SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________________________________________________________________
For Quarter Ended Commission File Number 0-17536
September 30, 1995
SEVENSON ENVIRONMENTAL SERVICES, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 16-1091535
_______________________________ _______________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2749 Lockport Road
PO Box 396
Niagara Falls, NY 14302-0396
________________________________________
(Address of principal executive offices)
(716) 284-0431
_____________________________________________
(Registrant's telephone number, including area code)
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 [ ]
Number of common shares outstanding as of the close of the period covered
by this report: 1,612,025 shares of Common Stock and 4,735,975 shares of
Class B Common Stock
Page 1 of 11
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SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
_________________________________________________________________
September 30, December 31,
1995 1994
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $387 $3,226
Marketable securities 49,902 46,994
Accounts receivable 25,677 25,147
Costs and estimated earnings on
contracts in progress in excess
of related billings 4,983 1,381
Prepaid expenses and other
current assets 1,068 1,292
Deferred income taxes 0 566
_______ _______
Total current assets 82,017 78,606
_______ _______
PROPERTY AND EQUIPMENT:
Land 199 199
Buildings and improvements 2,545 2,420
Construction and field equipment 12,745 8,436
Vehicles 3,672 3,282
Office furniture and equipment 1,344 1,305
_______ _______
20,505 15,642
Less accumulated depreciation 9,838 8,496
Total property and _______ _______
equipment, net 10,667 7,146
_______ _______
OTHER ASSETS 1,976 1,873
_______ _______
TOTAL ASSETS $94,660 $87,625
======= =======
See notes to condensed consolidated financial statements
Page 2 of 11
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
_________________________________________________________________
September 30, December 31,
1995 1994
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $10,027 $7,702
Retentions 928 739
Compensation, income taxes and
other current liabilities 2,243 1,764
Amounts billed in excess of costs
and estimated earnings
on contracts in progress 4,975 8,271
_______ _______
Total current liabilities 18,173 18,476
_______ _______
DEFERRED INCOME TAXES 580 909
_______ _______
NOTES PAYABLE 2,038 2,000
_______ _______
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par value:
Authorized 12,000 shares,
issued 1,890 189 188
Class B Common Stock, $.10 par value:
Authorized 8,000 shares,
outstanding 4,736 474 474
Additional paid-in capital 24,415 24,336
Retained earnings 51,774 44,651
_______ _______
76,852 69,649
Treasury stock (278 shares
Common Stock at cost) (3,014) (3,014)
_______ _______
73,838 66,635
Unrealized gain (loss) on
marketable securities, net
of taxes 129 (295)
Cumulative translation adjustment (98) (100)
_______ _______
Total stockholders' equity 73,869 66,240
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $94,660 $87,625
======= =======
See notes to condensed consolidated financial statements
Page 3 of 11
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SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1995
AND 1994 - (UNAUDITED) (IN THOUSANDS, EXCEPT PER-SHARE DATA)
_________________________________________________________________
1995 1994
REVENUES $29,428 $24,206
COSTS AND EXPENSES:
Cost of contracts:
Direct costs 21,246 16,765
Indirect costs 1,006 879
Selling, general and administrative 1,791 1,652
_______ _______
24,043 19,296
_______ _______
EARNINGS FROM OPERATIONS 5,385 4,910
OTHER:
Interest income 611 605
Interest expense (48) (51)
Realized on sale of marketable securities 22 (11)
_______ _______
585 543
EARNINGS BEFORE INCOME TAXES 5,970 5,453
INCOME TAXES 2,180 2,020
_______ _______
NET EARNINGS $3,790 $3,433
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,347 6,339
======= =======
EARNINGS PER SHARE $0.60 $0.55
======= =======
See notes to condensed consolidated financial statements
Page 4 of 11
PAGE
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995
AND 1994 - (UNAUDITED) (IN THOUSANDS, EXCEPT PER-SHARE DATA)
_________________________________________________________________
1995 1994
REVENUES $74,270 $49,655
COSTS AND EXPENSES:
Cost of contracts:
Direct costs 55,101 34,244
Indirect costs 1,878 2,076
Selling, general and administrative 5,989 5,311
_______ _______
62,968 41,631
_______ _______
EARNINGS FROM OPERATIONS 11,302 8,024
OTHER:
Interest income 1,616 1,468
Interest expense (152) (179)
Realized on sale of marketable securities (7) 612
_______ _______
1,457 1,901
_______ _______
EARNINGS BEFORE INCOME TAXES 12,759 9,925
INCOME TAXES 4,660 3,741
_______ _______
NET EARNINGS $8,099 $6,184
======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,343 6,332
======= =======
EARNINGS PER SHARE $1.28 $0.98
======= =======
See notes to condensed consolidated financial statements
Page 5 of 11
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995
