SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31,
2008
or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from _____ to _____
Commission
File No. 1-11596
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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58-1954497
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State
or other jurisdiction
of
incorporation or organization
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(IRS
Employer Identification Number)
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8302
Dunwoody Place, #250, Atlanta, GA
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30350
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(Address
of principal executive offices)
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(Zip
Code)
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(770)
587-9898
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(Registrant's
telephone number)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, $.001 Par Value
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NASDAQ
Capital Markets
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Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No
x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o No
x
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer,” “accelerated
filer" and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer £ Accelerated
Filer T Non-accelerated
Filer £ Smaller
reporting company £
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes o No
x
The
aggregate market value of the Registrant's voting and non-voting common equity
held by nonaffiliates of the Registrant computed by reference to the closing
sale price of such stock as reported by NASDAQ as of the last business day of
the most recently completed second fiscal quarter (June 30, 2008), was
approximately $147,085,000. For the purposes of this calculation, all
executive officers and directors of the Registrant (as indicated in Item 12) are
deemed to be affiliates. Such determination should not be deemed an
admission that such directors or officers, are, in fact, affiliates of the
Registrant. The Company's Common Stock is listed on the NASDAQ
Capital Markets.
As of
March 9, 2009, there were 53,985,119 shares of the registrant's Common Stock,
$.001 par value, outstanding.
Documents
incorporated by reference: none
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
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BUSINESS
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Company
Overview and Principal Products and Services
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us,
or our), an environmental and technology know-how company, is a Delaware
corporation organized in 1990, and is engaged through its subsidiaries,
in:
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Nuclear
Waste Management Services (“Nuclear Segment”), which
includes:
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Treatment,
storage, processing and disposal of mixed waste (which is waste that
contains both low-level radioactive and hazardous waste) including on and
off-site waste remediation and
processing;
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Nuclear,
low-level radioactive, and mixed waste treatment, processing and disposal;
and
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Research
and development of innovative ways to process low-level radioactive and
mixed waste.
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Consulting
Engineering Services (“Engineering Segment”), which
includes:
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o
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Consulting
services regarding broad-scope environmental issues, including air, water,
and hazardous waste permitting, air, soil, and water sampling, compliance
reporting, emission reduction strategies, compliance auditing, and various
compliance and training activities to industrial and government customers,
as well as engineering and compliance support needed by our other
segments.
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Industrial
Waste Management Services (“Industrial Segment”), which
includes:
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o
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Treatment,
storage, processing, and disposal of hazardous and non-hazardous waste;
and
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o
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Wastewater
management services, including the collection, treatment, processing and
disposal of hazardous and non-hazardous
wastewater.
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In May
2007, our Board of Directors authorized the divestiture of our Industrial
Segment. On September 26, 2008, our Board of Directors approved
retaining our Industrial Segment facilities/operations at Perma-Fix of Fort
Lauderdale, Inc. (“PFFL”), Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of
Orlando, Inc. (“PFO”). This subsequent decision to retain operations
at PFFL, PFSG, and PFO within our Industrial Segment is based on our belief that
these operations are self-sufficient, which should allow senior management more
freedom to focus on growing our Nuclear operations, while benefiting from the
cash flow and growth prospects of these three facilities and the fact that we
were unable in the current economic climate to obtain the values for these
companies that we believe they are worth. In 2008, we completed the
sale of substantially all of the assets of three of our Industrial Segment
facilities/operations as follows: on January 8, 2008, we completed
the sale of substantially all of the assets of Perma-Fix Maryland, Inc. (“PFMD”)
for $3,825,000 in cash and the assumption by the buyer of certain liabilities of
PFMD, with a final working capital adjustment of $170,000 received by us from
the buyer in the fourth quarter of 2008; on March 14, 2008, we completed the
sale of substantially all of the assets of Perma-Fix of Dayton, Inc. (“PFD”) for
approximately $2,143,000 in cash, plus assumption by the buyer of certain of
PFD’s liabilities and obligations. In June 2008, we paid the buyer
$209,000 in final working capital adjustment; and on May 30, 2008, we completed
the sale of substantially all of the assets of Perma-Fix Treatment Services,
Inc. (“PFTS”) for approximately $1,503,000, and assumption by the buyer of
certain liabilities of PFTS. In July 2008, we paid the buyer $135,000
in final working capital adjustments.
As a
result of our Board of Directors’ approval to retain our PFFL, PFO, and PFSG
facilities/operations in September 2008, we restated the consolidated financial
statements for all periods presented to reflect the reclassification of these
three facilities/operations back into our continuing operations. In
the third quarter of 2008, we classified one of the two properties at PFO as
held for sale. In the fourth quarter of 2008, we completed the sale
of this property at PFO for $900,000 in cash. We do not expect any
impact or reduction to PFO’s operating capability from the sale of the property
at PFO.
Our goal
is to continue focus on the efficient operation of our existing facilities
within our Nuclear, Industrial, and Engineering Segments, evaluate strategic
acquisitions primarily within the Nuclear Segments, and to continue the research
and development of innovative technologies to treat nuclear waste, mixed waste,
and industrial waste. We continue to place greater attention
and resources on our nuclear
business.
Our Nuclear Segment facility, Perma-Fix Northwest Richland, Inc. (“PFNWR”)
facility, which was acquired in June 2007, had $17,325,000 in revenue, which
represented 22.9% of our consolidated revenue from continuing operations in 2008
as compared to $8,439,000 or 13.1% in 2007. PFNWR is a hazardous
waste, low level radioactive waste and mixed waste (containing both hazardous
waste and low level radioactive waste) management company based in Richland,
Washington, adjacent to the Department of Energy’s (“DOE”) Hanford
Site. This acquisition provides us with a number of strategic
benefits. Foremost, this acquisition secured PFNWR’s radioactive and
hazardous waste permits and licenses, which further solidified our position
within the mixed waste industry. Additionally, the PFNWR facility is
located adjacent to the Hanford Site, which represents one of the largest
environmental clean-up projects in the nation and is expected to be one of the
most expansive of DOE’s nuclear weapons sites to remediate. In
addition, the acquisition of PFNWR facility introduced our West Coast presence
and increases our treatment capacity for radioactive only waste.
During
the second quarter of 2008, our East Tennessee Materials and Energy Corporation
(“M&EC”) facility within our Nuclear Segment was awarded a subcontract by CH
Plateau Remediation Company (“CHPRC”) to perform a portion of facility
operations and waste management activities for the DOE Hanford, Washington
site. The general contract awarded by the DOE to CHPRC and our
subcontract provide for a transition period from August 11, 2008 through
September 30, 2008, a base period from October 1, 2008 through September 30,
2013, and an option period from October 1, 2013 through September 30,
2018. The subcontract is a cost-plus award fee
contract. On October 1, 2008, operations of this subcontract
commenced at the DOE Hanford Site. We believe full operations under
this subcontract will result in revenues for on-site and off-site work of
approximately $200,000,000 to $250,000,000 over the five year based
period. As of December 31, 2008, revenue from this subcontractor
accounted for $8,120,000 or 10.8% of total revenue from our continuing
operations. As of the date of this report, we have employed an
additional 177 employees to service this subcontract. This
subcontract, as are most, if not all, contracts involving work relating to
federal sites provide that the government or subcontractor may terminate or
renegotiate the contract with us at any time for convenience or 30 days
notice.
We
service research institutions, commercial companies, public utilities, and
governmental agencies nationwide, including the DOE and Department of Defense
(“DOD”). The distribution channels for our services are through direct sales to
customers or via intermediaries.
We were
incorporated in December of 1990. Our executive offices are located at 8302
Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
Demand
for our services has been, and we expect that demand will continue to be,
subject to significant fluctuation (including substantial reductions) due to a
variety of factors beyond our control, such as the current economic recession
and the large budget deficits of our federal government and many of our states
(see “Risk Factors” and “Management Discussion and Analysis of Financial
Condition and Results of Operations contained herein for a discussion as to
these factors that could have a significant effect on our business and
results). However, we believe that government funding made available
for DOE remediation projects under the recently enacted government stimulus plan
could have a positive impact on our government subcontracts within our Nuclear
Segment. (see “Dependence Upon a Single or Few Customers in this section for
certain subcontracts with the DOE within our Nuclear Segment), although we
continue to remain cautious of the future due to the heightened financial market
and economic turmoil and large federal/budget deficit.
Website
access to Company's reports
Our
internet website address is www.perma-fix.com. Our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to section 13(a) or
15(d) of the Exchange Act are available free of charge through our website as
soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission
(“Commission”). Additionally, we make available free of charge on our
internet website:
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our
Code of Ethics;
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the
charter of our Corporate Governance and Nominating
Committee;
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our
Anti-Fraud Policy;
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the
charter of our Audit Committee.
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Segment
Information and Foreign and Domestic Operations and Export Sales
During
2008, we were engaged in three operating segments. Pursuant to FAS
131, we define an operating segment as:
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a
business activity from which we may earn revenue and incur
expenses;
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whose
operating results are regularly reviewed by the President and Chief
Operating Officer to make decisions about resources to be allocated and
assess its performance; and
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for
which discrete financial information is
available.
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We
therefore define our operating segments as each business line that we
operate. These segments, however, exclude the Corporate and Operation
Headquarters, which do not generate revenue; Perma-Fix of Michigan Inc. (“PFMI”)
and Perma-Fix of Pittsburgh, Inc. (“PFP”), two non-operational facilities within
our Industrial Segment which were approved as discontinued operations by our
Board of Director effective November 8, 2005, and October 4, 2004, respectively;
and PFMD, PFD, and PFTS, three Industrial Segment facilities which were divested
in January 2008, March 2008, and May 2008, respectively, as previously
discussed.
Most of
our activities are conducted nationwide. We do not own any foreign
operations and we had no export sales during 2008.
Operating
Segments
We have
three operating segments, which represent each business line that we operate.
The Nuclear Segment, which operates four facilities; the Industrial Segment,
which operates three facilities; and the Engineering Segment as described
below:
NUCLEAR
WASTE MANAGEMENT SERVICES (“Nuclear Segment”), which includes nuclear, low-level
radioactive, mixed (waste containing both hazardous and low-level radioactive
constituents) hazardous and non-hazardous waste treatment, processing and
disposal services through four uniquely licensed (Nuclear Regulatory Commission
or state equivalent) and permitted (Environmental Protection Agency (“EPA”) or
state equivalent) treatment and storage facilities. The presence of
nuclear and low-level radioactive constituents within the waste streams
processed by this segment creates different and unique operational, processing
and permitting/licensing requirements, as discussed below.
Perma-Fix
of Florida, Inc. (“PFF”), located in Gainesville, Florida, specializes in the
storage, processing, and treatment of certain types of wastes containing both
low-level radioactive and hazardous wastes, which are known in the industry as
mixed waste (“mixed waste”). PFF is one of the first facilities
nationally to operate under both a hazardous waste permit and a radioactive
materials license, from which it has built its reputation based on its ability
to treat difficult waste streams using its unique processing technologies and
its ability to provide related research and development services. PFF
has substantially increased the amount and type of mixed waste and low level
radioactive waste that it can store and treat. Its mixed waste
services have included the treatment and processing of waste Liquid
Scintillation Vials (“LSVs”) since the mid 1980's. LSVs are used for
the counting of certain radionuclides. The LSVs are generated
primarily by institutional research agencies and biotechnical
companies. The business has expanded into receiving and handling
other types of mixed waste, primarily from the nuclear utilities, commercial
generators, prominent pharmaceutical companies, the DOE and other government
facilities as well as select mixed waste field remediation
projects. PFF also continues to receive and process certain hazardous
and non-hazardous waste streams as a compliment to its expanded nuclear and
mixed waste processing activities.
