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, 1996
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: 1,586,375 shares of Common Stock and
4,720,025 shares of Class B Common Stock.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
_________________________________________________________________
September 30, December 31,
1996 1995
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,733 $ 4,226
Marketable securities 47,026 44,474
Accounts receivable 24,183 26,575
Costs and estimated earnings on
contracts in progress in excess
of related billings 2,942 2,556
Prepaid expenses and other current
assets 664 846
Deferred income taxes 369 369
_______ _______
Total current assets 80,917 79,046
_______ _______
PROPERTY AND EQUIPMENT:
Land 308 308
Buildings and improvements 3,057 2,878
Construction and field equipment 15,382 14,197
Vehicles 5,382 3,731
Office furniture and equipment 1,568 1,393
_______ _______
25,697 22,507
Less accumulated depreciation 11,970 10,379
_______ _______
Total property and equipment 13,727 12,128
OTHER ASSETS 2,628 2,107
_______ _______
TOTAL ASSETS $97,272 $93,281
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
_________________________________________________________________
September 30, December 31,
1996 1995
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $ 7,225 $ 8,578
Retentions 405 940
Note payable - current 227 749
Compensation, income taxes and
other current liabilities 2,139 703
Amounts billed in excess of costs
and estimated earnings on
contracts in progress 5,077 3,299
_______ _______
Total current liabilities 15,073 14,269
DEFERRED INCOME TAXES 1,762 1,297
_______ _______
NOTES PAYABLE 2,000 2,000
_______ _______
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value;
Authorized 12,000,000 shares,
issued 1,910,275 and
1,908,975 shares 191 191
Class B Common Stock, $.10 par
value; Authorized 8,000,000
shares, issued and outstanding
4,720,025 and 4,718,925 shares 472 472
Additional paid-in capital 24,476 24,445
Retained earnings 56,780 53,468
_______ _______
81,919 78,576
Treasury stock (323,900 and
278,500 shares common stock,
at cost) (3,723) (3,014)
_______ _______
78,196 75,562
Unrealized gain on marketable
securities, net of taxes 336 248
Cumulative translation adjustment (95) (95)
_______ _______
Total stockholders' equity 78,437 75,715
_______ _______
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $97,272 $93,281
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
_________________________________________________________________
1996 1995
REVENUES $56,324 $74,270
COSTS AND EXPENSES:
Cost of contracts:
Direct costs 42,322 55,101
Indirect costs 2,548 1,878
Selling, general and administrative 6,526 5,989
_______ _______
51,396 62,968
_______ _______
EARNINGS FROM OPERATIONS 4,928 11,302
OTHER:
Interest income 1,565 1,616
Interest expense (156) (152)
Realized gain (loss) on sale of
marketable securities 89 (7)
_______ _______
1,498 1,457
_______ _______
EARNINGS BEFORE INCOME TAXES 6,426 12,759
INCOME TAXES 2,142 4,660
_______ _______
NET EARNINGS $ 4,284 $ 8,099
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,320 6,343
======= =======
EARNINGS PER SHARE $ 0.68 $ 1.28
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
_________________________________________________________________
1996 1995
REVENUES $23,374 $29,428
COSTS AND EXPENSES:
Cost of contracts:
Direct costs 17,460 21,246
Indirect costs 1,341 1,006
Selling, general and administrative 2,265 1,791
_______ _______
21,066 24,043
_______ _______
EARNINGS FROM OPERATIONS 2,308 5,385
OTHER:
Interest income 489 611
Interest expense (53) (48)
Realized gain (loss) on sale of
marketable securities 41 22
_______ _______
477 585
_______ _______
EARNINGS BEFORE INCOME TAXES 2,785 5,970
INCOME TAXES 969 2,180
_______ _______
NET EARNINGS $ 1,816 $ 3,790
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,307 6,347
======= =======
EARNINGS PER SHARE $ 0.29 $ 0.60
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS)
_________________________________________________________________
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 60,133 $ 66,773
Cash payments to subcontractors,
suppliers and employees (51,446) (59,584)
Interest received 1,565 1,731
Interest paid (156) (152)
Taxes paid (768) (3,313)
Tax refunds received 77 154
________ ________
Net cash provided by operating
activities 9,405 5,609
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities activity (2,349) (2,711)
Capital expenditures (3,377) (4,885)
Proceeds from sale of property and
equipment 0 6
________ ________
Net cash (used in) investing (5,726) (7,590)
activities ________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (548) 0
Debt proceeds 26 38
Exercise of stock options 31 80
Acquisition of treasury stock (709) 0
Dividends paid (972) (976)
________ ________
Net cash (used in) financing (2,172) (858)
activities ________ ________
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,507 (2,839)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,226 3,226
________ ________
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5,733 $ 387
======== ========
See notes to condensed consolidated financial statements.
