship with the federal government and its contractors.
During the three and nine months ended September 30, 2007, our Nuclear segment
performed services relating to waste generated by the federal government, either
directly or indirectly as a subcontractor to the federal government,
representing approximately $8,110,000 (includes approximately $2,127,000 from
PFNW facility) or 58.6%, and $21,895,000 (includes approximately $2,324,000
from
our PFNW facility) or 54.3% of our consolidated revenues for the respective
periods as compared to $8,274,000 or 68.4%, and $24,503,000 or 62.8% for the
respective periods of 2006. Most, if not all, contracts with the federal
government or with others as a subcontractor to the federal government provide
that the government may terminate the contracts for convenience at any
time.
Included
in the amounts discussed above, are revenues from LATA/Parallax Portsmouth
LLC
(“LATA/Parallax”). In first quarter of 2006, our Nuclear segment was awarded a
$9.4 million contract by LATA/Parallax to remove and treat U.S Department of
Energy (DOE) special process waste from the DOE Portsmouth Gaseous Diffusion
Plant located in Piketon, Ohio. LATA/Parallax performs environmental remediation
services, including groundwater cleanup and waste management activities, under
contract to DOE at the Portsmouth site. The subcontract requires treatment
and
disposal of mixed waste that was generated during Gaseous Diffusion Plant
operations at the Piketon, Ohio plant and includes materials used to trap
impurities, decontamination wastes, and wastes generated during system upgrades.
Since signing the initial contract, the scope of our work has increased and
the
value of the contract has increased to approximately $11.5 million, with the
period of performance expected to be completed by September 30, 2008. Our
revenues from LATA/Parallax contributed $2,029,000 or 14.7% and $7,167,000
or
17.8% of our consolidated revenues of our continuing operations for the three
and nine months ended September 30, 2007, respectively, as compared to
$2,672,000 or 22.1% and $7,344,000 or 18.8% for the same period ended 2006.
As
with 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.
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 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.
Certain
Legal Proceedings:
Perma-Fix
of Dayton, Inc. (“PFD”)
As
previously disclosed, our subsidiary, Perma-Fix of Dayton, Inc., is defending
a
lawsuit styled Barbara
Fisher v. Perma-Fix of Dayton, Inc.,
in the
United States District Court, Southern District of Ohio (the “Fisher Lawsuit”).
This citizen’s suit was brought under the Clean Air Act alleging, among other
things, violations by PFD of state and federal clean air statutes connected
with
the operation of PFD’s facility located in Dayton, Ohio. As further previously
disclosed, the U.S. Department of Justice, on behalf of the Environmental
Protection Agency, intervened in the Fisher Lawsuit alleging, among other
things, substantially similar violations alleged in the Fisher Lawsuit (the
“Government’s Lawsuit”).
We
also
previously disclosed that PFD has reached an agreement in principle with the
government to settle the Government’s Lawsuit, whereby PFD has agreed to take
specific action to address relevant air pollution regulations and permit
requirements and to pay a civil penalty of $800,000. If the Government Lawsuit
settlement is finalized, we anticipate the penalty to consist of two
components:
· |
cash
payment to the appropriate regulatory authority;
and
|
· |
supplemental
environmental projects consisting of one or more capital
projects.
|
We
are
negotiating with the DOJ and EPA to complete a formal consent decree (settlement
agreement) to finalize the settlement of the Government’s Lawsuit in accordance
with the agreement in principle and to meet the government’s approval
requirements (including public notice and comment).
Recently,
we reached an agreement in principle to settle the Fisher Lawsuit, whereby
PFD
would pay a total of $1,325,000. The purpose of the proposed settlement is
to
avoid the uncertainties and expense of continuing the litigation and to settle
and compromise on any and all claims that the Fisher Plaintiff could have raised
against PFD.
Settlement
of the Fisher Lawsuit is subject to, among other things, execution and court
acceptance of a definitive settlement agreement. Our insurer has agreed to
contribute $500,000 toward the settlement cost of the Fisher Lawsuit.
Discussions are ongoing with our insurer as to whether, and to what extent any
additional contribution may be made in connection with the settlement of the
Fisher Lawsuit and as to whether any contribution will be made in connection
with the settlement of the Government Lawsuit.