Diversified
Scientific Services, Inc. (“DSSI”) located in Kingston, Tennessee, specializes
in the storage, processing, and destruction of certain types of mixed
waste. DSSI, like PFF, is one of only a few facilities nationally to
operate under both a hazardous waste permit and a radioactive materials
license. Additionally, DSSI is the only commercial facility of its
kind in the U.S. that is currently operating and licensed to destroy liquid
organic mixed waste, through such a treatment unit. DSSI provides
mixed waste disposal services for nuclear utilities, commercial generators,
prominent pharmaceutical companies, and agencies and contractors of the U.S.
government, including the DOE and the DOD. On November 26, 2008, the
U.S. Environmental Protection Agency (“EPA”) Region 4 issued a permit to DSSI to
commercially store and dispose of radioactive Polychlorinated Biphenyls
(“PCBs”). Currently, we are unaware of any other commercial
facilities authorized to store and dispose of radioactive PCB
wastes.
East
Tennessee Materials & Energy Corporation (“M&EC”), located in Oak Ridge,
Tennessee, is another mixed waste facility. M&EC also operates
under both a hazardous waste permit and radioactive materials
license. M&EC represents the largest of our four mixed waste
facilities, covering 150,000 sq. ft., and is located in leased facilities at the
DOE East Tennessee Technology Park. In 2007, M&EC completed its
facility expansion (“SouthBay”) to treat DOE special process wastes from the DOE
Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio under the
subcontract awarded by LATA/Parallax Portsmouth LLC to our Nuclear Segment in
2006. LATA/Parallax performs environmental remediation services,
including groundwater cleanup and waste management activities, under contract to
DOE at the Portsmouth site.
Perma-Fix
Northwest Richland, Inc. (“PFNWR”), which we acquired in June 2007, is located
in Richland, Washington. PFNWR is a permitted hazardous, low level
radioactive and mixed waste treatment, storage and disposal facility located at
the Hanford Site in the eastern part of the state of Washington. The
DOE’s Hanford Site is subject to one of the largest, most complex, and costliest
DOE clean up plans. The strategic addition of PFNWR facility provides
the Company with immediate access to treat some of the most complex nuclear
waste streams in the nation. PFNWR predominately provides waste
treatment services to contractors of government agencies, in addition to
commercial generators.
For 2008,
the Nuclear Segment accounted for $61,359,000 or 81.3% of total revenue from
continuing operations, as compared to $51,704,000 or 80.1% of total revenue from
continuing operations for 2007. See “ – Dependence Upon a Single or
Few Customers” and “Financial Statements and Supplementary Data” for further
details and a discussion as to our Nuclear Segment's contracts with the federal
government or with others as a subcontractor to the federal
government.
INDUSTRIAL
WASTE MANAGEMENT SERVICES (“Industrial Segment”), which includes, off-site waste
storage, treatment, processing and disposal services of hazardous and
non-hazardous waste (solids and liquids) through three permitted treatment
and/or disposal facilities, as discussed below.
Perma-Fix
of Ft. Lauderdale, Inc. (“PFFL”) is a permitted facility located in Ft.
Lauderdale, Florida. PFFL collects and treats wastewaters, oily wastewaters,
used oil and other off-specification petroleum-based products, some of which may
potentially be recycled into usable products. Key activities at PFFL
include process cleaning and material recovery, production and sales of
on-specification fuel oil, custom tailored waste management programs and
hazardous material disposal and recycling materials from generators such as the
cruise line and marine industries.
Perma-Fix
of Orlando, Inc. (“PFO”) is a permitted treatment and storage facility located
in Orlando, Florida. PFO collects, stores and treats hazardous and non-hazardous
wastes under one of our most inclusive permits. PFO is also a
transporter of hazardous waste and operates a transfer facility at the
site. PFO also collects oily waste waters, used oil, and other
off-specification petroleum based products and performs vacuum service work in
Florida.
Perma-Fix
of South Georgia, Inc. (“PFSG”) is a permitted treatment and storage facility
located in Valdosta, Georgia. PFSG provides storage, treatment and
disposal services to hazardous and non-hazardous waste generators primarily
throughout the Southeastern portion of the United States, in conjunction with
the
utilization
of the PFO facility and transportation services. PFSG operates a
hazardous waste storage facility that primarily blends and processes hazardous
and non-hazardous waste liquids, solids and sludges into substitute fuel or as a
raw material substitute in cement kilns that have been specially permitted for
the processing of hazardous and non-hazardous waste.
For 2008,
the Industrial Segment accounted for approximately $10,951,000 or 14.5% of our
total revenue from continuing operations as compared to approximately
$10,442,000 or 16.2% for 2007. See “Financial Statements and
Supplementary Data” for further details.
CONSULTING
ENGINEERING SERVICES (“Engineering Segment”), which provides environmental
engineering and regulatory compliance consulting services through one
subsidiary, as discussed below.
Schreiber,
Yonley & Associates (“SYA”) is located in Ellisville,
Missouri. SYA specializes in air, water, and hazardous waste
permitting, air, soil, and water sampling, compliance reporting, emission
reduction strategies, compliance auditing, and various compliance and training
activities to industrial and government customers, as well as, engineering and
compliance support needed by our other segments.
During
2008, environmental engineering and regulatory compliance consulting services
accounted for approximately $3,194,000 or 4.2% of our total revenue from
continuing operations, as compared to approximately $2,398,000 or 3.7% in
2007. See “Financial Statements and Supplementary Data” for further
details.
Discontinued
Operations
As stated
previously above, our discontinued operations includes the following facilities
within our Industrial Segment: Perma-Fix of Michigan Inc. (“PFMI”),
Perma-Fix of Pittsburgh, Inc. (“PFP”), two non-operational facilities which were
approved as discontinued operations by our Board of Director effective October
4, 2004, and November 8, 2005, respectively, and PFMD, PFD, and PFTS, three
Industrial Segment facilities which were divested in January 2008, March 2008,
and May 2008, respectively.
Our
discontinued operations generated $3,195,000 and $19,965,000 of revenue in 2008
and 2007, respectively.
Importance
of Patents, Trademarks and Proprietary Technology
We do not
believe we are dependent on any particular trademark in order to operate our
business or any significant segment thereof. We have received
registration to the year 2010 and 2012 for the service marks “Perma-Fix” and
“Perma-Fix Environmental Services,” respectively, by the U.S. Patent and
Trademark Office.
We are
active in the research and development (“R&D”) of technologies that allow us
to address certain of our customers' environmental needs. To date, our R&D
efforts have resulted in the granting of seven active patents and the filing of
several pending patent applications. Our flagship technology, the Perma-Fix
Process, is a proprietary, cost effective, treatment technology that converts
hazardous waste into non-hazardous material. Subsequently, we developed the
Perma-Fix II process, a multi-step treatment process that converts hazardous
organic components into non-hazardous material. The Perma-Fix II process is
particularly important to our mixed waste strategy. We believe that at least one
third of DOE mixed waste contains organic components.
The
Perma-Fix II process is designed to remove certain types of organic hazardous
constituents from soils or other solids and sludges (“Solids”) through a
water-based system. Until development of this Perma-Fix II process,
we were not aware of a relatively simple and inexpensive process that would
remove the organic hazardous constituents from Solids without elaborate and
expensive equipment or expensive treating agents. Due to the organic
hazardous constituents involved, the disposal options for such materials are
limited, resulting in high disposal cost when there is a disposal option
available. By reducing the organic hazardous waste constituents in
the Solids to a level where the Solids meet Land Disposal Requirements,
the
generator's
disposal options for such waste are substantially increased, allowing the
generator to dispose of such waste at substantially less cost. We
began commercial use of the Perma-Fix II process in 2000. However,
changes to current environmental laws and regulations could limit the use of the
Perma-Fix II process or the disposal options available to the
generator. See “—Permits and Licenses” and “—Research and
Development.”
Permits
and Licenses
Waste
management companies are subject to extensive, evolving and increasingly
stringent federal, state and local environmental laws and
regulations. Such federal, state and local environmental laws and
regulations govern our activities regarding the treatment, storage, processing,
disposal and transportation of hazardous, non-hazardous and radioactive wastes,
and require us to obtain and maintain permits, licenses and/or approvals in
order to conduct certain of our waste activities. Failure to obtain
and maintain our permits or approvals would have a material adverse effect on
us, our operations, and financial condition. The permits and licenses
have terms ranging from one to ten years, and provided that we maintain a
reasonable level of compliance, renew with minimal effort, and
cost. Historically, there have been no compelling challenges to the
permit and license renewals. Such permits and licenses, however,
represent a potential barrier to entry for possible competitors.
Nuclear
Segment:
PFF
operates its hazardous, mixed and low-level radioactive waste activities under a
RCRA Part B permit and a radioactive materials license issued by the State of
Florida.
DSSI
operates hazardous, mixed and low-level radioactive waste activities under a
RCRA Part B permit and a radioactive materials license issued by the State of
Tennessee. On November 26, 2008, the U.S. EPA Region 4 issued a
permit to DSSI to commercially store and dispose of radioactive Polychlorinated
Biphenyls (“PCBs”). DSSI began the permitting process to add Toxic
Substances Control Act (“TSCA”) regulated wastes, namely PCBs, containing
radioactive constituents to its authorization in 2004 in order to meet the
demand for the treatment of government and commercially generated radioactive
PCB wastes. Currently, we are unaware of any other commercial
facility authorized to store and dispose of radioactive PCB wastes.
M&EC
operates hazardous and low-level radioactive waste activities under a RCRA Part
B permit and a radioactive materials license issued by the State of
Tennessee.
PFNWR
operates its hazardous, mixed and low-level radioactive waste activities under a
RCRA Part B permit and a radioactive materials license issued by the State of
Washington.
The
combination of a RCRA Part B hazardous waste permit and a radioactive materials
license, as held by PFF, DSSI and M&EC, and PFNWR are very difficult to
obtain for a single facility and make these facilities unique.
Industrial
Segment:
PFFL
operates under a used oil processors license and a solid waste processing permit
issued by the Florida Department of Environmental Protection (“FDEP”), a
transporter license issued by the FDEP and a transfer facility license issued by
Broward County, Florida.
PFO
operates a hazardous and non-hazardous waste treatment and storage facility
under various permits, including a RCRA Part B permit, and a used oil processors
permit issued by the State of Florida.
PFSG
operates a hazardous waste treatment and storage facility under a RCRA Part B
permit, issued by the State of Georgia.