(Continued)
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS)
_________________________________________________________________
1996 1995
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING
ACTIVITIES:
Net earnings $ 4,284 $ 8,099
Adjustments to reconcile:
Depreciation and amortization 1,850 1,447
Increase in cash value of life
insurance (120) (120)
(Gain) loss on sale of marketable
securities (89) 227
Provision for deferred income taxes 439 237
Loss on sale of property and
equipment 25 6
Change in assets and liabilities
affecting cash flows:
Accounts receivable 2,392 (530)
Material and supply inventories (3) 27
Costs and estimated earnings on
contracts in progress in excess
of related billings (386) (3,602)
Prepaid and refundable income taxes 0 84
Prepaid expenses and other current
assets 185 113
Other assets (498) (74)
Accounts payable (1,888) 2,515
Compensation, payroll taxes and
withholdings (158) (89)
Other current liabilities 582 (611)
Amounts billed in excess of costs
and estimated earnings on
contracts in progress 1,778 (3,296)
Income taxes 1,012 1,176
_______ _______
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 9,405 $ 5,609
======= =======
See notes to condensed consolidated financial statements.
(Concluded)
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
_________________________________________________________________
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, 1996.
The foregoing condensed consolidated financial statements
include all 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.
* * * * * *
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Company third quarter revenues were $23,374,000, or 21%
lower than last year's record third quarter revenues of
$29,428,00. Lower backlog at the beginning of the quarter -
$52.6 million versus $61.6 million at the beginning of last
year's third - was the principal factor causing revenues to be
lower. Backlog at the beginning of the quarter was lower due to
the effects of the government's suspension of Superfund contract
awards during last year's budget impasse, Congress's inability to
reauthorize Superfund, delays in private sector cleanup projects,
and increased competition for available projects brought on by
the foregoing factors. Backlog at the end of the quarter,
however, was higher at $65.6 million versus $57.8 million at the
same time last year. This increase reflects moderate improvement
in competitive pressures since earlier in the year.
Gross margin (revenues less direct costs) percentage
for the quarter was 25.3% compared to 27.8% for last year's third
quarter. The slight decline in gross margin percentage reflects
the adverse competitive conditions mentioned above. The Company
considers gross margin at these levels to be within the normal
range.
Indirect costs were $1,341,000 compared to $1,006,000
in the third quarter last year. The 33% increase was due
principally to a reserve taken against insurance expense. The
reserve is for an anticipated additional insurance premium charge
under the Company's retrospectively rated insurance policies due
to an accident which injured a Company employee. Depreciation
expense was also higher due to increases in the Company's fleet
of field equipment and vehicles.
Selling, general and administrative (SG&A) expense for
the quarter was $2,265,000, or 26% higher than last year's third
quarter SG&A expense of $1,791,000. Increases occurred in most
SG&A expense categories. The single largest increase occurred in
the expense of the Company's self-insured employee health
insurance program. Increases also occurred in government
contracting related expenses, business development expenses and
professional fees.
Third quarter interest income as $489,000 as compared
to $611,000 in the same period last year. The decrease was due
principally to lower interest rates.
The effective tax rate for the quarter was 34.8%. For
the third quarter last year the effective tax rate was 36.5%.
The lower effective tax rate this year reflects this year's lower
earnings from operations and the correspondingly higher
proportion of tax exempt interest earnings in earnings before
income taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations in the nine-month
period was $9,405,000 versus $5,609,000 in the same period last
year. Cash receipts from customers decreased 10% from
$66,773,000 last year to $60,133,000 this year. However, cash
payments to subcontractors and others decreased 14% to
$51,446,000 from $59,584,000 last year. Taxes paid decreased
from $3,313,000 last year to $768,000. The net result of all
operating activities cash flows was a $3,796,000 increase in cash
in-flow during the period versus the same period last year.
Net cash used in investing activities was $5,726,000
versus $7,590,000 in the same period last year. The change was
due principally to decreased capital expenditures for equipment.
Last year the Company purchased equipment to support its
expanding dewatering and water treatment operations and to meet
the needs of increased operations generally. This year's slower
operating activities created less of a demand for new equipment.
However, the Company did continue to upgrade and expand its fleet
of equipment and vehicles to meet current and anticipated needs.
The Company plans to continue to upgrade its fleet by replacing
older equipment and by adding equipment which suits its evolving
needs.
As of September 30, 1996, the Company had working
capital of $65,844,000, including $52,759,000 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, 1996, 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>
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, 1996.
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.
Dated: November 7, 1996
SEVENSON ENVIRONMENTAL SERVICES, INC.
/s/ William J. McDermott
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
<PAGE>
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<S> <C>
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<PERIOD-END> SEP-30-1996
<CASH> 5,733
<SECURITIES> 47,026
<RECEIVABLES> 24,183
<ALLOWANCES> 0
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<PP&E> 25,697
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0
0
<COMMON> 663
<OTHER-SE> 77,774
<TOTAL-LIABILITY-AND-EQUITY> 97,272
<SALES> 56,324
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<CGS> 44,870
<TOTAL-COSTS> 44,870
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<INCOME-TAX> 2,142
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