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
June 30, 1998
SEVENSON ENVIRONMENTAL SERVICES, INC.
_____________________________________
(Exact name of registrant as specified in its charter)
New York 16-1091535
______________________________ ____________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2749 Lockport Road
P.O. Box 396
Lockport, 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: 2,619,689 shares of Common Stock and
7,438,600 shares of Class B Common Stock
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------
June 30, December 31,
1998 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,539 $ 4,522
Marketable securities 49,501 47,090
Accounts receivable 26,187 16,532
Costs and estimated earnings on
contracts in progress in excess of
related billings 5,435 4,847
Prepaid expenses and other current assets 469 688
Deferred income taxes 0 0
---------- ---------
Total current assets 87,131 73,679
---------- ---------
PROPERTY AND EQUIPMENT:
Land 308 308
Buildings and improvements 3,514 3,507
Construction and field equipment 18,278 18,040
Vehicles 5,846 5,596
Office furniture and equipment 1,680 1,671
---------- ---------
29,626 29,122
Less accumulated depreciation 16,029 14,763
---------- ---------
Total property and equipment, net 13,597 14,359
---------- ---------
INVESTMENT IN BROWNFIELD REAL ESTATE 8,550 8,631
---------- ---------
OTHER ASSETS 2,710 2,603
---------- ---------
TOTAL ASSETS $111,988 $99,272
========== =========
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------
June 30, December 31,
1998 1997
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $ 13,719 $ 5,392
Retentions 256 643
Note payable - current 0 12
Compensation, income taxes and other
current liabilities 1,995 1,773
Deferred income taxes 0 151
Amounts billed in excess of costs
and estimated earnings on
contracts in progress 5,687 3,065
----------- ---------
Total current liabilities 21,657 11,036
----------- ---------
DEFERRED INCOME TAXES 2,655 1,863
----------- ---------
NOTES PAYABLE 2,000 2,000
----------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 and $.0625 par value
respectively; Authorized 12,000,000 shares,
issued 3,209,040 and 3,161,240 shares 32 198
Class B Common Stock, $.01 and $.0625 par
value respectively; Authorized
8,000,000 shares, issued 7,438,600 and
7,486,440 shares 74 468
Additional paid-in capital 25,421 24,861
Retained earnings 63,080 61,872
----------- ---------
88,607 87,399
Treasury stock (589,351 and 518,240
shares common stock at cost) (4,354) (3,723)
----------- ---------
84,253 83,676
Unrealized gain on marketable
securities, net of taxes 1,518 792
Cumulative translation adjustment (95) (95)
----------- ---------
Total stockholders' equity 85,676 84,373
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 111,988 $ 99,272
=========== =========
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- ------------------------------------------------------------------
1998 1997
REVENUES $ 28,910 $ 19,945
COSTS AND EXPENSES:
Direct and indirect costs 23,534 14,948
Selling, general and administrative 2,371 2,725
--------- ---------
25,905 17,673
--------- ---------
EARNINGS FROM OPERATIONS 3,005 2,272
OTHER:
Interest income 475 622
Interest expense (46) (46)
Realized (loss) gain on sale of
marketable securities (57) 47
Realized gain on sale of real estate 0 299
--------- ----------
372 922
--------- ----------
EARNINGS BEFORE INCOME TAXES 3,377 3,194
INCOME TAX EXPENSE 1,242 1,160
--------- ----------
NET EARNINGS $ 2,135 $ 2,034
========= ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,113 10,091
========= ==========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.21 $ 0.20
========= ==========
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, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------
1998 1997
REVENUES $ 42,179 $ 35,600
COSTS AND EXPENSES:
Direct and indirect costs 35,540 27,647
Selling, general and administrative 4,761 5,178
--------- --------
40,301 32,825
--------- --------
EARNINGS FROM OPERATIONS 1,878 2,775
OTHER:
Interest income 961 1,132
Interest expense (92) (92)
Realized gain on sale of
marketable securities 125 85
Realized gain on sale of real estate 0 299
--------- ---------
994 1,424
--------- ---------
EARNINGS BEFORE INCOME TAXES 2,872 4,199
INCOME TAX EXPENSE 976 1,451
--------- ---------
NET EARNINGS $ 1,896 $ 2,748
--------- ---------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,121 10,091
========= =========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.19 $ 0.27
========= =========
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, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS)
- ---------------------------------------------------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 34,558 $ 41,965
Cash payments to subcontractors,
suppliers and employees (31,192) (34,047)
Interest received 961 1,132
Interest paid (92) (92)
Taxes paid (330) (1,043)
Tax refunds received 0 6
---------- ----------
Net cash provided by operating activities 3,905 7,921
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased (10,676) (8,216)
Investments sold 9,505 5,636
Capital expenditures (505) (1,792)
Brownfield acquisition and remediation costs 81 0
Proceeds from sale of fixed assets 0 12
---------- ----------
Net cash used in investing activities (1,595) (4,360)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt 0 (176)
Proceeds from exercise of stock options 0 12
Acquisition of treasury stock (631) 0
Dividends paid (662) (647)
---------- ----------
Net cash used in financing activities (1,293) (811)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,017 2,750
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 4,522 1,472
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,539 $ 4,222
========== ==========
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, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS)
- ---------------------------------------------------------------------
1998 1997
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 1,896 $ 2,748
Adjustments to reconcile:
Depreciation and amortization 1,276 1,227
Increase in cash surrender value of
life insurance (100) (80)
Provision for deferred income taxes 225 401
Gain on sale of marketable securities (125) (85)
Change in assets and liabilities
affecting cash flow:
Accounts receivable (9,655) 6,371
Material and supply inventories 3 6
Costs and estimated earnings on
contracts in progress in excess
of related billings (588) (581)
Prepaid expenses and other current assets 216 275
Other assets (16) (217)
Accounts payable 7,940 (790)
Compensation, income taxes and other
current liabilities 211 (843)
Amounts billed in excess of costs and
estimated earnings on contracts in
progress 2,622 (511)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,905 $ 7,921
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
- ---------------------------------------------------------------------
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, 1997.