Seasonality
Historically,
we have experienced reduced activities and related billable hours throughout the
November and December holiday periods within our Engineering
Segment. Our Industrial Segment operations experience reduced
activities during the holiday periods; however, one key product line is the
servicing of cruise line business where operations are typically higher during
the winter months, thus offsetting the impact of the holiday
season. The DOE and DOD represent major customers for the Nuclear
Segment. In conjunction with the federal government’s September 30
fiscal year-end, the Nuclear Segment historically experienced seasonably large
shipments during the third quarter, leading up to this government fiscal
year-end, as a result of incentives and other quota
requirements. Correspondingly for a period of approximately three
months following September 30, the Nuclear Segment is generally seasonably slow,
as the government budgets are still being finalized, planning for the new year
is occurring, and we enter the holiday season. Over the
past years, due to our efforts to work with the various government customers to
smooth these shipments more evenly throughout the year, we have seen smaller
fluctuations in the quarters. Although we have seen smaller
fluctuation in the quarters in recent years, as government spending is
contingent upon its annual budget and allocation of funding, we cannot provide
assurance that we will not have larger fluctuations in the quarters in the near
future. For 2008, government agencies were operated under “Continuing
Resolution” without finalized budgets due in part to the impending change in
Administration, which had a negative impact on availability of funding for
services offered by our Nuclear Segment.
Backlog
The
Nuclear Segment of our Company maintains a backlog of stored waste, which
represents waste that has not been processed. The backlog is
principally a result of the timing and complexity of the waste being brought
into the facilities and the selling price per container. As of
December 31, 2008, our Nuclear Segment had a backlog of approximately
$10,244,000, as compared to approximately $14,600,000, as of December 31,
2007. Additionally, the time it takes to process mixed waste from the
time it arrives may increase due to the types and complexities of the waste we
are currently receiving. We typically process our backlog during
periods of low waste receipts, which historically has been in the first or
fourth quarter.
Dependence
Upon a Single or Few Customers
Our
Nuclear Segment has a significant relationship with the federal government, and
continues to enter into, contracts with (directly or indirectly as a
subcontractor) the federal government. The contracts that we are a
party to with the federal government or with others as a subcontractor to the
federal government generally provide that the government may terminate or
renegotiate the contracts in 30 days notice, at the government's
election. Our inability to continue under existing contracts that we
have with the federal government (directly or indirectly as a subcontractor)
could have a material adverse effect on our operations and financial
condition.
We
performed services relating to waste generated by the federal government, either
directly or indirectly as a subcontractor (including LATA/Parallax, Fluor
Hanford, and CHPRC as discussed below) to the federal government, representing
approximately $43,464,000 or 57.6% of our total revenue from continuing
operations during 2008, as compared to $30,000,000 or 46.5% of our total revenue
from continuing operations during 2007, and $33,226,000 or 48.7% of our total
revenue from continuing operations during 2006.
Included
in the amounts discussed above, are revenues from LATA/Parallax Portsmouth LLC
(“LATA/Parallax”). LATA/Parallax manages DOE environmental
programs. Our revenues from LATA/Parallax contributed $4,841,000 or
6.4%, $8,784,000 or 13.6%, and 10,341,000 or 15.2% of our revenues from
continuing operations for 2008, 2007, and 2006,
respectively. In 2006, our M&EC facility was awarded a
subcontract by LATA/Parallax to treat DOE special process wastes from the DOE
Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio. This
subcontract has been extended through September 30, 2009. We
currently have two other subcontracts with LATA/Parallax to treat wastes which
are set to expire on September 30, 2009. As with most contracts
relating to the federal government,
LATA/Parallax
can terminate the contract with us at any time for convenience, which could have
a material adverse effect on our operations.
Since
2004, our Nuclear Segment has treated mixed low-level waste, as a subcontractor,
for Fluor Hanford, who acts as a general contractor for the
DOE. However, with the acquisition of our PFNWR facility in 2007, a
significant amount of our revenues is derived from Fluor Hanford, a DOE general
contractor since 1996. Fluor Hanford manages several major activities
at the DOE’s Hanford Site, including dismantling former nuclear processing
facilities, monitoring and cleaning up the site’s contaminated groundwater, and
retrieving and processing transuranic waste for off-site
shipment. The Hanford Site is one of DOE’s largest nuclear weapon
environmental remediation projects. Our PFNWR facility is located
adjacent to the Hanford Site and treats low level radioactive and mixed
wastes. We have three subcontracts with Fluor Hanford (as the general
contractor at the DOE Site) at our PFNWR facility, with the initial contract
dating back to 2003. Fluor Hanford’s successor, CHPRC, was awarded
the Plateau Remediation Contract for the Hanford Site in the second quarter of
2008 and has begun management of the waste activities previously managed by
Fluor Hanford under these three subcontracts, effective October 1,
2008. CHPRC has extended these subcontracts to March 31, 2009 and we
expect these subcontracts will be renegotiated by CHPRC beyond March 31,
2009. Revenue from Fluor Hanford has been transitioned to CHPRC and
we expect these revenues to remain constant or possibly increase, dependent upon
DOE funding, in fiscal year 2009. Revenues from Fluor Hanford
totaled $7,974,000 or 10.6% (approximately $5,160,000 from PFNWR), $6,985,000
(approximately $3,100,000 from PFNWR) or 10.8%, and $1,229,000 or 1.8% of our
consolidated revenue from continuing operations for 2008, 2007, and 2006,
respectively.
In
connection with the CHPRC obligations under its DOE general contract as
discussed above, our M&EC facility was awarded a subcontract by CHPRC to
participate in the cleanup of the central portion of the Hanford Site, which
once housed certain chemical separation buildings and other facilities that
separated and recovered plutonium and other materials for use in nuclear
weapons. This subcontract became effective on June 19, 2008, the date
DOE awarded CHPRC the general contract. DOE’s general
contract and M&EC’s subcontract provided a transition period from August 11,
2008 through September 30, 2008, a base period from October 1, 2008 through
September 30, 2013, and an option period from October 1, 2013 through September
30, 2018. M&EC’s subcontract is a cost plus award fee
contract. On October 1, 2008, operations of this subcontract
commenced at the DOE Hanford Site. We believe full operations under
this subcontract will result in revenues for on-site and off-site work of
approximately $200,000,000 to $250,000,000 over the five year base
period. As of December 31, 2008, revenue from this subcontractor
accounted for $8,120,000 or 10.8% of total revenue from our continuing
operations. As of the date of this report, we have employed an
additional 177 employees to service this subcontract.
Competitive
Conditions
The
Nuclear Segment’s largest competitor is EnergySolutions, which provides
treatment and disposal capabilities at its Oak Ridge, Tennessee and Clive, Utah
facilities. EnergySolutions presents the largest competitive
challenge in the market. At present, EnergySolutions’ Clive, Utah
facility is one of the few radioactive disposal sites for commercially generated
wastes in the country in which our Nuclear Segment can dispose of its nuclear
waste. If EnergySolutions should refuse to accept our waste or cease
operations at its Clive, Utah facility, such would have a material adverse
effect on us for commercial wastes. The Nuclear Segment treats and
disposes of DOE generated wastes largely at DOE owned sites. Smaller
competitors are also present in the market place; however, they do not present a
significant challenge at this time. Our Nuclear Segment
solicits business on a nationwide basis with both government and commercial
clients.
The
permitting and licensing requirements, and the cost to obtain such permits, are
barriers to the entry of hazardous waste treatment, storage, and diposal (“TSD”)
facilities and radioactive and mixed waste activities as presently operated by
our subsidiaries. We believe that there are no formidable barriers to
entry into certain of the on-site treatment businesses, and certain of the
non-hazardous waste operations, which do not require such permits. If
the permit requirements for hazardous waste storage, treatment, and disposal
activities and/or the licensing requirements for the handling of low level
radioactive matters are eliminated
or if
such licenses or permits were made less rigorous to obtain, such would allow
companies to enter into these markets and provide greater
competition.
Engineering
Segment consulting services provided by us through SYA involve competition with
larger engineering and consulting firms. We believe that we are able
to compete with these firms based on our established reputation in these market
areas and our expertise in several specific elements of environmental
engineering and consulting such as environmental applications in the cement
industry, emission reduction strategies, and Maximum Available Control
Technology (“MACT”) compliance.
Within
our Industrial Segment we solicit business primarily in the Southeastern portion
of the United States. We believe that we are a significant
provider in the delivery of off-site waste treatment services in the Southeast
portion of the United States. We compete with facilities operated by
national, regional and independent environmental services firms located within a
several hundred-mile radius of our facilities.
Capital
Spending, Certain Environmental Expenditures and Potential Environmental
Liabilities
Capital
Spending
During
2008, our purchases of capital equipment totaled approximately $1,158,000 of
which $1,129,000 and $29,000 was for our continuing and discontinued operations,
respectively. Of the total capital spending, $148,000 was financed
for our continuing operations, resulting in total net purchases of $1,010,000
funded out of cash flow ($981,000 for continuing operations and $29,000 for our
discontinued operations). These expenditures were for compliance,
sustenance, expansion, and improvements to the operations principally within the
Nuclear Segment. These capital expenditures were funded by the cash
provided by operations and from cash provided by financing activities. We have
budgeted approximately $1,300,000 for 2009 capital expenditures for our segments
to expand our operations into new markets, reduce the cost of waste processing
and handling, expand the range of wastes that can be accepted for treatment and
processing, and to maintain permit compliance requirements. Certain
of these budgeted projects are discretionary and may either be delayed until
later in the year or deferred altogether. We have traditionally
incurred actual capital spending totals for a given year less than the initial
budget amount. The initiation and timing of projects are also
determined by financing alternatives or funds available for such capital
projects.
Environmental
Liabilities
We have
four remediation projects, which are currently in progress at certain of our
continuing and discontinued facilities. These remediation projects principally
entail the removal/remediation of contaminated soil and, in some cases, the
remediation of surrounding ground water.
In June
1994, we acquired PFD, which we divested in March 2008. Prior to us
acquiring PFD in 1994, the former owners of PFD had merged Environmental
Processing Services, Inc. (“EPS”) with PFD. The party that sold PFD
to us in 1994 agreed to indemnify us for costs associated with remediating the
property leased by EPS (“Leased Property”). Such remediation involves
soil and/or groundwater restoration. The Leased Property used by EPS
to operate its facility is separate and apart from the property on which PFD's
facility was located. The contamination of the Leased Property
occurred prior to PFD being acquired by us. During 1995, in
conjunction with the bankruptcy filing by the selling party, we recognized an
environmental liability of approximately $1,200,000 for remedial activities at
the Leased Property. Upon the sale of PFD in March 2008 by Perma-Fix,
we retained the environmental liability of PFD as it related only to the
remediation of the EPS site. In 2008, we performed a field
investigation to gather additional information required to close certain soil
contamination issues and to support development of the final groundwater
remediation approach. We have accrued approximately $489,000, at
December 31, 2008, for the estimated, remaining costs of remediating the Leased
Property used by EPS, which will extend over the next seven years.
In
conjunction with the acquisition of Perma-Fix of Memphis, Inc. (“PFM”), we
assumed and recorded certain liabilities to remediate gasoline contaminated
groundwater and investigate, under the hazardous and solid waste amendments,
potential areas of soil contamination on PFM's property. Prior to our
ownership of PFM, the owners installed monitoring and treatment equipment to
restore the groundwater to acceptable
standards
in accordance with federal, state and local authorities. In 2008, we completed
all soil remediation with the exception of that associated with the groundwater
contamination. In addition, we installed wells and equipment
associated with groundwater remediation. We have accrued
approximately $275,000 at December 31, 2008, for the estimated, remaining costs
of remediating the groundwater contamination, which will extend over the next
five years. This environmental liability is included in our
continuing operations and will remain the financial obligation of the
Company.
