2 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, 1997
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: 1,620,075 shares of Common Stock and
4,702,975 shares of Class B Common Stock.
Page 1 of 12
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SEVENSON ENVIRONMENTAL SERVICES, INC.
Financial Statement For the Nine-Month Periods
Ended September 30, 1997 and 1996 and
Independent Accountants' Report
Page 2 of 12
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SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
_________________________________________________________________
September 30, December 31,
1997 1996
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,729 $ 1,472
Marketable securities 44,713 48,125
Accounts receivable 20,735 24,635
Costs and estimated earnings on
contracts in progress in excess
of related billings 3,597 3,296
Prepaid expenses and other current
assets 616 705
Deferred income taxes 504 504
_______ _______
Total current assets 75,894 78,737
_______ _______
PROPERTY AND EQUIPMENT:
Land 308 308
Buildings and improvements 3,484 3,413
Construction and field equipment 17,617 15,697
Vehicles 5,590 5,425
Office furniture and equipment 1,669 1,622
_______ _______
28,668 26,465
Less accumulated depreciation 14,134 12,269
_______ _______
Total property and equipment 14,534 14,196
_______ _______
OTHER ASSETS 11,054 4,152
_______ _______
TOTAL ASSETS $101,482 $97,085
======= =======
See notes to condensed consolidated financial statements.
Page 3 of 12
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SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
_________________________________________________________________
September 30, December 31,
1997 1996
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $ 6,990 $ 7,696
Retentions 543 580
Note payable - current 106 331
Compensation, income taxes and
other current liabilities 2,270 2,187
Amounts billed in excess of costs
and estimated earnings on
contracts in progress 2,390 2,205
_______ _______
Total current liabilities 12,299 12,999
_______ _______
DEFERRED INCOME TAXES 2,961 1,951
_______ _______
NOTES PAYABLE 2,000 2,000
_______ _______
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value;
Authorized 12,000,000 shares,
issued 1,943,975 and
1,927,325 shares 195 193
Class B Common Stock, $.10 par
value; Authorized 8,000,000
shares, issued and outstanding
4,702,975 shares 470 470
Additional paid-in capital 24,700 24,478
Retained earnings 61,426 58,455
_______ _______
86,791 83,596
Treasury stock (323,900 shares
common stock, at cost) (3,723) (3,723)
_______ _______
83,068 79,873
Unrealized gain on marketable
securities, net of taxes 1,249 357
Cumulative translation adjustment (95) (95)
_______ _______
Total stockholders' equity 84,222 80,135
_______ _______
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $101,482 $97,085
======= =======
See notes to condensed consolidated financial statements.
Page 4 of 12
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SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
_________________________________________________________________
1997 1996
REVENUES $61,524 $56,324
COSTS AND EXPENSES:
Direct and indirect costs 49,721 44,870
Selling, general and administrative 7,512 6,526
_______ _______
57,233 51,396
_______ _______
EARNINGS FROM OPERATIONS 4,291 4,928
OTHER:
Interest income 1,659 1,565
Interest expense (168) (156)
Realized gain on sale of
marketable securities 211 89
_______ _______
1,702 1,498
_______ _______
EARNINGS BEFORE INCOME TAXES 5,993 6,426
INCOME TAXES 2,050 2,142
_______ _______
NET EARNINGS $ 3,943 $ 4,284
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,311 6,320
======= =======
EARNINGS PER SHARE $ 0.62 $ 0.68
======= =======
See notes to condensed consolidated financial statements.
Page 5 of 12
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SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
_________________________________________________________________
1997 1996
REVENUES $24,855 $23,374
COSTS AND EXPENSES:
Direct and indirect costs 21,304 18,801
Selling, general and administrative 2,334 2,265
_______ _______
23,638 21,066
_______ _______
EARNINGS FROM OPERATIONS 1,217 2,308
OTHER:
Interest income 527 489
Interest expense (76) (53)
Realized gain on sale of
marketable securities 126 41
_______ _______
577 477
_______ _______
EARNINGS BEFORE INCOME TAXES 1,794 2,785
INCOME TAXES 599 969
_______ _______
NET EARNINGS $ 1,195 $ 1,816
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,317 6,307
======= =======
EARNINGS PER SHARE $ 0.19 $ 0.29
======= =======
See notes to condensed consolidated financial statements.
Page 6 of 12
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 -
(UNAUDITED) (IN THOUSANDS)
_________________________________________________________________
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 65,324 $ 60,133
Cash payments to subcontractors,
suppliers and employees (62,116) (51,446)
Interest received 1,659 1,565
Interest paid (168) (156)
Taxes paid (2,251) (768)
Tax refunds received 8 77
________ ________
Net cash provided by operating
activities 2,456 9,405
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment purchased (10,273) (10,553)
Investment sold 15,280 8,204
Capital expenditures (2,246) (3,377)
Proceeds from sale of property and
equipment 12 0
________ ________
Net cash provided by (used in)
investing activities 2,773 (5,726)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (225) (548)
Debt proceeds 0 26
Exercise of stock options 224 31
Acquisition of treasury stock 0 (709)
Dividends paid (971) (972)
________ ________
Net cash used in financing
activities (972) (2,172)
________ ________
NET INCREASE IN CASH AND
CASH EQUIVALENTS 4,257 (1,507)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,472 4,226
________ ________
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 5,729 $ 5,733
======== ========
See notes to condensed consolidated financial statements.