As
of the
date of this report, we have therefore recorded a total of $1,625,000 of
reserves in our discontinued operations for settlement by PFD of the Fisher
Lawsuit and the Government Lawsuit. The Company recorded $825,000 in the third
quarter of 2007.
As
previously reported, on April 12, 2007 our insurer agreed to reimburse PFD
for
reasonable defense costs of litigation incurred prior to our insurer’s
assumption of the defense, but this agreement to defend and indemnify PFD was
subject to the our insurer’s reservation of its rights to deny indemnity
pursuant to various policy provisions and exclusions, including, without
limitation, payment of any civil penalties and fines, as well as our insurer’s
right to recoup any defense cost it has advanced if our insurer later determines
that its policy provides no coverage. When, our
insurer withdrew
its prior coverage denial and agreed to defend and indemnify PFD in the above
described lawsuits, subject to certain reservation of rights, we had incurred
more than $2.5
million in costs in vigorously defending against the Fisher Lawsuit and the
Government Lawsuit. To date, our insurer has reimbursed PFD $2.5
million for legal defense fees and disbursements, which we recorded as a
recovery within our discontinued operations in the second quarter of 2007.
Partial reimbursement from our insurer of $750,000 was received on July 11,
2007. A second reimbursement of approximately $1.75 million was received on
August 17, 2007. Our insurer has advised us that they will reimburse us for
approximately another $82,000 in legal fees and disbursements, subject to our
insurer’s reservation of rights as noted above. We anticipate receiving this
additional reimbursement in the fourth quarter of 2007.
Cost
estimates associated with taking action to address air pollution control
regulations and permit requirements are dependent upon the definitization of
the
consent decree. Nevertheless, these actions, including agreeing to operate
the
PFD facility as a “major source” in accordance with certain Clean Air Act
hazardous air pollutant control requirements is not expected to have a material
adverse affect on us or our liquidity.
Perma-Fix
of Orlando, Inc. (“PFO”)
Recently,
PFO has been named as a defendant in four cases related to a series of toxic
tort cases, the “Brottem Litigation” that are pending in the Circuit Court of
Seminole County, Florida. All of the cases involve allegations of toxic chemical
exposure at a former telecommunications manufacturing facility located in Lake
Mary, Florida, known generally as the “Rinehart Road Plant”. PFO is presently a
defendant, together with numerous other defendants, in the following four cases:
Brottem
v. Siemens, et al.; Canada v. Siemens et al.; Bennett v. Siemens et
al.
and the
recently filed Culbreath
v. Siemens et al.
All of
the cases seek unspecified money damages for alleged personal injuries or
wrongful death. With the exception of PFO, the named defendants are all present
or former owners of the subject property, including several prominent
manufacturers that operated the Rinehart Road Plant. The allegations in all
of
the cases are essentially identical.
The
basic
allegations are that PFO provided “industrial waste management services” to the
Defendants and that PFO negligently “failed to prevent” the discharge of toxic
chemicals or negligently “failed to warn” the plaintiffs about the dangers
presented by the improper handling and disposal of chemicals at the facility.
The complaints make no attempt to specify the time and manner of the alleged
exposures in connection with PFO’s “industrial waste management services.” PFO
has moved to dismiss for failure to state a cause of action.
At
this
time, the cases involve a large number of claims involving personal injuries.
At
this very early stage, it is not possible to accurately assess PFO’s potential
liability. Our insurer has agreed to defend and indemnify us in these lawsuits,
excluding our deductible of $250,000, subject to a reservation of rights to
deny
indemnity pursuant to various provisions and exclusions under our policy.