In
conjunction with the acquisition of PFSG, a subsidiary within our Industrial
Segment, we initially recognized an environmental accrual of $2,200,000 for
estimated long-term costs to remove contaminated soil and to undergo ground
water remediation activities at the acquired facility in Valdosta,
Georgia. The remedial activities began in 2003. We have
accrued approximately $531,000, at December 31, 2008, to complete remediation of
the facility, which we anticipate spending over the next seven
years.
In
conjunction with an oil spill at PFTS, we accrued approximately $69,000 to
remediate the contaminated soil and ground water at this
location. Upon the sale of PFTS facility in May 2008, the remaining
environmental reserve of approximately $35,000 was recorded as a “gain on
disposal of discontinued operations, net of taxes” in the second quarter of 2008
on our “Consolidated Statement of Operations”.
In
conjunction with the acquisition of PFMD in March 2004, we accrued for long-term
environmental liabilities of $391,000 as a best estimate of the cost to
remediate the hazardous and/or non-hazardous contamination on certain properties
owned by PFMD. In connection with the sale of PFMD facility in
January 2008, the buyer assumed this liability in addition to obligations and
liabilities for environmental conditions at the Maryland facility except for
fines, assessments, or judgments to governmental authorities prior to the
closing of the transaction or third party tort claims existing prior to the
closing of the sale.
As a
result of the discontinued operations at the PFMI facility in 2004, we were
required to complete certain closure and remediation activities pursuant to our
RCRA permit, which were completed in January 2006. In September 2006,
PFMI signed a Corrective Action Consent Order with the State of Michigan,
requiring performance of studies and development and execution of plans related
to the potential clean-up of soils in portions of the property. The
level and cost of the clean-up and remediation are determined by state mandated
requirements. Upon discontinuation of operations in 2004, we engaged
our engineering firm, SYA, to perform an analysis and related estimate of the
cost to complete the RCRA portion of the closure/clean-up costs and the
potential long-term remediation costs. Based upon this analysis, we
estimated the cost of this environmental closure and remediation liability to be
$2,464,000. During 2006, based on state-mandated criteria, we
re-evaluated our required activities to close and remediate the facility, and
during the quarter ended June 30, 2006, we began implementing the modified
methodology to remediate the facility. As a result of the
reevaluation and the change in methodology, we reduced the accrual by
$1,182,000. We have spent approximately
$745,000 for closure costs since September 30, 2004, of which $26,000 was spent
during 2008 and $81,000 was spent during 2007. In the 4th quarter of 2007, we reduced
our reserve by $9,000 as a result of our reassessment of the cost of
remediation. We have $538,000 accrued for the closure,
as of December 31, 2008, and we anticipate spending $425,000 in 2009 with the
remainder over the next six years. Based on the current status of the
Corrective Action, we believe that the remaining reserve is adequate to cover
the liability.
No
insurance or third party recovery was taken into account in determining our cost
estimates or reserves, nor do our cost estimates or reserves reflect any
discount for present value purposes.
The
nature of our business exposes us to significant risk of liability for
damages. Such potential liability could involve, for example, claims
for cleanup costs, personal injury or damage to the environment in cases where
we are held responsible for the release of hazardous materials; claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of our operations; and claims alleging negligence or
professional errors or omissions in the planning or performance of our
services. In addition, we could be deemed a responsible party for the
costs of required cleanup of any property, which may be contaminated by
hazardous substances generated or transported by us to a site we
selected,
including
properties owned or leased by us (see “Legal Proceedings” in Part I, Item
3). We could also be subject to fines and civil penalties in
connection with violations of regulatory requirements.
Research
and Development
Innovation
and technical know-how by our operations is very important to the success of our
business. Our goal is to discover, develop and bring to market
innovative ways to process waste that address unmet environmental
needs. We conduct research internally, and also through
collaborations with other third parties. The majority of our research
activities are performed as we receive new and unique waste to treat; as such,
we recognize these expenses as a part of our processing costs. We
feel that our investments in research have been rewarded by the discovery of the
Perma-Fix Process and the Perma-Fix II process. Our competitors also
devote resources to research and development and many such competitors have
greater resources at their disposal than we do. We have estimated
that during 2008, 2007, and 2006, we spent approximately $1,020,000, $715,000,
and $422,000, respectively, in Company-sponsored research and development
activities.
Number
of Employees
In our
service-driven business, our employees are vital to our success. We
believe we have good relationships with our employees. As of December
31, 2008, we employed 554 full time persons, of whom 16 were assigned to our
corporate office, 20 were assigned to our Operations Headquarters, 24 were
assigned to our Engineering Segment, 42 were assigned to our Industrial Segment,
and 452 were assigned to our Nuclear Segment. Of the 452 employees at
our Nuclear Segment, 177 employees were hired in 2008 as result of our new
subcontract awarded to us by CHPRC. Of the 177 employees, 84 employees
(representing 15.2% of the Company's total number of employees) are unionized
and are covered by a collective bargaining agreement. The bargaining agreement
has a term of three years effective April 1, 2007 and expires on March 31,
2010 and is subject to a two year extension pending wage and benefit
renegotiation (see “-Company Overview and Principal Products and Services”
in this section).
Governmental
Regulation
Environmental
companies and their customers are subject to extensive and evolving
environmental laws and regulations by a number of national, state and local
environmental, safety and health agencies, the principal of which being the
EPA. These laws and regulations largely contribute to the demand for
our services. Although our customers remain responsible by law for
their environmental problems, we must also comply with the requirements of those
laws applicable to our services. We cannot predict the extent to
which our operations may be affected by future enforcement policies as applied
to existing laws or by the enactment of new environmental laws and
regulations. Moreover, any predictions regarding possible liability
are further complicated by the fact that under current environmental laws we
could be jointly and severally liable for certain activities of third parties
over whom we have little or no control. Although we believe that we
are currently in substantial compliance with applicable laws and regulations, we
could be subject to fines, penalties or other liabilities or could be adversely
affected by existing or subsequently enacted laws or regulations. The
principal environmental laws affecting our customers and us are briefly
discussed below.
The Resource Conservation and
Recovery Act of 1976, as amended (“RCRA”)
RCRA and
its associated regulations establish a strict and comprehensive permitting and
regulatory program applicable to hazardous waste. The EPA has
promulgated regulations under RCRA for new and existing treatment, storage and
disposal facilities including incinerators, storage and treatment tanks, storage
containers, storage and treatment surface impoundments, waste piles and
landfills. Every facility that treats, stores or disposes of
hazardous waste must obtain a RCRA permit or must obtain interim status from the
EPA, or a state agency, which has been authorized by the EPA to administer its
program, and must comply with certain operating, financial responsibility and
closure requirements.
The Safe Drinking Water
Act, as amended (the
“SDW Act”)
SDW Act
regulates, among other items, the underground injection of liquid wastes in
order to protect usable groundwater from contamination. The SDW Act
established the Underground Injection Control Program (“UIC Program”) that
provides for the classification of injection wells into five
classes. Class I wells are those which inject industrial, municipal,
nuclear and hazardous wastes below all underground sources of drinking water in
an area. Class I wells are divided into non-hazardous and hazardous
categories with more
stringent
regulations imposed on Class I wells which inject hazardous
wastes. PFTS' permit to operate its underground injection disposal
wells is limited to non-hazardous wastewaters.
The
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA,” also referred to as the “Superfund Act”)
CERCLA
governs the cleanup of sites at which hazardous substances are located or at
which hazardous substances have been released or are threatened to be released
into the environment. CERCLA authorizes the EPA to compel responsible
parties to clean up sites and provides for punitive damages for
noncompliance. CERCLA imposes joint and several liabilities for the
costs of clean up and damages to natural resources.
Health
and Safety Regulations
The
operation of our environmental activities is subject to the requirements of the
Occupational Safety and Health Act (“OSHA”) and comparable state
laws. Regulations promulgated under OSHA by the Department of Labor
require employers of persons in the transportation and environmental industries,
including independent contractors, to implement hazard communications, work
practices and personnel protection programs in order to protect employees from
equipment safety hazards and exposure to hazardous chemicals.
Atomic
Energy Act
The
Atomic Energy Act of 1954 governs the safe handling and use of Source, Special
Nuclear and Byproduct materials in the U.S. and its territories. This
act authorized the Atomic Energy Commission (now the Nuclear Regulatory
Commission “USNRC”) to enter into “Agreements with States to carry out those
regulatory functions in those respective states except for Nuclear Power Plants
and federal facilities like the VA hospitals and the DOE
operations.” The State of Florida (with the USNRC oversight), Office
of Radiation Control, regulates the radiological program of the PFF facility,
and the State of Tennessee (with the USNRC oversight), Tennessee Department of
Radiological Health, regulates the radiological program of the DSSI and M&EC
facilities. The State of Washington (with the USNRC oversight)
Department of Health, regulates the radiological operations of the PFNWR
facility.
Other
Laws
Our
activities are subject to other federal environmental protection and similar
laws, including, without limitation, the Clean Water Act, the Clean Air Act, the
Hazardous Materials Transportation Act and the Toxic Substances Control
Act. Many states have also adopted laws for the protection of the
environment which may affect us, including laws governing the generation,
handling, transportation and disposition of hazardous substances and laws
governing the investigation and cleanup of, and liability for, contaminated
sites. Some of these state provisions are broader and more stringent
than existing federal law and regulations. Our failure to conform our
services to the requirements of any of these other applicable federal or state
laws could subject us to substantial liabilities which could have a material
adverse effect on us, our operations and financial condition. In
addition to various federal, state and local environmental regulations, our
hazardous waste transportation activities are regulated by the U.S. Department
of Transportation, the Interstate Commerce Commission and transportation
regulatory bodies in the states in which we operate. We cannot predict the
extent to which we may be affected by any law or rule that may be enacted or
enforced in the future, or any new or different interpretations of existing laws
or rules.
Insurance
We
believe we maintain insurance coverage adequate for our needs and similar to, or
greater than, the coverage maintained by other companies of our size in the
industry. There can be no assurances, however, that liabilities,
which we may incur will be covered by our insurance or that the dollar amount of
such liabilities, which are covered will not exceed our policy
limits. Under our insurance contracts, we usually accept self-insured
retentions, which we believe is appropriate for our specific business
risks. We are required by EPA regulations to carry environmental
impairment liability insurance providing coverage for damages on a claims-made
basis in amounts of at least $1,000,000 per occurrence and $2,000,000 per year
in the aggregate. To meet the requirements of customers, we have
exceeded these coverage amounts.
In June
2003, we entered into a 25-year finite risk insurance policy with AIG (see “Part
I, Item 1A. - Risk Factors” for certain potential risk related to AIG), which
provides financial assurance to the applicable states for our permitted
facilities in the event of unforeseen closure. Prior to obtaining or
renewing operating permits, we are required to provide financial assurance that
guarantees to the states that in the event of closure, our permitted facilities
will be closed in accordance with the regulations. The policy
provides a maximum $35,000,000 of financial assurance coverage, and thus far has
provided $32,515,000 in financial assurance as of December 31,
2008. In March 2009, we increased our maximum policy coverage to
$39,000,000 in order to secure additional financial assurance coverage
requirement for our DSSI subsidiary to commercially store and dispose of PCB
wastes under a permit issued by theEPA on November 26, 2008. As a
result of this additional financial assurance requirement for our DSSI permit,
our coverage under this policy totals approximately $37,936,000.
