SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
- -----------------------------------------------------------------
For Quarter Ended Commission File Number O-17536
June 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
(Address of principal executive offices)
(Zip Code)
(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>
ITEM 1 - FINANCIAL STATEMENTS
SEVENSON ENVIRONMENTAL SERVICES, INC.
Financial Statements For the Six Month
Periods Ended June 30, 1996 and 1995
and Independent Accountants' Report
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (In Thousands)
June 30, December 31,
1996 1995
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,869 $ 4,226
Marketable securities 46,538 44,474
Accounts receivable 23,287 26,575
Costs and estimated earnings on
contracts in progress in excess of
related billings 4,648 2,556
Prepaid expenses and other current assets 593 846
Deferred income taxes 369 369
_______ _______
Total current assets 77,304 79,046
_______ _______
PROPERTY AND EQUIPMENT:
Land 308 308
Buildings and improvements 3,039 2,878
Construction and field equipment 15,298 14,197
Vehicles 4,418 3,731
Office furniture and equipment 1,551 1,393
_______ _______
24,614 22,507
Less accumulated depreciation 11,399 10,379
_______ _______
Total property and equipment, net 13,215 12,128
_______ _______
OTHER ASSETS 2,178 2,107
_______ _______
TOTAL ASSETS $92,697 $93,281
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (In Thousands)
June 30, December 31,
1996 1995
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Current $ 5,993 $ 8,578
Retentions 290 940
Note payable - current 775 749
Compensation, income taxes and other
current liabilities 1,241 703
Amounts billed in excess of costs
and estimated earnings on
contracts in progress 3,620 3,299
_______ _______
Total current liabilities 11,919 14,269
_______ _______
DEFERRED INCOME TAXES 1,680 1,297
_______ _______
NOTES PAYABLE 2,000 2,000
_______ _______
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value:
Authorized 12,000,000 shares, issued
1,910,675 and 1,908,975 shares 191 191
Class B Common Stock, $.10 par value:
Authorized 8,000,000 shares, outstanding
4,720,025 and 4,718,925 shares 472 472
Additional paid-in capital 24,476 24,445
Retained earnings 55,288 53,468
_______ _______
80,427 78,576
Treasury stock (323,900 and 278,500
shares common stock at cost) (3,723) (3,014)
_______ _______
76,704 75,562
Unrealized gain on marketable securities,
net of taxes 489 248
Cumulative translation adjustment (95) (95)
_______ _______
Total stockholders' equity 77,098 75,715
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $92,697 $93,281
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
1996 1995
REVENUES $32,950 $44,842
COST AND EXPENSES:
Cost of contracts:
Direct costs 24,862 33,855
Indirect costs 1,207 872
Selling, general and administrative 4,261 4,198
_______ _______
30,330 38,925
_______ _______
EARNINGS FROM OPERATIONS 2,620 5,917
OTHER:
Interest income 1,076 1,005
Interest expense (103) (104)
Realized gain (loss) on sale of
marketable securities 48 (29)
_______ _______
1,021 872
_______ _______
EARNINGS BEFORE INCOME TAXES 3,641 6,789
INCOME TAXES 1,173 2,480
_______ _______
NET EARNINGS $ 2,468 $ 4,309
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,327 6,341
======= =======
EARNINGS PER SHARE $ 0.39 $ 0.68
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
1996 1995
REVENUES $19,092 $24,980
COST AND EXPENSES:
Cost of contracts:
Direct costs 14,263 18,736
Indirect costs 232 131
Selling, general and administrative 2,175 2,171
_______ _______
16,670 21,038
_______ _______
EARNINGS FROM OPERATIONS 2,422 3,942
OTHER:
Interest income 539 590
Interest expense (54) (48)
Realized gain on sale of
marketable securities 1 7
_______ _______
486 549
_______ _______
EARNINGS BEFORE INCOME TAXES 2,908 4,491
INCOME TAXES 923 1,640
_______ _______
NET EARNINGS $ 1,985 $ 2,851
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,305 6,341
======= =======
EARNINGS PER SHARE $ 0.31 $ 0.45
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 34,604 $ 45,620
Cash payments to subcontractors,
suppliers and employees (32,196) (37,588)
Interest received 965 1,162
Interest paid (103) (104)
Taxes paid (355) (1,411)
Tax refunds received 0 148
_______ _______
Net cash provided by operating
activities 2,915 7,827
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities activity (1,684) 31
Capital expenditures (2,288) (3,933)
Sale of property and equipment 0 12
_______ _______
Net cash (used in) investing activities 3,972 3,890
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt 0 155
Debt proceeds 26 0
Dividends paid (648) (649)
Acquisition of treasury stock (709) 0
Proceeds from sale of options 31 11
_______ _______
Net cash (used in) financing activities (1,300) (483)
_______ _______
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (2,357) 3,454
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,226 3,226
_______ _______
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,869 $ 6,680
======= =======
See notes to condensed consolidated financial statements.