Letters
of Intent (LOI)
On May
18, 2007, our Board of Directors authorized management to consider the
divestiture of all or a part of our Industrial Segment. On May 25, 2007, we
entered into a letter of intent (“LOI”) to sell our Industrial Segment to The
Environmental Quality Company (EQ), excluding our facility in Pittsburgh,
Pennsylvania, owned by our subsidiary, Perma-Fix of Pittsburgh, Inc. (“PFP), and
our facility in Detroit, Michigan, owned by our subsidiary, Perma-Fix of
Michigan, Inc. (“PFMI”), two facilities which have been approved as discontinued
operations by our Board of Directors effective November, 8, 2005, and October
4,
2004, respectively. Subsequent to entering into the letter of intent, EQ advised
us that they would be unable to proceed with the transaction as contemplated
by
the letter of intent. We have since received offers and entered into LOIs with
various companies to sell the following facilities within our Industrial
Segment:
· |
On
August 2, 2007, we entered into a LOI with the Amerex Group, Inc.
to sell
the Perma-Fix Treatment Services, Inc. facility, located in Tulsa,
Oklahoma. Under this LOI, Amerex will pay to us $2.2 million and
assume
certain liabilities of Perma-Fix Treatment. The purchase price is
subject
to adjustment under certain
conditions.
|
· |
On
September 10, 2007, we entered into two separate LOIs with Triumvirate
Environmental, Inc. One of the LOIs covers the sale of assets of
Perma-Fix
of Maryland, Perma-Fix of Fort Lauderdale, and Perma-Fix of Orlando
for
approximately $12.0 million, plus assumption by the purchaser of
certain
liabilities of these companies, and the second LOI covers the sale
of the
assets of Perma-Fix of South Georgia for approximately $1.1 million,
plus
assumption of certain liabilities. The purchase price under both
LOIs is
subject to adjustment under certain
conditions.
|
· |
On
October 2, 2007, the Company entered into a letter of intent with
OGM,
Ltd. (“OGM”) to sell the business and certain assets of its subsidiary,
Perma-Fix of Dayton, Inc. (“PFD”), located in Dayton, Ohio. Under this
letter of intent OGM will pay to us $3.0 million and assume certain
liabilities and obligations of PFD. The purchase price is subject
to
adjustment under certain conditions. This letter of intent is subject
to
OGM obtaining suitable arrangements to finance the purchase price.
|
The
letter of intent further provides that the definitive agreement shall provide,
among other things, that:
· |
each
of the parties shall provide the other with certain indemnifications,
and
|
· |
in
the event that on or before closing date of the definitive purchase
agreement a settlement agreement resolving the citizen’s suit portion of
the lawsuit styled Fisher,
et al., v. PFD
(the “Lawsuit”) as previously disclosed by the Company, has not been
entered into by the parties and approved by the court and/or a consent
decree has not been entered into between PFD and the U.S. Department
of
Justice (“DOJ”) and the U.S. Environmental Protection Agency (“EPA”)
resolving the government’s allegations in the Lawsuit (see Footnote 6 to
“Notes to Consolidated Financial Statements” - “Commitments and
Contingenices - Legal”), then OGM would not be obligated to close the
purchase transaction unless the Company and PFD agree to indemnify
OGM
against any liabilities or damages incurred by OGM as a result of
the
failure of the Company and/or PFD to settle the citizen’s suit portion of
the Lawsuit on terms substantially similar to the terms of a proposed
settlement agreement attached to the definitive agreement or enter
into a
consent decree with the EPA and/or DOJ on terms substantially similar
to
the terms of a proposed consent decree attached as an exhibit to
the
definitive agreement.
|
Each
of
the LOIs entered into, as noted above, is subject to the completion of due
diligence and the parties entering into a definitive purchase agreement.
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.
Compared with certain of our competitors, we 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,
in the future, be notified that we are a PRP at a remedial action site, which
could have a material adverse effect.
For
2007,
$1,409,000 is budgeted in environmental remediation expenditures to comply
with
federal, state and local regulations in connection with remediation of certain
contaminates at our discontinued 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,
PFTS's facility in Tulsa, Oklahoma, PFMD's facility in Baltimore, Maryland,
and
PFMI's facility in Detroit, Michigan. With the impending divestiture of our
Industrial Segment, we anticipate the environmental liabilities for all the
facilities noted above will be part of the divestiture with the exception of
PFM, PFD, and PFMI, which will remain the financial obligations of the Company.
While no assurances can be made that we will be able to do so, we expect to
fund
the expenses to remediate the three sites from funds generated
internally.