In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility, which we acquired in June 2007, with AIG (see “Part I, Item 1A. - Risk
Factors” for certain potential risk related to AIG). The policy
provides an initial $7,800,000 of financial assurance coverage with annual
growth rate of 1.5%, which at the end of the four year term policy, will provide
maximum coverage of $8,200,000. The policy will renew automatically
on an annual basis at the end of the four year term and will not be subject to
any renewal fees.
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RISK
FACTORS
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The
following are certain risk factors that could affect our business, financial
performance, and results of operations. These risk factors should be considered
in connection with evaluating the forward-looking statements contained in this
Form 10-K, as the forward-looking statements are based on current expectations,
and actual results and conditions could differ materially from the current
expectations. Investing in our securities involves a high degree of
risk, and before making an investment decision, you should carefully consider
these risk factors as well as other information we include or incorporate by
reference in the other reports we file with the Securities and Exchange
Commission (“SEC”).
Risks
Relating to our Operations
Our
insurer that provides our financial assurance that we are required to have in
order to operate our permitted treatment, storage and disposal facility has
experienced financial difficulties.
It has
been publicly reported that American International Group, Inc. (“AIG”), has
experienced significant financial difficulties and is continuing to experience
significant financial difficulties. A subsidiary of AIG provides our
finite risk insurance policies which provide financial assurance to the
applicable states for our permitted facilities in the event of unforeseen
closure. We are required to provide and to maintain financial
assurance that guarantees to the state that in the event of closure of our
permitted facilities will be closed in accordance with the
regulations. The policies provide a maximum of $35,000,000 of
financial assurance coverage of which the coverage amount totals $32,515,000 at
December 31, 2008. In March 2009, the policies were increased to
provide a maximum of $39,000,000 of financial assurance coverage of which the
coverage amounts totals $37,936,000. This additional increase was the
result of additional financial assurance coverage requirement for our DSSI
subsidiary to commercially store and dispose of PCB wastes under a permit issued
by theEPA on November 26, 2008. The AIG subsidiary also provides
other operating insurance policies for the Company and our
subsidiaries. In the event of a failure of AIG, this could materially
impact our operations and our permits which we are required to have in order to
operate our treatment, storage, and disposal facilities.
If
we cannot maintain adequate insurance coverage, we will be unable to continue
certain operations.
Our
business exposes us to various risks, including claims for causing damage to
property and injuries to persons that may involve allegations of negligence or
professional errors or omissions in the performance of our
services. Such claims could be substantial. We believe
that our insurance coverage is presently adequate and similar to, or greater
than, the coverage maintained by other companies in the industry of our
size. If we are unable to obtain adequate or required insurance
coverage in the future, or if our insurance is not available at affordable
rates, we would violate our permit conditions and other requirements of
the
environmental
laws, rules, and regulations under which we operate. Such violations
would render us unable to continue certain of our operations. These
events would have a material adverse effect on our financial
condition.
The
inability to maintain existing government contracts or win new government
contracts over an extended period could have a material adverse effect on our
operations and adversely affect our future revenues.
A
material amount of our Nuclear Segment's revenues are generated through various
U.S. government contracts or subcontracts involving the U.S.
government. Our revenues from governmental contracts and subcontracts
relating to governmental facilities within our Nuclear Segment were
approximately $43,464,000 and $30,000,000, representing 57.6% and 46.5%,
respectively, of our consolidated operating revenues from continuing operations
for 2008 and 2007. Most of our government contracts or our
subcontracts granted under government contracts are awarded through a regulated
competitive bidding process. Some government contracts are awarded to multiple
competitors, which increase overall competition and pricing pressure and may
require us to make sustained post-award efforts to realize revenues under these
government contracts. All contracts with, or subcontracts involving, the federal
government are terminable, or subject to renegotiation, by the applicable
governmental agency on 30 days notice, at the option of the governmental
agency. If we fail to maintain or replace these relationships, or if
a material contract is terminated or renegotiated in a manner that is materially
adverse to us, our revenues and future operations could be materially adversely
affected.
Failure
of our Nuclear Segment to be profitable could have a material adverse
effect.
Our
Nuclear Segment has historically been profitable. With the
divestitures of certain facilities within our Industrial Segment and the
acquisition of our Perma-Fix Northwest Richland, Inc. (“PFNWR”) within our
Nuclear Segment in June 2007, the Nuclear Segment represents the Company’s
largest revenue segment. The Company’s main objectives are to increase focus on
the efficient operation of our existing facilities within our Nuclear Segment
and to further evaluate strategic acquisitions within the Nuclear
Segment. If our Nuclear Segment fails to continue to be profitable in
the future, this could have a material adverse effect on the Company’s results
of operations, liquidity and our potential growth.
Our
existing and future customers may reduce or halt their spending on nuclear
services with outside vendors, including us.
A variety
of factors may cause our existing or future customers (including the federal
government) to reduce or halt their spending on nuclear services from outside
vendors, including us. These factors include, but are not limited
to:
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accidents,
terrorism, natural disasters or other incidents occurring at nuclear
facilities or involving shipments of nuclear
materials;
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failure
of the federal government to approve necessary budgets, or to reduce the
amount of the budget necessary, to fund remediation of DOE and DOD
sites;
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civic
opposition to or changes in government policies regarding nuclear
operations; or
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a
reduction in demand for nuclear generating
capacity.
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These
events could result in or cause the federal government to terminate or cancel
its existing contracts involving us to treat, store or dispose of contaminated
waste at one or more of the federal sites since all contracts with, or
subcontracts involving, the federal government are terminable upon or subject to
renegotiation at the option of the government on 30 days
notice. These events also could adversely affect us to the extent
that they result in the reduction or elimination of contractual requirements,
lower demand for nuclear services, burdensome regulation, disruptions of
shipments or production, increased operational costs or difficulties or
increased liability for actual or threatened property damage or personal
injury.
Economic
downturns (ie: the current economic recession) and/or reductions in government
funding could have a material negative impact on our businesses.
Demand
for our services has been, and we expect that demand will continue to be,
subject to significant fluctuations due to a variety of factors beyond our
control, including the current economic recession and conditions, inability of
the federal government to adopt its budget or reductions in the budget for
spending to remediate federal sites due to numerous reasons, including, without
limitation, the substantial deficits that the federal government has and is
continuing to incur. During economic downturns, such as the current
economic recession, and large budget deficits that the federal government and
many states are experiencing, the ability of private and government entities to
spend on nuclear services may decline significantly. Although the
recently adopted economic stimulus package provides for substantial funds to
remediate federal nuclear sites, we cannot be certain that economic or political
conditions will be generally favorable or that there will not be significant
fluctuations adversely affecting our industry as a whole. In
addition, our operations depend, in large part, upon governmental funding,
particularly funding levels at the DOE. Significant reductions in the
level of governmental funding (for example, the annual budget of the DOE) or
specifically mandated levels for different programs that are important to our
business could have a material adverse impact on our business, financial
position, results of operations and cash flows.
The
loss of one or a few customers could have an adverse effect on us.
One or a
few governmental customers or governmental related customers have in the past,
and may in the future, account for a significant portion of our revenue in any
one year or over a period of several consecutive years. Because
customers generally contract with us for specific projects, we may lose these
significant customers from year to year as their projects with us are completed.
Our inability to replace the business with other projects could have an adverse
effect on our business and results of operations.
As
a government contractor, we are subject to extensive government regulation, and
our failure to comply with applicable regulations could subject us to penalties
that may restrict our ability to conduct our business.
Our
governmental contracts, which are primarily with the DOE or subcontracts
relating to DOE sites, are a significant part of our
business. Allowable costs under U.S. government contracts are subject
to audit by the U.S. government. If these audits result in
determinations that costs claimed as reimbursable are not allowed costs or were
not allocated in accordance with applicable regulations, we could be required to
reimburse the U.S. government for amounts previously received.
Governmental
contracts or subcontracts involving governmental facilities are often subject to
specific procurement regulations, contract provisions and a variety of other
requirements relating to the formation, administration, performance and
accounting of these contracts. Many of these contracts include
express or implied certifications of compliance with applicable regulations and
contractual provisions. If we fail to comply with any regulations,
requirements or statutes, our existing governmental contracts or subcontracts
involving governmental facilities could be terminated or we could be suspended
from government contracting or subcontracting. If one or more of our
governmental contracts or subcontracts are terminated for any reason, or if we
are suspended or debarred from government work, we could suffer a significant
reduction in expected revenues and profits. Furthermore, as a result of our
governmental contracts or subcontracts involving governmental facilities, claims
for civil or criminal fraud may be brought by the government or violations of
these regulations, requirements or statutes.
Loss
of certain key personnel could have a material adverse effect on
us.
Our
success depends on the contributions of our key management, environmental and
engineering personnel, especially Dr. Louis F. Centofanti, Chairman, President,
and Chief Executive Officer. The loss of Dr. Centofanti could have a
material adverse effect on our operations, revenues, prospects, and our ability
to raise additional funds. Our future success depends on our ability
to retain and expand our staff of qualified personnel, including environmental
specialists and technicians, sales personnel, and engineers. Without qualified
personnel, we may incur delays in rendering our services or be unable to render
certain services. We cannot be certain that we will be successful in
our efforts to attract and retain qualified personnel as their availability is
limited due to the demand for hazardous waste management services
and
the
highly competitive nature of the hazardous waste management
industry. We do not maintain key person insurance on any of our
employees, officers, or directors.
Changes
in environmental regulations and enforcement policies could subject us to
additional liability and adversely affect our ability to continue certain
operations.
We cannot
predict the extent to which our operations may be affected by future
governmental enforcement policies as applied to existing laws, by changes to
current environmental laws and regulations, or by the enactment of new
environmental laws and regulations. Any predictions regarding
possible liability under such laws are complicated further by current
environmental laws which provide that we could be liable, jointly and severally,
for certain activities of third parties over whom we have limited or no
control.
The
refusal to accept our waste for disposal by, or a closure of, the end disposal
site that our Nuclear Segment utilizes to dispose of its waste could subject us
to significant risk and limit our operations.
Our
Nuclear Segment has limited options available for disposal of its waste. If this
disposal site ceases to accept waste or closes for any reason or refuses to
accept the waste of our Nuclear Segment, for any reason, we could have nowhere
to dispose of our nuclear waste or have significantly increased costs from
disposal alternatives. With nowhere to dispose of our nuclear waste, we would be
subject to significant risk from the implications of storing the waste on our
site, and we would have to limit our operations to accept only waste that we can
dispose of.
Our
businesses subject us to substantial potential environmental
liability.
Our
business of rendering services in connection with management of waste, including
certain types of hazardous waste, low-level radioactive waste, and mixed waste
(waste containing both hazardous and low-level radioactive waste), subjects us
to risks of liability for damages. Such liability could involve, without
limitation:
|
|
·
|
claims
for clean-up costs, personal injury or damage to the environment in cases
in which we are held responsible for the release of hazardous or
radioactive materials; and
|
|
|
·
|
claims
of employees, customers, or third parties for personal injury or property
damage occurring in the course of our operations;
and
|
|
|
·
|
claims
alleging negligence or professional errors or omissions in the planning or
performance of our services.
|
Our
operations are subject to numerous environmental laws and regulations. We have
in the past, and could in the future, be subject to substantial fines,
penalties, and sanctions for violations of environmental laws and substantial
expenditures as a responsible party for the cost of remediating any property
which may be contaminated by hazardous substances generated by us and disposed
at such property, or transported by us to a site selected by us, including
properties we own or lease.