(Continued)
Page 7 of 12
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 -
(UNAUDITED) (IN THOUSANDS)
_________________________________________________________________
1997 1996
RECONCILIATION OF NET EARNINGS TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net earnings $ 3,943 $ 4,284
Adjustments to reconcile:
Depreciation and amortization 1,894 1,850
Increase in cash value
of life insurance (120) (120)
Gain on sale of marketable securities (211) (89)
Provision for deferred income taxes 517 439
Loss on sale of property and
equipment 17 25
Change in assets and liabilities
affecting cash flows:
Accounts receivable 3,899 2,392
Material and supply inventories 8 (3)
Costs and estimated earnings on
contracts in progress in excess of
related billings (301) (386)
Prepaid expenses and other current
assets 81 185
Other assets (6,796) (498)
Accounts payable (742) (1,888)
Compensation, income taxes and other
current liabilities 82 1,436
Amounts billed in excess of costs and
estimated earnings on contracts in
progress 185 1,778
________ ________
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 2,456 $ 9,405
======== ========
See notes to condensed consolidated financial statements.
(Concluded)
Page 8 of 12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the quarter were $24,855,000, 6% higher than last
year's third quarter revenues of $23,374,000. Higher backlog at
the beginning of the quarter - $69.3 million versus $61.6 million
at the same time the prior year - plus revenue contributed by a
number of smaller contracts acquired during the quarter were
responsible for the increase in revenue. During the quarter, the
Company acquired a total of $33.1 million in new contracts or
additions to existing contracts to end the quarter with a record
backlog of $76.0 million. At the end of the third quarter last
year, the Company's backlog was $65.6 million.
Gross margin (revenues less direct and indirect costs) percentage
for the quarter was 14.3% versus 19.6% last year. The decline in
gross margin was due principally to the recognition that revenue
and profit from one of the Company's larger projects will
ultimately be substantially less then previously estimated. The
impact of this shortfall on earnings was 10 cents per share after
tax.
Selling, general and administrative expense (SG&A) for the
quarter was $2,334,000 compared to $2,265,000 last year, a 3%
increase. The increase reflects increased operating activity.
Interest income rose to $527,000 from $489,000 last year. Higher
interest rates were responsible for the increase.
The effective tax rate for the quarter was 33.4% compared to
34.8% last year. The decrease is attributable to lower earnings
from operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine month
period was $2,456,000 versus $9,405,000 in the same period last
year. Lower net cash flow was due to higher payments to
subcontractors, suppliers and employees which increased to
$62,116,000 from $51,446,000 last year. The startup of a number
of projects, including Other Asset expenditures of $6,575,000
relating to Brownfield redevelopment activities, during the third
quarter required cash outlays which were not offset by receipts
from those projects by the end of the period. Higher tax
payments, $2,251,000 versus $768,000 last year, also contributed
to lower net cash receipts.
Net cash provided by investing activities was $2,773,000 versus
net cash used in investing activities of $5,726,000 last year.
The principal source of the change from last year was the
purchase and sale of investments. This year the Company realized
net cash of $5,007,000 from the purchase and sale of investments
as compared to last year when the Company used net cash of
$2,349,000 in the purchase and sale of investments.
Page 9 of 12
<PAGE>
Capital expenditures (principally for field equipment) were
$2,246,000 versus $3,377,000 last year. The difference indicates
only timing differences in equipment purchase decisions. The
Company continues to upgrade its fleet of field equipment by
replacing older units and adding new units which suit its
evolving needs.
As of September 30, 1997, the Company had working capital of
$63,595,000 including $50,442,000 in cash and marketable
securities. The Company believes that its existing funds and
cash generated by operations will suffice to meet all working
capital and capital investment needs for the foreseeable future.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
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
Item 6 Exhibits and Reports on 8-K
(a) Exhibits: None required.
(b) Reports on Form 8-K.
No report on Form 8-K was filed
during the quarter (13 weeks) ended
September 30, 1997.
Page 10 of 12
<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.
(Registrant)
Dated: November 14, 1997
/s/William J. McDermott
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
Page 11 of 12
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
_________________________________________________________________
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 12 of 12
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,729
<SECURITIES> 44,713
<RECEIVABLES> 20,735
<ALLOWANCES> (41)
<INVENTORY> 80
<CURRENT-ASSETS> 75,894
<PP&E> 28,668
<DEPRECIATION> (14,534)
<TOTAL-ASSETS> 101,482
<CURRENT-LIABILITIES> 12,299
<BONDS> 2,000
0
0
<COMMON> 665
<OTHER-SE> 83,557
<TOTAL-LIABILITY-AND-EQUITY> 101,482
<SALES> 24,855
<TOTAL-REVENUES> 24,855
<CGS> 21,304
<TOTAL-COSTS> 21,304
<OTHER-EXPENSES> 2,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 1,794
<INCOME-TAX> 599
<INCOME-CONTINUING> 1,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,195
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