(Continued)
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 - (UNAUDITED)
(IN THOUSANDS)
1996 1995
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 2,468 $ 4,309
Adjustments to reconcile:
Depreciation and amortization 1,231 866
Gain/loss on sale of marketable securities (48) 29
Increase in cash value of life insurance (80) (80)
Deferred income taxes 292 450
Sale of property and equipment 26 6
Change in assets and liabilities
affecting cash flows:
Accounts receivable 3,288 4,773
Material and supply inventories (9) 15
Costs and estimated earnings on contracts
in progress in excess of related billings (2,092) (2,615)
Prepaid and refundable income taxes 0 84
Prepaid expenses and other current assets 262 258
Other assets (47) 11
Accounts payable (3,235) 695
Compensation, income taxes and other
current liabilities 12 (759)
Amounts billed in excess of costs and
estimated earnings on contracts in progress 321 (1,178)
Income taxes 526 963
______ _______
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,915 $ 7,827
======= =======
See notes to condensed consolidated financial statements.
(Concluded)
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTH PERIODS ENDED JUNE 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, 1995.
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.
* * * * * *
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second quarter revenues were $19,092,000, 24% lower
than last year's record second quarter revenues of $24,980,000.
Lower backlog and slower operating momentum at the beginning of
the quarter were the principal factors causing revenues to be
lower. Backlog at the beginning of the quarter was $52.7 million
versus $62.6 million at the same time the previous year. Backlog
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. Operating momentum at the
beginning of the quarter was lower than last year's due to
differences in the severity of the preceding winter. This year's
winter weather was significantly more severe and had a
correspondingly greater impact on Company field operations, which
are concentrated in the Northeast.
Contract backlog at the end of the second quarter was
$52.6 million compared to $61.7 million last year. Lower backlog
reflects the continuing impact of the conditions mentioned above.
While those conditions have changed, and to some degree have
moderated, the Company has continued to experience increased
competition for new contracts. The Company expects this to
depress revenues and margins at least through year's end.
Gross margin (revenues less direct costs) percentage
for the quarter was marginally better at 25.3% versus 25.0 last
year. Quarterly gross margin varies dependent upon the nature,
size and mix of projects underway during the quarter. Given
recent conditions in the Company's business, the Company is
pleased with a gross margin percentage which effectively matches
that achieved last year when conditions were more favorable. The
Company has considered quarterly gross margin percentages in the
range of 20 to 30% as normal for its operations.
Indirect costs were $232,000 versus $131,000 last year.
Higher depreciation expense was the principal reason for the
increase.
Selling, general and administrative (SG&A) expense in
the quarter was $2,175,000 or practically equal to the same
expense in the second quarter last year. An increase in legal
expense was offset by decreases in other items.
Interest income was $539,000 versus $590,000 last year.
The decrease was due to both lower interest rates and lower
invested balances.
The effective tax rate was 31.7% versus 36.5% for last
year's second quarter. The lower rate reflects this year's lower
operating income.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the six-month period, net cash provided by
operations was $2,915,000 compared to $7,827,000 for the same
period last year. Cash received from customers was $34,604,000
versus $45,620,000 last year, the difference attributable to this
year's lower revenues. Cash payments to subcontractors,
suppliers and employees were higher this year as a percentage of
cash receipts and revenues. This effect was due, in part, to
project startup costs incurred during the six months which were
not recoverable from customers before the close of the period.
Projects started earlier last year because last year's milder
winter and spring allowed projects to begin earlier.
Net cash used in investing activities was $3,972,000,
similar in amount to the $3,890,000 used in the previous year.
As was so last year, the principal use was capital expenditures,
for which the Company expended $2,288,000 compared to $3,933,000
for the same period last year. Changes in marketable securities,
which reflect routine cash management decisions, resulted in the
use of $1,684,000.
During the period, the Company repurchased 45,400
shares of Common Stock under its previously announced stock buy-
back program.
As of June 30, 1996, the Company had working capital of
$65.4 million, including $48.4 million in cash, cash equivalents
and marketable securities. The Company expects that its existing
funds and cash generated by operations will be sufficient to meet
all its 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 line of credit
for working capital. As of June 30, 1996, there were no
outstanding letters of credit or borrowings against these lines.
<PAGE>
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 At the Company's Annual Meeting of
Shareholders held on May 21, 1996, the
nominees of the Board of Directors were re-
elected based upon the following results:
Nominees No. of Votes
Class A
Joseph J. Castiglia 1,288,028
Robert S. Kelso 1,288,028
Class B
Arthur A. Elia 47,200,250
Michael A. Elia 47,200,250
Laurence A. Elia 47,200,250
Richard A. Elia 47,200,250
William J. McDermott 47,200,250
Dena M. Armstrong 47,200,250
In addition, Deliotte & Touche was ratified to
continue as auditors based upon the following
votes: For, 48,496,878; Against, 700; Abstain,
1500
Under applicable state law and the Company's
Restated Certificate of Incorporation and By-laws,
abstentions operate as votes against a proposal
and non-votes have no effect.
Item 5 Other Information
Not Applicable
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
June 30, 1996.
<PAGE>
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: August 1, 1996
/s/ William J. McDermott
(Signature)
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,869
<SECURITIES> 46,538
<RECEIVABLES> 23,287
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,304
<PP&E> 13,215
<DEPRECIATION> 11,399
<TOTAL-ASSETS> 92,697
<CURRENT-LIABILITIES> 11,919
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 79,764
<TOTAL-LIABILITY-AND-EQUITY> 92,697
<SALES> 32,950
<TOTAL-REVENUES> 32,950
<CGS> 26,069
<TOTAL-COSTS> 30,330
<OTHER-EXPENSES> 4,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (103)
<INCOME-PRETAX> 3,641
<INCOME-TAX> 1,173
<INCOME-CONTINUING> 2,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,468
<EPS-PRIMARY> .39
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