As
our operations expand, we may be subject to increased litigation, which could
have a negative impact on our future financial results.
Our
operations are highly regulated and we are subject to numerous laws and
regulations regarding procedures for waste treatment, storage, recycling,
transportation, and disposal activities, all of which may provide the basis for
litigation against us. In recent years, the waste treatment industry has
experienced a significant increase in so-called “toxic-tort” litigation as those
injured by contamination seek to recover for personal injuries or property
damage. We believe that, as our operations and activities expand,
there will be a similar increase in the potential for litigation alleging that
we have violated environmental laws or regulations or are responsible for
contamination or pollution caused by our normal operations, negligence or other
misconduct, or for accidents, which occur in the course of our business
activities. Such litigation, if significant and not adequately
insured against, could adversely affect our financial condition and our ability
to fund
our operations. Protracted litigation would likely cause us to spend
significant amounts of our time, effort, and money. This could prevent our
management from focusing on our operations and expansion.
Our
operations are subject to seasonal factors, which cause our revenues to
fluctuate.
We have
historically experienced reduced revenues and losses during the first and fourth
quarters of our fiscal years due to a seasonal slowdown in operations from poor
weather conditions, overall reduced activities during these periods resulting
from holiday periods, and finalization of government budgets during the fourth
quarter of each year. During our second and third fiscal quarters
there has historically been an increase in revenues and operating
profits. If we do not continue to have increased revenues and
profitability during the second and third fiscal quarters, this will have a
material adverse effect on our results of operations and liquidity.
If
environmental regulation or enforcement is relaxed, the demand for our services
will decrease.
The
demand for our services is substantially dependent upon the public's concern
with, and the continuation and proliferation of, the laws and regulations
governing the treatment, storage, recycling, and disposal of hazardous,
non-hazardous, and low-level radioactive waste. A decrease in the
level of public concern, the repeal or modification of these laws, or any
significant relaxation of regulations relating to the treatment, storage,
recycling, and disposal of hazardous waste and low-level radioactive waste would
significantly reduce the demand for our services and could have a material
adverse effect on our operations and financial condition. We are not aware of
any current federal or state government or agency efforts in which a moratorium
or limitation has been, or will be, placed upon the creation of new hazardous or
radioactive waste regulations that would have a material adverse effect on us;
however, no assurance can be made that such a moratorium or limitation will not
be implemented in the future.
We
and our customers operate in a politically sensitive environment, and the public
perception of nuclear power and radioactive materials can affect our customers
and us.
We and
our customers operate in a politically sensitive environment. Opposition by
third parties to particular projects can limit the handling and disposal of
radioactive materials. Adverse public reaction to developments in the
disposal of radioactive materials, including any high profile incident involving
the discharge of radioactive materials, could directly affect our customers and
indirectly affect our business. Adverse public reaction also could lead to
increased regulation or outright prohibition, limitations on the activities of
our customers, more onerous operating requirements or other conditions that
could have a material adverse impact on our customers’ and our
business.
We
may not be successful in winning new business mandates from our government and
commercial customers.
We must
be successful in winning mandates from our government and commercial customers
to replace revenues from projects that are nearing completion and to increase
our revenues. Our business and operating results can be adversely affected by
the size and timing of a single material contract.
The
elimination or any modification of the Price-Anderson Acts indemnification
authority could have adverse consequences for our business.
The
Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates the
manufacture, use, and storage of radioactive materials. The
Price-Anderson Act supports the nuclear services industry by offering broad
indemnification to DOE contractors for liabilities arising out of nuclear
incidents at DOE nuclear facilities. That indemnification protects
DOE prime contractor, but also similar companies that work under contract or
subcontract for a DOE prime contract or transporting radioactive material to or
from a site. The indemnification authority of the DOE under the
Price-Anderson Act was extended through 2025 by the Energy Policy Act of
2005.
The
Price-Anderson Act’s indemnification provisions generally do not apply to our
processing of radioactive waste at governmental facilities, and do not apply to
liabilities that we might incur while performing services as a contractor for
the DOE and the nuclear energy industry. If an incident or evacuation
is not covered under Price-Anderson Act indemnification, we could be held liable
for damages, regardless
of fault, which could have an adverse effect on our results of operations and
financial condition. If such indemnification authority is not applicable in the
future, our business could be adversely affected if the owners and operators of
new facilities fail to retain our services in the absence of commercial adequate
insurance and indemnification.
We
are engaged in highly competitive businesses and typically must bid against
other competitors to obtain major contracts.
We are
engaged in highly competitive business in which most of our government contracts
and some of our commercial contracts are awarded through competitive bidding
processes. We compete with national and regional firms with nuclear
services practices, as well as small or local contractors. Some of
our competitors have greater financial and other resources than we do, which can
give them a competitive advantage. In addition, even if we are
qualified to work on a new government contract, we might not be awarded the
contract because of existing government policies designed to protect certain
types of businesses and underrepresented minority
contractors. Competition also places downward pressure on our
contract prices and profit margins. Intense competition is expected
to continue for nuclear service contracts. If we are unable to meet
these competitive challenges, we could lose market share and experience on
overall reduction in our profits.
Our
failure to maintain our safety record could have an adverse effect on our
business.
Our
safety record is critical to our reputation. In addition, many of our government
and commercial customers require that we maintain certain specified safety
record guidelines to be eligible to bid for contracts with these
customers. Furthermore, contract terms may provide for automatic
termination in the event that our safety record fails to adhere to agreed-upon
guidelines during performance of the contract. As a result, our
failure to maintain our safety record could have a material adverse effect on
our business, financial condition and results of operations.
We
continue to have material weaknesses in our Internal Control over Financial
Reporting (“ICFR”).
During
our evaluation of our ICFR, we noted that the monitoring of invoicing process
controls and the corresponding transportation and disposal process controls at
our Industrial Segment subsidiaries were ineffective and were not
being applied consistently. In addition, we noted that the monitoring
of quote to invoicing control was ineffective at certain of our Nuclear Segment
subsidiaries. These deficiencies resulted in material weaknesses to
our ICFR, and could result in sales being priced and invoiced at amounts which
were not approved by the customer, or the appropriate level of management, and
recognition of revenue in incorrect financial reporting period. These
deficiencies have resulted in our disclosure that our ICFR was ineffective as of
the end of 2008 and 2007. Although these material weaknesses did not
result in a material adjustment to our quarterly or annual financial statements,
if we are unable to remediate these material weaknesses, there is a reasonable
possibility that a misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
We
may be unable to utilize loss carryforwards in the future.
We have
approximately $26,589,000 in net operating loss carryforwards which will expire
from 2009 to 2028 if not used against future federal income tax
liabilities. Our net loss carryforwards are subject to various
limitations. Our ability to use the net loss carryforwards depends on
whether we are able to generate sufficient income in the future
years. Further, our net loss carryforwards have not been audited or
approved by the Internal Revenue Service.
Risks
Relating to our Intellectual Property
If
we cannot maintain our governmental permits or cannot obtain required permits,
we may not be able to continue or expand our operations.
We are a
waste management company. Our business is subject to extensive, evolving, and
increasingly stringent federal, state, and local environmental laws and
regulations. Such federal, state, and local environmental laws and regulations
govern our activities regarding the treatment, storage, recycling, disposal, and
transportation of hazardous and non-hazardous waste and low-level radioactive
waste. We must obtain and maintain permits or licenses to conduct
these activities in compliance with such laws and regulations. Failure
to obtain and maintain the required permits or licenses would have a material
adverse effect on our operations and financial condition. If any of
our facilities are unable to maintain currently held permits or licenses or
obtain any additional permits or licenses which may be required to conduct its
operations, we may not be able to continue those operations at these facilities,
which could have a material adverse effect on us.
We
believe our proprietary technology is important to us.
We
believe that it is important that we maintain our proprietary technologies.
There can be no assurance that the steps taken by us to protect our proprietary
technologies will be adequate to prevent misappropriation of these technologies
by third parties. Misappropriation of our proprietary technology
could have an adverse effect on our operations and financial
condition. Changes to current environmental laws and regulations also
could limit the use of our proprietary technology.
Risks
Relating to our Financial Position and Need for Financing
Breach
of financial covenants in existing credit facility could result in a default,
triggering repayment of outstanding debt under the credit facility.
Our
credit facility with our bank contains financial covenants. A breach of any of
these covenants could result in a default under our credit facility triggering
our lender to immediately require the repayment of all outstanding debt under
our credit facility and terminate all commitments to extend further credit. In
the past, none of our covenants have been restrictive to our
operations. If we fail to meet our loan covenants in the future and
our lender does not waive the non-compliance or revise our covenant so that we
are in compliance, our lender could accelerate the repayment of borrowings under
our credit facility. In the event that our lender accelerates the
payment of our borrowing, we may not have sufficient liquidity to repay our debt
under our credit facility and other indebtedness.
Our
amount of debt and floating rates of interest could adversely affect our
operations.
At
December 31, 2008, our aggregate consolidated debt was approximately
$16,203,000. If our floating rates of interest experienced an upward increase of
1%, our debt service would increase by approximately $162,000
annually. Our secured revolving credit facility (the “Credit
Facility”) provides for an aggregate commitment of $25,000,000, consisting of an
$18,000,000 revolving line of credit and a term loan of
$7,000,000. The maximum we can borrow under the revolving part of the
Credit Facility is based on a percentage of the amount of our eligible
receivables outstanding at any one time. As of December 31, 2008, we
had borrowings under the revolving part of our Credit Facility of $6,500,000 and
borrowing availability of up to an additional $5,400,000 based on our
outstanding eligible receivables. A lack of operating results
could have material adverse consequences on our ability to operate our
business. Our ability to make principal and interest payments, or to
refinance indebtedness, will depend on both our and our subsidiaries' future
operating performance and cash flow. Prevailing economic conditions, interest
rate levels, and financial, competitive, business, and other factors affect
us. Many of these factors are beyond our control.
Risks
Relating to our Common Stock
Issuance
of substantial amounts of our Common Stock could depress our stock
price.
Any sales
of substantial amounts of our Common Stock in the public market could cause an
adverse effect on the market price of our Common Stock and could impair our
ability to raise capital through the sale of additional equity
securities. The issuance of our Common Stock will result in the
dilution in the percentage membership interest of our stockholders and the
dilution in ownership value. As of December 31, 2008, we had
53,934,560 shares of Common Stock outstanding.
In
addition, as of December 31, 2008, we had outstanding options to purchase
3,417,347 shares of Common Stock at exercise prices from $1.22 to $2.98 per
share. Further, we have adopted a preferred share rights plan, and if
such is triggered, could result in the issuance of a substantial amount of our
Common Stock. The existence of this quantity of rights to
purchase our Common Stock could result in a significant dilution in the
percentage ownership interest of our stockholders and the dilution in ownership
value. Future sales of the shares issuable could also depress the
market price of our Common Stock.
We
do not intend to pay dividends on our Common Stock in the foreseeable
future.
Since our
inception, we have not paid cash dividends on our Common Stock, and we do not
anticipate paying any cash dividends in the foreseeable future. Our
Credit Facility prohibits us from paying cash dividends on our Common
Stock.