At
September 30, 2007, we had total accrued environmental remediation liabilities
of $3,048,000, of which $1,253,000 is recorded as a current liability, a
decrease of $230,000 from the December 31, 2006, balance of $3,278,000. The
decrease consists of approximately $281,000 for payments on remediation
projects, which was offset by increase of $51,000 in reserve mainly at our
Perma-Fix of South Georgia facility due to reassessment on the cost of
remediation. The September 30, 2007, current and long-term accrued environmental
balance is as follows:
|
|
Current
Accrual
|
|
Long-term
Accrual
|
|
Total
|
|
PFD
|
|
$
|
238,000
|
|
$
|
482,000
|
|
$
|
720,000
|
|
PFM
|
|
|
360,000
|
|
|
247,000
|
|
|
607,000
|
|
PFSG
|
|
|
245,000
|
|
|
473,000
|
|
|
718,000
|
|
PFTS
|
|
|
7,000
|
|
|
30,000
|
|
|
37,000
|
|
PFMD
|
|
|
¾
|
|
|
391,000
|
|
|
391,000
|
|
PFMI
|
|
|
403,000
|
|
|
172,000
|
|
|
575,000
|
|
|
|
$
|
1,253,000
|
|
$
|
1,795,000
|
|
$
|
3,048,000
|
|
Recently
Adopted Accounting Standards
In
July
2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation
No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 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 48 requires a company to evaluate whether the tax
position taken by a company will more likely than not be sustained upon
examination by the appropriate taxing authority. It also provides guidance
on
how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006.
We
adopted FIN 48 as of January 1, 2007. As a result of the implementation of
FIN
48, we have concluded that we have not taken any uncertain tax positions on
any
of our open income tax returns filed through the period ended December 31,
2006
that would materially distort our financial statement. Our methods of accounting
are based on established income tax principles approved in the Internal Revenue
Code (IRC) and are properly calculated and reflected within our income tax
returns. In addition, we have filed income tax returns in all applicable
jurisdictions in which we had material nexus warranting an income tax return
filing.
We
reassess the validity of our conclusions regarding uncertain income tax
positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause us to change our judgment regarding the likelihood
of a
tax position's sustainability under audit. The impact of this reassessment
for
the third quarter of 2007 did not have any impact on our results of operations,
financial condition or liquidity.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART
I, ITEM 3
We
are
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. As of September 30, 2007, we have no interest swap
agreement outstanding, and we
were
exposed to variable interest rates under our loan
arrangements with PNC and 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
$62,000
for the nine months ended September 30, 2007.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONTROLS
AND PROCEDURES
PART
1, ITEM 4
(a)
|
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 (the "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 Quarterly
Report on Form 10-Q, 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 Rules 13a-15
and
15d-15 of the Securities Exchange Act of 1934, as amended) and believe
that such are not effective, as a result of the identified material
weaknesses in our internal control over financial reporting as set
forth
below (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).
1.
The
monitoring of pricing and invoicing process controls at certain facilities
within the Company's Industrial Segment was ineffective and was 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. Further, controls over non-routine
revenue streams in this segment, such as Bill & Hold transactions,
were ineffective and could result in revenue being prematurely recognized.
Although this material weakness did not result in an adjustment to
the
quarterly or annual financial statements, if not remediated, it has
a more
than remote potential to cause a material misstatement to be unprevented
or undetected. We have performed additional audit testing procedures
on
this control weakness. We anticipate remediation of this control
weakness
in the fourth quarter of 2007.
2.
The
Company lacks the technical expertise and processes to ensure compliance
with SFAS No. 109, “Accounting for Income Taxes”, and did not
maintain adequate controls with respect to accurate and timely tax
account reconciliations and analyses. This material weakness resulted
in
an audit adjustment and, if not remediated, it has a more than remote
potential to cause a material misstatement to be unprevented or
undetected. See below “Change in internal control over financial
reporting” for corrective action taken by the Company to remediate this
material weakness in our internal control over financial
reporting.
3.