AND 1994 - (UNAUDITED) (IN THOUSANDS)
_________________________________________________________________
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $66,773 $52,327
Cash payments to subcontractors,
suppliers and employees (59,584) (39,746)
Interest received 1,731 1,495
Interest paid (152) (179)
Taxes paid (3,313) (3,466)
Tax refunds received 154 64
Net cash provided by operating _______ _______
activities 5,609 10,495
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities activity (2,711) 660
Capital expenditures (4,885) (704)
Proceeds from sale of property and
equipment 6 21
Other assets 0 1
Net cash used in investing _______ _______
activities (7,590) (22)
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt 38 0
Dividends paid 80 214
Exercise of stock options (976) (324)
Net cash used in financing _______ _______
activities (858) (110)
_______ _______
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,839) 10,363
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,226 26,352
_______ _______
CASH AND CASH EQUIVALENTS, END OF PERIOD $387 $36,715
======= =======
See notes to condensed consolidated financial statements
(Continued)
Page 6 of 11
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED JUNE 30, 1995 AND
1994 - (UNAUDITED) (IN THOUSANDS)
_________________________________________________________________
1995 1994
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings $8,099 $6,184
Adjustments to reconcile:
Depreciation and amortization 1,447 1,118
Gain/loss on sale of marketable
securities 227 (612)
Increase in cash value of life insurance (120) (151)
Deferred income taxes 237 (71)
Sale of property and equipment 6 21
Change in assets and liabilities
affecting cash flows:
Accounts receivable (530) (6,668)
Material and supply inventories 27 78
Costs and estimated earnings on
contracts in progress in excess
of related billings (3,602) 349
Prepaid and refundable income taxes 84 (111)
Prepaid expenses and other current
assets 113 (428)
Other assets (74) (3)
Accounts payable 2,515 1,197
Compensation, payroll taxes and
withholdings (89) 5
Other current liabilities (611) (12)
Amounts billed in excess of costs
and estimated earnings on
contracts in progress (3,296) 9,078
Income taxes 1,176 521
______ _______
NET CASH PROVIDED BY OPERATING
ACTIVITIES $5,609 $10,495
====== =======
See notes to condensed consolidated financial statements
(Concluded)
Page 7 of 11
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SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies used in preparing these condensed
consolidated financial statements are the same as those used
in preparing the Company's consolidated financial statements
for the year ended December 31, 1994.
The foregoing condensed consolidated financial statements
include all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation. The interim
results are not necessarily indicative of the results which
may be expected for a full year.
2. CONTINGENCIES
The Company is a defendant or plaintiff in various claims
and lawsuits arising in the normal course of business. The
ultimate outcome of the suits cannot presently be determined
and no provision for loss or gain, if any, that may result
has been made in the accompanying condensed consolidated
financial statements. It is the opinion of management that
there will not be any material adverse effects on the
Company's condensed consolidated financial statements as a
result of these actions.
3. RECENTLY ISSUED ACCOUNTING STANDARD
In October, 1995, the Financial Accounting Standards Board
issued Statement of Financial Standards No. 123, "Accounting
for Stock-Based Compensation," which requires adoption no
later than fiscal years beginning after December 15, 1995.
The new standard defines a fair value method of accounting
for stock options and similar equity instruments. Under the
fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is
recognized over the service period, which is usually the
vesting period.
Pursuant to the new standard, companies are encouraged, but
not required, to adopt the fair value method of accounting
for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to
disclose in a note to the financial statements pro forma net
income and, if presented, earnings per share as if the
Company had applied the new method of accounting.
The accounting requirements of the new method are effective
for all employee awards granted after the beginning of the
fiscal year of adoption. The Company has not yet determined
Page 8 of 11
<PAGE>
if it will elect to change to the fair value method, nor has
it determined the effect the new standard will have on net
income and earnings per share should it elect to make such a
change. Adoption of the new standard will have no effect on
the Company's cash flows.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Company revenues for the third quarter were a record
$29,428,000, exceeding last year's third quarter revenues of
$24,206,000 (the previous record for the quarter) by 22%. The
Company sustained strong operating momentum from the first two
quarters of the year throughout the third quarter and into the
fourth.