The
price of our Common Stock may fluctuate significantly, which may make it
difficult for our stockholders to resell our Common Stock when a stockholder
wants or at prices a stockholder finds attractive.
The price
of our Common Stock on the Nasdaq Capital Markets constantly changes. We expect
that the market price of our Common Stock will continue to fluctuate. This may
make it difficult for our stockholders to resell the Common Stock when a
stockholder wants or at prices a stockholder finds attractive.
Future
issuance or potential issuance of our Common Stock could adversely affect the
price of our Common Stock, our ability to raise funds in new stock offerings,
and dilute our shareholders percentage interest in our Common
Stock.
Future
sales of substantial amounts of our Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing
trading prices of our Common Stock, and impair our ability to raise capital
through future offerings of equity. No prediction can be made as to
the effect, if any, that future issuances or sales of shares of Common Stock or
the availability of shares of Common Stock for future issuance, will have on the
trading price of our Common Stock. Such future issuances could also
significantly reduce the percentage ownership and dilute the ownership value of
our existing common stockholders.
Delaware
law, certain of our charter provisions, our stock option plans, outstanding
warrants and our Preferred Stock may inhibit a change of control under
circumstances that could give you an opportunity to realize a premium over
prevailing market prices.
We are a
Delaware corporation governed, in part, by the provisions of Section 203 of the
General Corporation Law of Delaware, an anti-takeover law. In general, Section
203 prohibits a Delaware public corporation from engaging in a “business
combination” with an “interested stockholder” for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
As a result of Section 203, potential acquirers may be discouraged from
attempting to effect acquisition transactions with us, thereby possibly
depriving our security holders of certain opportunities to sell, or otherwise
dispose of, such securities at above-market prices pursuant to such
transactions. Further, certain of our option plans provide for the immediate
acceleration of, and removal of restrictions from, options and other awards
under such plans upon a “change of control” (as defined in the respective
plans). Such provisions may also have the result of discouraging acquisition of
us.
We have
authorized and unissued 17,648,093 (which include outstanding options to
purchase 3,417,347 shares of our Common Stock) shares of Common Stock and
2,000,000 shares of Preferred Stock as of December 31, 2008 (which includes
600,000 shares of our Preferred Stock reserved for issuance under our preferred
share rights plan). These unissued shares could be used by our
management to make it more difficult, and thereby discourage an attempt to
acquire control of us.
Our
Preferred Share Rights Plan may adversely affect our stockholders.
In May
2008, we adopted a preferred share rights plan (the “Rights Plan”), designed to
ensure that all of our stockholders receive fair and equal treatment in the
event of a proposed takeover or abusive tender offer. However,
the Rights Plan may also have the effect of deterring, delaying, or preventing a
change in control that might otherwise be in the best interests of our
stockholders.
In
general, under the terms of the Rights Plan, subject to certain limited
exceptions, if a person or group acquires 20% or more of our Common Stock or a
tender offer or exchange offer for 20% or more of our Common Stock is announced
or commenced, our other stockholders may receive upon exercise of the rights
(the “Rights”) issued under the Rights Plan the number of shares our Common
Stock or of one-one hundredths of a share of our Series A Junior Participating
Preferred Stock, par value $.001 per share, having a value equal to two times
the purchase price of the Right. In addition, if we are acquired in a
merger or other business combination transaction in which we are not the
survivor or more than 50% of our assets or earning power is sold or transferred,
then each holder of a Right (other than the acquirer) will thereafter have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the purchase price of the Right. The
purchase price of each Right is $13, subject to adjustment.
The
Rights will cause substantial dilution to a person or group that attempts to
acquire us on terms not approved by our board of directors. The Rights may be
redeemed by us at $0.001 per Right at any time before any person or group
acquires 20% or more of our outstanding common stock. The rights
should not interfere with any merger or other business combination approved by
our board of directors. The Rights expire on May 2, 2018.
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UNRESOLVED
STAFF COMMENTS
|
None
|
PROPERTIES
|
Our
principal executive office is in Atlanta, Georgia. Our Operations
Headquarters is located in Oak Ridge, Tennessee. Our Nuclear Segment
facilities are located in Gainesville, Florida; Kingston, Tennessee; Oak Ridge,
Tennessee, and in Richland, Washington. Our Consulting Engineering
Services is located in Ellisville, Missouri. Our Industrial Segment
facilities are located in Orlando and Ft. Lauderdale, Florida; and Valdosta,
Georgia. Our Industrial Segment also has two non-operational
facilities: Brownstown, Michigan, where we still maintain the property; and
Pittsburgh, Pennsylvania, for which the leased property was released back to the
owner in 2006 upon final remediation of the leased property.
We
operate eight facilities. All of the facilities are in the United
States. Five of our facilities are subject to mortgages as granted to
our senior lender (Kingston, Tennessee; Gainesville, Florida; Richland,
Washington; Fort Lauderdale, Florida; and Orlando, Florida).
We also
lease properties for office space, all of which are located in the United States
as described above. Included in our leased properties is M&EC's
150,000 square-foot facility, located on the grounds of the DOE East Tennessee
Technology Park located in Oak Ridge, Tennessee.
We
believe that the above facilities currently provide adequate capacity for our
operations and that additional facilities are readily available in the regions
in which we operate, which could support and supplement our existing
facilities.
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LEGAL
PROCEEDINGS
|
Perma-Fix
of Dayton (“PFD”), Perma-Fix of Florida (“PFF”), Perma-Fix of Orlando (“PFO”),
Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of Memphis
(“PFM”)
In May
2007, the above facilities were named Partially Responsible Parties (“PRPs”) at
the Marine Shale Superfund site in St. Mary Parish, Louisiana
(“Site”). Information provided by the EPA indicates that from 1985
through 1996, the Perma-Fix facilities above were responsible for shipping 2.8%
of the total waste volume received by Marine Shale. Subject to
finalization of this estimate by the PRP group, PFF, PFO and PFD could be
considered de-minimus at .06%, .07% and .28% respectively. PFSG and
PFM would be major at
1.12% and 1.27% respectively. However, at this time the contributions
of all facilities are consolidated.
As of the
date of this report, Louisiana DEQ (“LDEQ”) has collected approximately
$8,400,000 for the remediation of the site and has completed removal of above
ground waste from the site. The EPA’s unofficial estimate to complete
remediation of the site is between $9,000,000 and $12,000,000; however, based on
preliminary outside consulting work hired by the PRP group, which we are a party
to, the remediation costs can be below EPA’s estimation. The PRP
Group has established a cooperative relationship with LDEQ and EPA, and is
working closely with these agencies to assure that the funds held by LDEQ are
used cost-effective. As a result of recent negotiations with LDEQ and
EPA, further remediation work by LDEQ has been put on hold pending completion of
a site assessment by the PRP Group. This site assessment could result
in remediation activities to be completed within the funds held by
LDEQ. As part of the PRP Group, we have paid an initial assessment of
$10,000 in the fourth quarter of 2007, which was allocated among the facilities.
In addition, we accrued approximately $27,000 in the third quarter of 2008 for
our estimated portion of the cost of the site assessment, which was allocated
among the facilities. Approximately $9,000 of the accrued amount was
paid to the PRP Group in the fourth quarter of 2008. As of the date
of this report, we cannot accurately access our total liability. The
Company records its environmental liabilities when they are probable of payment
and can be estimated within a reasonable range. Since this
contingency currently does not meet this criteria, a liability has not been
established.
Notice
of Violation - Perma-Fix Treatment Services, Inc. (“PFTS”)
In July
2008, PFTS received a notice of violation (“NOV”) from the Oklahoma Department
of Environmental Quality (“ODEQ”) alleging that eight loads of waste materials
received by PFTS between January 2007 and July 2007 were improperly analyzed to
assure that the treatment process rendered the waste non-hazardous before
disposition in PFTS’ non-hazardous injection well. The ODEQ alleges the
handling of these waste materials violated regulations regarding hazardous
waste. The ODEQ did not assert any penalties against PFTS in the NOV and
requested PFTS to respond within 30 days from receipt of the letter. PFTS
responded on August
22, 2008 and is currently in settlement discussions with the ODEQ. PFTS
sold most all of its assets to a non-affiliated third party on May 30,
2008.
Industrial
Segment Divested Facilities/Operations
We sold
substantially all of the assets of PFTS pursuant to an Asset Purchase Agreement
on May 30, 2008. Under this Agreement the buyer assumed certain debts
and obligations of PFTS, including, but not limited to, certain debts and
obligations of PFTS to regulatory authorities under certain consent agreements
entered into by PFTS with the appropriate regulatory authority to remediate
portions of the facility sold to the buyer. If any of these
liabilities/obligations are not paid or preformed by the buyer, the buyer would
be in breach of the Asset Purchase Agreement and we may assert claims against
the buyer for such breach. We currently are discussing with the buyer
of the PFTS’ assets regarding certain liabilities which the buyer assumed and
agreed to pay but which the buyer has refused to satisfy as of the date of this
report. In addition, the buyer of the PFTS assets is required
to replace our financial assurance bond with its own financial assurance
mechanism for facility closures. Our financial assurance bond of
$685,000 for PFTS was required to remain in place until the buyer has provided
replacement coverage. The respective regulatory authority will not
release us from our financial assurance obligations until the buyer complies
with the appropriate financial assurance regulations. On March
24, 2009, the respective regulatory authority authorized the release of our
financial assurance bond of $685,000 for PFTS. The buyer of PFTS’
assets has provided its own financial assurance bond which was approved by the
respective regulatory authority.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None
|
EXECUTIVE
OFFICERS OF THE
REGISTRANT
|
The
following table sets forth, as of the date hereof, information concerning our
executive officers:
|
NAME
|
AGE
|
POSITION
|
||
|
Dr.
Louis F. Centofanti
|
65
|
Chairman
of the Board, President and Chief Executive Officer
|
||
|
Mr.
Larry McNamara
|
59
|
Chief
Operating Officer
|
||
|
Mr.
Robert Schreiber, Jr.
|
58
|
President
of SYA, Schreiber, Yonley & Associates, a subsidiary of the Company,
and Principal Engineer
|
||
|
Mr.
Ben Naccarato
|
46
|
Chief
Financial Officer, Vice President, and
Secretary
|
Dr.
Louis F. Centofanti
Dr.
Centofanti has served as Chairman of the Board since he joined the Company in
February 1991. Dr. Centofanti also served as President and Chief
Executive Officer of the Company from February 1991 until September 1995 and
again in March 1996 was elected to serve as President and Chief Executive
Officer of the Company. From 1985 until joining the Company, Dr.
Centofanti served as Senior Vice President of USPCI, Inc., a large hazardous
waste management company, where he was responsible for managing the treatment,
reclamation and technical groups within USPCI. In 1981 he founded
PPM, Inc., a hazardous waste management company specializing in the treatment of
PCB contaminated oils, which was subsequently sold to USPCI. From
1978 to 1981, Dr. Centofanti served as Regional Administrator of the U.S.
Department of Energy for the southeastern region of the United
States. Dr. Centofanti has a Ph.D. and a M.S. in Chemistry from the
University of Michigan, and a B.S. in Chemistry from Youngstown State
University.
Mr.
Larry McNamara
Mr.