The
Company lacks the technical expertise, controls and policies to ensure
that significant non-routine transactions are being appropriately
reviewed, analyzed, and monitored on a timely basis. Although this
material weakness did not result in an adjustment to the quarterly
or
annual financial statements, if not remediated, it has more than
a remote
potential to cause a material misstatement to be unprevented or
undetected. See below “Change in internal control over financial
reporting” for corrective action taken by the Company to remediate this
material weakness in our internal control over financial
reporting.
|
|
|
(b)
|
Changes
in internal control over financial
reporting.
|
|
|
|
There
have been no changes in our internal control over financial reporting,
other than , reported below:
1.
As
previously reported in our Form 10-Q for the quarter ended March
31, 2007,
we have obtained the service of an outside tax firm which will provide
on-going technical expertise to ensure we accurately and timely complete
tax account reconciliations and analyses, in addition to ensuring
compliance with applicable tax laws and regulations.
2.
As
previously reported in our Form 10-Q for the quarter ended March
31, 2007,
we have obtained the service of an outside consulting firm which
will
provide the necessary on-going technical expertise to ensure that
non-routine transactions are being appropriately reviewed, analyzed,
accounted for and monitored on a timely and accurately basis.
3.
We
centralized the processing of payroll for our South Georgia and Dayton
facilities to our corporate office effective September 11, 2007 and
September 18, 2007, respectively. As previously reporting in our
Form 10-Q
for the quarter ended June 30, 2007, effective April 15, 2007, we
centralized the processing of payroll for our SYA facility to our
corporate office.
|
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
PART
II - Other Information
|
Item
1.
|
Legal
Proceedings
|
No
additional material legal proceedings are pending against us and/or our
subsidiaries not previously reported by us in Item 3 of our Form 10-K for
the
year ended December 31, 2006, and Item 1, Part II, of our Form 10-Qs for
the
period ended March 31, 2007 and June 30, 2007, which are incorporated herein
by
reference, except, as follows:
Perma-Fix
of Dayton, Inc. (“PDF”)
As
previously disclosed, our subsidiary, Perma-Fix of Dayton, Inc., is defending
a
lawsuit styled Barbara
Fisher v. Perma-Fix of Dayton, Inc.,
in the
United States District Court, Southern District of Ohio (the “Fisher Lawsuit”).
This citizen’s suit was brought under the Clean Air Act alleging, among other
things, violations by PFD of state and federal clean air statutes connected
with
the operation of PFD’s facility located in Dayton, Ohio. As further previously
disclosed, the U.S. Department of Justice, on behalf of the Environmental
Protection Agency, intervened in the Fisher Lawsuit alleging, among other
things, substantially similar violations alleged in the Fisher Lawsuit (the
“Government’s Lawsuit”).
We
also
previously disclosed that PFD has reached an agreement in principle with
the
government to settle the Government’s Lawsuit, whereby PFD has agreed to take
specific action to address relevant air pollution regulations and permit
requirements and to pay a civil penalty of $800,000. If the Government Lawsuit
settlement is finalized, we anticipate the penalty to consist of two
components:
· cash
payment to the appropriate regulatory authority; and
· supplemental
environmental projects consisting of one or more capital projects.
We
are
negotiating with the DOJ and EPA to complete a formal consent decree (settlement
agreement) to finalize the settlement of the Government’s Lawsuit in accordance
with the agreement in principle and to meet the government’s approval
requirements (including public notice and comment).
Recently,
we reached an agreement in principle to settle the Fisher Lawsuit, whereby
PFD
would pay a total of $1,325,000. The purpose of the proposed settlement is
to
avoid the uncertainties and expense of continuing the litigation and to settle
and compromise on any and all claims that the Fisher Plaintiff could have
raised
against PFD.
Settlement
of the Fisher Lawsuit is subject to, among other things, execution and court
acceptance of a definitive settlement agreement. Our insurer has agreed to
contribute $500,000 toward the settlement cost of the Fisher Lawsuit.
Discussions are ongoing with our insurer as to whether, and to what extent
any
additional contribution may be made in connection with the settlement of
the
Fisher Lawsuit and as to whether any contribution will be made in connection
with the settlement of the Government Lawsuit.
As
of the
date of this report, we have therefore recorded a total of $1,625,000 of
reserves in our discontinued operations for settlement by PFD of the Fisher
Lawsuit and the Government Lawsuit. The Company recorded $825,000 in the
third
quarter of 2007.