With the surge in revenues this year, the Company has
consumed contract backlog at a record rate. The Company's goal
is to replenish backlog at a rate equal to or greater than the
consumption rate. During the third quarter, efforts to achieve
this goal were hampered by uncertainties concerning the federal
budget and halting progress in Congress's effort to reform and
reauthorize the Superfund law. Backlog at the beginning and end
of the quarter were, respectively, $61.6 million and $57.8
million. The comparable backlog amounts for the prior year's
period were $71.6 million and $66.0 million.
Gross margin (revenues less direct costs) for the
quarter were 27.8% versus 30.7% in the third quarter last year.
The Company considers gross margin at these levels to be close to
or at the higher end of the Company's normal gross margin range.
The Company was able to achieve gross margin at this level due to
several factors, including higher margins available (commensurate
with the risks) on larger, fixed price contracts, high
availability and utilization rates for Company-owned equipment,
and application of Company value-added technology.
Indirect costs were $1,006,000, 14% higher than last
year's third quarter indirect costs of $879,000. The principal
reason for the increase was higher depreciation expense caused by
substantial additions to the Company's fleet of field equipment.
Selling, general and administrative expense increased
8% to $1,791,000 from $1,652,000 last year. Increases occurred
in many categories, reflecting the Company's increased operating
activity.
Interest income was $611,000 versus $605,000 last year.
The minor increase was due to higher interest rates, the effect
of which was reduced by lower average invested balances.
Balances were lower due to higher receivables and the use of cash
to purchase equipment.
Page 9 of 11
<PAGE>
The effective tax rate was 36.5% versus 37.1% last
year. Last year's rate was higher due to an audit adjustment.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations in the nine-month
period was $5,609,000 versus $10,495,000 in the same period last
year. Cash receipts from customers increased only 28% from
$52,327,000 to $66,773,000, while cash payments to subcontractors
and others increased 50% from $39,746,000 to $59,584,000. The
net effect was a $5,392,000 decrease in net cash in-flow during
the period versus the same period last year. The cause was high
start-up costs on several projects begun during the quarter.
Net cash used in investing activities was $7,590,000
versus $22,000 in the same period last year. The increase was
due principally to increased capital expenditures for field
equipment. The Company purchased equipment to support its
expanding dewatering and water treatment operations and to meet
the needs of increased operations generally. Also, the Company
purchased marketable securities with cash. In the previous year,
similar purchases of marketable securities were largely offset by
the sale of all the common stock the Company held in a solid
waste company.
As of September 30, 1995, the Company had working
capital of $63,844,000, including $50,289,000 in cash and
marketable securities. The Company believes that its existing
funds and cash generated by operations will be sufficient to meet
all working capital and capital investment needs for the
foreseeable future.
The Company has available from a bank a $20 million
line of credit for stand-by letters of credit secured by
marketable securities and a $5 million unsecured working capital
line of credit. As of September 30, 1995, there were no
outstanding letters of credit or borrowing against these lines.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 Other Information
Not Applicable
Page 10 of 11
<PAGE>
Item 6 Exhibits and Reports on 8-K
(a) Exhibits: None required.
(b) Reports on Form 8-K: None required.
No reports on Form 8-K have been filed during
the quarter (13 weeks) ended September 30,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
SEVENSON ENVIRONMENTAL SERVICES, INC.
Dated: November 8, 1995
/s/ William J. McDermott
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
Page 11 of 11
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JUN-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 387
<SECURITIES> 49,902
<RECEIVABLES> 25,677
<ALLOWANCES> 0
<INVENTORY> 132
<CURRENT-ASSETS> 82,017
<PP&E> 20,505
<DEPRECIATION> 9,838
<TOTAL-ASSETS> 94,660
<CURRENT-LIABILITIES> 18,173
<BONDS> 0
<COMMON> 663
0
0
<OTHER-SE> 73,206
<TOTAL-LIABILITY-AND-EQUITY> 94,660
<SALES> 29,428
<TOTAL-REVENUES> 29,428
<CGS> 22,252
<TOTAL-COSTS> 24,043
<OTHER-EXPENSES> 1,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> 5,970
<INCOME-TAX> 2,180
<INCOME-CONTINUING> 3,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,790
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
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