McNamara has served as Chief Operating Officer since October
2005. From October 2000 to October 2005, he served as President of
the Nuclear Waste Management Services Segment. From December 1998 to
October 2000, he served as Vice President of the Company's Nuclear Waste
Management Services Segment. Between 1997 and 1998, he served as
Mixed Waste Program Manager for Waste Control Specialists (WCS) developing plans
for the WCS mixed waste processing facilities, identifying markets and directing
proposal activities. Between 1995 and 1996, Mr. McNamara was the
single point of contact for the DOD to all state and federal regulators for
issues related to disposal of Low Level Radioactive Waste and served on various
National Committees and advisory groups. Mr. McNamara served, from 1992 to 1995,
as Chief of the Department of Defense Low Level Radioactive Waste
office. Between 1986 and 1992, he served as the Chief of Planning for
the Department of Army overseeing project management and program policy for the
Army program. Mr. McNamara has a B.S. from the University of
Iowa.
Mr.
Robert Schreiber, Jr.
Mr.
Schreiber has served as President of SYA since the Company acquired the
environmental engineering firm in 1992. Mr. Schreiber co-founded the predecessor
of SYA, Lafser & Schreiber in 1985, and served in several executive roles in
the firm until our acquisition of SYA. From 1978 to 1985, Mr.
Schreiber served as Director of Air programs and all environmental programs for
the Missouri Department of Natural Resources. Mr. Schreiber provides technical
expertise in wide range of areas including the cement industry, environmental
regulations and air pollution control. Mr. Schreiber has a B.S. in
Chemical Engineering from the University of Missouri – Columbia.
Mr.
Ben Naccarato
Mr.
Naccarato was named Chief Financial Officer by the Company’s Board of Directors
on February 26, 2009. Mr. Naccarato was appointed on October 24, 2008
by the Company’s Board of Directors as the Interim Chief Financial Officer,
effective November 1, 2008. Mr. Naccarato has been with the Company
since September 2004 and has served as Vice President, Corporate
Controller/Treasurer since May 2006. Previous to serving as the
Vice President, Corporate Controller/Treasurer, Mr. Naccarato served as Vice
President, Finance of the Company’s Industrial Segment. Prior to
joining the Company in September 2004, Mr. Naccarato served as the CFO of Culp
Petroleum Company, Inc., a privately held company in the fuel distribution and
used waste oil industry from December 2002 to September 2004. Mr.
Naccarato is a
graduate
of University of Toronto having received a Bachelor of Commerce and Finance
Degree and is a Certified Management Accountant.
Resignation
of Chief Financial Officer
On
October 22, 2008, Mr. Steven Baughman, tendered his resignation as Chief
Financial Officer, Vice President, and Secretary of the Board of Directors of
the Company. Mr. Baughman’s resignation from his positions and as an
executive officer became effective October 31, 2008.
Certain
Relationships
There are
no family relationships between any of our Directors or executive officers. Dr.
Centofanti is the only Director who is our employee.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
Our
Common Stock, is traded on the NASDAQ Capital Markets (“NASDAQ”) under the
symbol “PESI”. The following table sets forth the high and low market trade
prices quoted for the Common Stock during the periods shown. The
source of such quotations and information is the NASDAQ online trading history
reports.
|
2008
|
2007
|
||||||||||||||||
|
Low
|
High
|
Low
|
High
|
||||||||||||||
|
Common
Stock
|
1st
Quarter
|
$ | 1.49 | $ | 2.48 | $ | 2.07 | $ | 2.57 | ||||||||
|
2nd
Quarter
|
1.50 | 3.18 | 2.13 | 3.25 | |||||||||||||
|
3rd
Quarter
|
1.75 | 2.99 | 1.74 | 3.40 | |||||||||||||
|
4th
Quarter
|
.63 | 2.09 | 2.25 | 3.05 | |||||||||||||
As of
March 9, 2009, there were approximately 265 stockholders of record of our Common
Stock, including brokerage firms and/or clearing houses holding shares of our
Common Stock for their clientele (with each brokerage house and/or clearing
house being considered as one holder). However, the total number of
beneficial stockholders as of March 9, 2009, was approximately
3,249.
Since our
inception, we have not paid any cash dividends on our Common Stock and have no
dividend policy. Our loan agreement prohibits paying any cash
dividends on our Common Stock without prior approval from the
lender. We do not anticipate paying cash dividends on our outstanding
Common Stock in the foreseeable future.
No sales
of unregistered securities, other than the securities sold by us during 2008, as
reported in our Forms 10-Q for the quarters ended March 31, 2008, June 30, 2008,
and September 30, 2008, which were not registered under the
Securities Act of 1933, as amended, were issued during 2007. There
were no purchases made by us or on behalf of us or any of our affiliated members
of shares of our Common Stock during the last quarter of 2008.
Preferred
Share Rights Plan
In May
2008, we adopted a shareholder rights plan which will impact a potential
acquirer unless the acquirer negotiates with our Board of Directors and the
Board of Directors approves the transaction. The rights plan has a 10
year term. Pursuant to this plan, one preferred share purchase right
(a “Right”) is attached to each currently outstanding or subsequently issued
share of our Common Stock. Prior to becoming exercisable, the Rights
trade together with our Common Stock. In general, the Rights will
become exercisable if a person or group (other than the acquirer) acquires or
announces a tender or exchange offer for 20% or more of our Common
Stock. Each Right entitles the holder to purchase from us one
one-hundredth of a share of Series A Junior Participating Preferred Stock,
par value $0.001 per share (the “Preferred Stock”), at an exercise price of $13
per one one-hundredth of a share, subject to adjustment. If a person
or group acquires 20% or more of our Common Stock, each Right will entitle the
holder (other than the acquirer) to purchase shares of our Common Stock (or, in
certain circumstances, cash or other securities) having a market value of twice
the exercise price of a Right at such time. Under certain
circumstances, each Right will entitle the holder (other than the acquirer) to
purchase the common stock of the acquirer having a market value of twice the
exercise price of a Right at such time. In addition, under certain
circumstances, our Board of Directors may exchange each Right (other than those
held by the acquirer) for one share of our Common Stock, subject to
adjustment. If the Rights become exercisable, holders of our Common
Stock (other than the acquirer), will receive the number of Rights they would
have received if their units had been redeemed and the purchase price paid in
our Common Stock. Our Board of Directors may redeem the Rights at a
price of $0.001 per Right generally at any time before 10 days after the Rights
become exercisable.
Common
Stock Price Performance Graph
The
following Common Stock price performance graph compares the yearly change in the
Company’s cumulative total stockholders’ returns on the Common Stock during the
years 2004 through 2008, with the cumulative total return of the NASDAQ Market
Index and the published industry index prepared by Hemscott and known as
Hemscott Industry Group 637-Waste Management Index (“Industry Index”) assuming
the investment of $100 on January 1, 2004.
The
stockholder returns shown on the graph below are not necessarily indicative of
future performance, and we will not make or endorse any predications as to
future stockholder returns.
Assumes
$100 invested in the Company on January 1, 2004, the Industry Index and the
NASDAQ Market Index, and the reinvestment of dividends. The above five-year
Cumulative Total Return Graph shall not be deemed to be “soliciting material” or
to be filed with the Securities and Exchange Commission, nor shall such
information be incorporated by reference by any general statement incorporating
by reference this Form 10-K into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934 (collectively, the “Acts”) or be subject to
the liabilities under Section 18 of the Securities Exchange Act of 1934, except
to the extent that the Company specifically incorporates this information by
reference, and shall not be deemed to be soliciting material or to be filed
under such Acts.
|
SELECTED
FINANCIAL DATA
|
The
financial data included in this table has been derived from our audited
consolidated financial statements, which have been audited by BDO Seidman,
LLP. In 2007, as a result of the Company’s decision to divest the
facilities within our Industrial Segment, our Industrial Segment facilities were
reclassified (with the exception of PFMI and PFP which were already reclassified
as discontinued operations in 2004 and 2005, respectively) in our discontinued
operations, in accordance with Statement of Financial Accounting Standard
(“SFAS”) No. 144. As a result of the Company’s decision to retain
PFFL, PFSG, and PFO within the Industrial Segment in September 2008, the
Company’s previously reported Consolidated Statement of Operations data for the
years noted below have been restated to reflect the reclassification of these
three facilities/operations back into our continuing operations from
discontinued operations, in accordance with SFAS No. 144. Certain
prior year amounts have been reclassified to conform with current year
presentations. Amounts are in thousands, except for per share
amounts. The information set forth below should be read in
conjunction with “Management’s Discussion Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements of the Company
and the notes thereto included elsewhere herein.
Statement
of Operations Data:
|
2008(1)
|
2007(1)(2)
|
2006(1)
|
2005
|
2004(3)
|
||||||||||||||||
|
Revenues
|
$ | 75,504 | $ | 64,544 | $ | 68,205 | $ | 68,833 | $ | 61,912 | ||||||||||
|
Income
(loss) from continuing operations
|
920 | (2,380 | ) | 5,422 | 4,067 | (3,170 | ) | |||||||||||||
|
Loss
from discontinued operations, net of taxes
|
(1,332 | ) | (6,830 | ) | (711 | ) | (328 | ) | (16,191 | ) | ||||||||||
|
Gain
on disposal of discontinued operations, net of taxes
|
2,323 | ¾ | ¾ | ¾ | ¾ | |||||||||||||||
|
Net
income (loss)
|
1,911 | (9,210 | ) | 4,711 | 3,739 | (19,361 | ) | |||||||||||||
|
Preferred
stock dividends
|
¾ | ¾ | ¾ | (156 | ) | (190 | ) | |||||||||||||
|
Net
income (loss) applicable to Common Stockholders
|
1,911 | (9,210 | ) | 4,711 | 3,583 | (19,551 | ) | |||||||||||||
|
Income
(loss) per common share - Basic
|
||||||||||||||||||||
|
Continuing
operations
|
.02 | (.05 | ) | .11 | .09 | (.08 | ) | |||||||||||||
|
Discontinued
operations
|
(.02 | ) | (.13 | ) | (.01 | ) | (.01 | ) | (.40 | ) | ||||||||||
|
Disposal
of discontinued operations
|
.04 | ¾ | ¾ | ¾ | ¾ | |||||||||||||||
|
Net
income (loss) per share
|
.04 | (.18 | ) | .10 | .08 | (.48 | ) | |||||||||||||
|
Income
(loss) per common share - Diluted
|
||||||||||||||||||||
|
Continuing
operations
|
.02 | (.05 | ) | .11 | .09 | (.08 | ) | |||||||||||||
|
Discontinued
operations
|
(.02 | ) | (.13 | ) | (.01 | ) | (.01 | ) | (.40 | ) | ||||||||||
|
Disposal
of discontinued operations
|
.04 | ¾ | ¾ | ¾ | ¾ | |||||||||||||||
|
Net
income (loss) per share
|
.04 | (.18 | ) | .10 | .08 | (.48 | ) | |||||||||||||
|
Basic
number of shares used in computing
|
||||||||||||||||||||
|
net
income (loss) per share
|
53,803 | 52,549 | 48,157 | 42,605 | 40,478 | |||||||||||||||
|
Diluted
number of shares and potential
|
||||||||||||||||||||
|
common
shares used in computing
|
||||||||||||||||||||
|
net
income (loss) per share
|
54,003 | 52,549 | 48,768 | 44,804 | 40,478 | |||||||||||||||