As
previously reported, on April 12, 2007 our insurer agreed to reimburse PFD
for
reasonable defense costs of litigation incurred prior to our insurer’s
assumption of the defense, but this agreement to defend and indemnify PFD
was
subject to the our insurer’s reservation of its rights to deny indemnity
pursuant to various policy provisions and exclusions, including, without
limitation, payment of any civil penalties and fines, as well as our insurer’s
right to recoup any defense cost it has advanced if our insurer later determines
that its policy provides no coverage. When, our
insurer withdrew
its prior coverage denial and agreed to defend and indemnify PFD in the above
described lawsuits, subject to certain reservation of rights, we had incurred
more than $2.5
million in costs in vigorously defending against the Fisher Lawsuit and the
Government Lawsuit. To date, our insurer has reimbursed PFD $2.5
million for legal defense fees and disbursements, which we recorded as a
recovery within our discontinued operations in the second quarter of 2007.
Partial reimbursement from our insurer of $750,000 was received on July 11,
2007. A second reimbursement of approximately $1.75 million was received
on
August 17, 2007. Our insurer has advised us that they will reimburse us for
approximately another $82,000 in legal fees and disbursements, subject to
our
insurer’s reservation of rights as noted above. We anticipate receiving this
additional reimbursement in the fourth quarter of 2007.
Perma-Fix
of Orlando, Inc. (“PFO”)
Recently,
PFO has been named as a defendant in four cases related to a series of toxic
tort case, the “Brottem Litigation” that are pending in the Circuit Court of
Seminole County, Florida. All of the cases involve allegations of toxic chemical
exposure at a former telecommunications manufacturing facility located in
Lake
Mary, Florida, known generally as the “Rinehart Road Plant”. PFO is presently a
defendant, together with numerous other defendants, in the following four
cases:
Brottem
v. Siemens, et al.; Canada v. Siemens et al.; Bennett v. Siemens et
al.
and the
recently filed Culbreath
v. Siemens et al.
All of
the cases seek unspecified money damages for alleged personal injuries or
wrongful death. With the exception of PFO, the named defendants are all present
or former owners of the subject property, including several prominent
manufacturers that operated the Rinehart Road Plant. The allegations in all
of
the cases are essentially identical.
The
basic
allegations are that PFO provided “industrial waste management services” to the
Defendants and that PFO negligently “failed to prevent” the discharge of toxic
chemicals or negligently “failed to warn” the plaintiffs about the dangers
presented by the improper handling and disposal of chemicals at the facility.
The complaints make no attempt to specify the time and manner of the alleged
exposures in connection with PFO’s “industrial waste management services.” PFO
has moved to dismiss for failure to state a cause of action.
At
this
time, the cases involve a large number of claims involving personal injuries.
At
this very early stage, it is not possible to accurately assess PFO’s potential
liability. Our insurer has agreed to defend and indemnify us in these lawsuits,
excluding our deductible of $250,000, subject to a reservation of rights
to deny
indemnity pursuant to various provisions and exclusions under our policy.
Item
1A.
|
Risk
Factors
|
|
|
|
There
has been no material changes from the risk factors previously disclosed
in
our Form 10-K for the year ended December 31, 2006, Form 10-Q for
the
quarter ended March 31, 2007 and Form 10-Q for the quarter ended
June 30,
2007.
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
|
The
Company’s annual meeting of stockholders (“Annual Meeting”) was held on
August 2, 2007. At the Annual Meeting, the following matters were
voted on
and approved by the stockholders.
|
1. |
The
election of eight directors to serve until the next annual meeting
of
stockholders or until their respective successors are duly elected
and
qualified.
|
2. |
Ratification of the appointment of BDO Seidman,
LLP as
the registered auditors of the Company for fiscal
2007. |
The
Directors elected at the Annual Meeting and the votes cast for and against
or
withheld authority for each director are as follows:
Directors
|
|
For
|
|
Against
or Withhold Authority
|
Dr.
Louis F. Centofanti
|
|
44,000,767
|
|
277,484
|
Jon
Colin
|
|
43,937,429
|
|
340,822
|
Robert
L. Ferguson
|
|
44,009,567
|
|
268,684
|
Jack
Lahav
|
|
37,629,961
|
|
6,648,290
|
Joe
R. Reeder
|
|
36,978,048
|
|
7,300,203
|
Larry
Shelton
|
|
44,009,067
|
|
269,184
|
Dr.
Charles E. Young
|
|
43,935,229
|
|
343,022
|
Mark
A. Zwecker
|
|
43,937,629
|
|
340,622
|
Also,
at
the Annual Meeting the stockholders ratified the appointment of BDO Seidman,
LLP
as the registered auditors of the Company for fiscal 2007 The votes for,
against, abstentions and broker non-votes are as follows:
|
|
For
|
|
Against
or Withhold Authority
|
|
Abstentions
And
Broker
Non-votes
|
|
Ratification
of the Appointment of
BDO Seidman, LLP as the Registered Auditors
|
|
|
44,071,713
|
|
|
200,243
|
|
|
6,295
|
|
Item
5.
|
Other
Information
|
|
Related
Party Transaction
The
compensation committee of our board of directors unanimously recommended
to the full board of directors, and, based on such recommendation,
our
board of directors approved on the same day, that Joe R. Reeder,
a member
of our board of directors, with Mr. Reeder abstaining, be paid an
additional director’s fee of $160,000 as compensation for his services as
the board’s representative in negotiating the agreement in principle to
settle the claims brought by the United States, on behalf of the
EPA,
against PFD, our Dayton, Ohio, subsidiary, and resolution of certain
other
matters relating to that lawsuit. As a fee payable to Mr. Reeder
for his
services as a member of our board of directors, payment of the fee
is
governed by the terms of our 2003 Outsider Directors Stock Plan (the
“2003
Directors Plan”). In accordance with the terms of the 2003 Directors Plan,
fees payable to a non-employee director may be paid, at the election
of
the director, either 65% or 100% in shares of our common stock, with
any
balance payable in cash. The number of shares to be issued under
the 2003
Directors Plan in lieu of cash fees is determined by dividing the
amount
of the fee by 75% of the closing sales price of our common stock
on the
business day immediately preceding the date that the fee is due.
Mr.
Reeder has elected to receive 100% of such fee in shares of our common
stock in lieu of cash. Our director fees for the third quarter are
payable
at our next Annual Shareholders’ Meeting in 2008. Based on the closing
price of $2.89 per share on October 30, 2007, Mr. Reeder is entitled
to
receive under the terms of the 2003 Directors Plan, 73,818 shares
of our
common stock as payment for his services relating to the PFD litigation,
in lieu of the cash amount of $160,000.
|
Item
6.
|
Exhibits
|
|
|
(a)
|
Exhibits
|
|
|
|
|
|
3(ii)
|
|
By-Laws
of Perma-Fix Environmental Services, Inc, as amended on October 30,
2007.
|
|
|
|
|
|
4.1
|
|
Amendment
No. 8 to Revolving Credit, Term Loan and Security Agreement, dated
as of
November 2, 2007, between the Company and PNC Bank.
|
|
|
|
|
|
31.1
|
|
Certification
by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
pursuant to Rule 13a-14(a) or 15d-14(a).
|
|
|
|
|
|
31.2
|
|
Certification
by Steven Baughman, Vice President and Chief Financial Officer of
the
Company pursuant to Rule 13a-14(a) or 15d-14(a).
|
|
|
|
|
|
32.1
|
|
Certification
by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
furnished pursuant to 18 U.S.C. Section 1350.
|
|
|
|
|
|
32.2
|
|
Certification
by Steven Baughman, Vice President and Chief Financial Officer of
the
Company furnished pursuant to 18 U.S.C. Section 1350.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
|
PERMA-FIX
ENVIRONMENTAL SERVICES
|
|
|
|
|
|
|
Date:
November 9, 2007
|
By:
|
/s/
Dr. Louis F. Centofanti
|
|
|
Dr.
Louis F. Centofanti
Chairman
of the Board
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
Date:
November 9, 2007
|
By:
|
/s/
Steven Baughman
|
|
|
Steven
Baughman
Vice
President and Chief Financial Officer
|
|
|
|
|