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 OPERATION
RESULTS OF OPERATION
Second quarter revenues were $28,910,000, a 45% increase over
last year's second quarter revenues of $19,945,000. The increase was
due entirely to an increase in revenues from federal government
contracts. Revenues from privately funded cleanup projects were
actually down from the second quarter last year. Federal cleanup
programs are proceeding well and are a dependable source of revenue
while the flow of revenue from privately funded cleanup projects has
stalled or declined due to weak regulatory enforcement.
At the end of the quarter the Company had a backlog of $63.7
million versus $69.3 million a year earlier. After the close of the
quarter, the Company was notified that it had been selected as one of
two contractors for a multi-year PRAC (Preplaced Remedial Action
Contract) program in EPA Region II with a five year term and a
potential value over that term of $100 million. The Company expects
that actual contracts will be forthcoming from this program before the
end of the year. The $63.7 million backlog at the end of the quarter
does not include any contribution from this latest PRAC program.
Gross margin (revenues less direct and indirect costs) for
the quarter was 18.6% versus 25.1% last year. Gross margin varies
from quarter to quarter dependent upon a number of factors including
seasonal effects and the nature, size and mix of projects underway
during a given quarter. The Company considers gross margin in the
range of 17% to 27% for a quarter to be normal. Gross margin in the
second quarter was in the lower end of that range due principally to
one contract which, due to its nature, was bid at a lower margin.
For the second quarter, selling, general and administrative
(SG&A) expense was $2,371,000, which was $354,000, or 13%, lower than
last year when second quarter SG&A expense was $2,725,000. Legal,
entertainment and travel expenses were higher last year for reasons
which did not recur this year.
Interest income was $475,000 versus $622,000 last year. Interest
income was lower due to lower balances invested in interest bearing
securities.
The quarter's effective tax rate was 36.8%, up slightly from last
year when the rate was 36.3%. The rate was higher because tax exempt
interest income constituted a lower percentage of pretax earnings
versus last year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months
period was $3,905,000 versus $7,921,000 last year. Lower cash
receipts from customers was principally responsible for the decline.
<PAGE>
Cash receipts from customers were lower because receivables were lower
at the beginning of the year versus the same time a year earlier.
Receivables at the beginning of the year were $16,532,000 compared to
$24,635,000 a year earlier. Receivables were lower due to lower
revenues in the fourth quarter of last year ($21,484,000) versus the
fourth quarter of 1996 ($29,425,000).
Net cash used in investing activities was $1,595,000 versus
$4,360,000 last year. The change was principally due to changes in
the timing of the purchase and sale of marketable securities
reflecting routine cash management decisions. Another factor was a
decrease in capital expenditures to $505,000 from $1,792,000 last
year. Lower capital expenditures indicates that the Company's current
equipment fleet contained both the number and types of units needed to
service current projects.
During the first six months of 1998, the Company repurchased
71,111 shares at a cost of $631,000. The Board of Directors has
authorized the repurchase of up to 800,000 shares. Through June 30,
1998, the Company had repurchased 589,351 shares.
As of June 30, 1998, the Company had working capital of $65.5
million, including cash, cash equivalents, and marketable securities
of $55.0 million. The Company believes 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 is aware of the "Year 2000" issue which affects most
corporations and concerns the inability of information systems,
primarily computer software programs, to properly recognize and
process date-sensitive information relating to the Year 2000 and
beyond. The Company believes it is pursuing appropriate courses of
action to identify and address Year 2000 compliance including efforts
to obtain assurances from its software vendors regarding compliance.
The Company believes that it is on schedule to complete its Year 2000
initiatives and does not expect that the cost of compliance will have
a material effect on its financial position or results of operations.
<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 19, 1998 the nominees of the Board of Directors were reelected
based upon the following results:
CLASS A
Nominees For Withheld
Joseph J. Castiglia 1,005,422 1,182,717
Robert S. Kelso 1,005,422 1,182,717
CLASS B
Nominees For Withheld
Michael A. Elia 7,486,440 0
Laurence A. Elia 7,486,440 0
Richard A. Elia 7,486,440 0
William J. McDermott 7,486,440 0
Dena M. Armstrong 7,486,440 0
Arthur A. Elia 7,486,440 0
The proposed reincorporation of Sevenson Environmental
Services, Inc. from Delaware to New York was approved based upon the
following vote: For, 75,656,075; Against, 9,457; Abstain, 1,179,865;
Broker nonvotes, 207,142.
The proposed amendment of the Company's 1989 Incentive Stock
Plan to increase the number of shares available for issuance under the
plan from 320,000 to 600,000 was approved based upon the following
vote: For, 75,598,727; Against, 1,242,030; Abstain, 4,640; Broker
nonvotes, 207,142.
The appointment by the Board of Directors of Deloitte &
Touche LLP as independent accountants for the fiscal year ending
December 31, 1997 was ratified based upon the following vote: For,
75,048,402; Against, 2,217; Abstain, 1,920.
<PAGE>
Item 5 Other Information
Stockholder Proposals
Pursuant to new amendments to Rule 14a-4(c) under the
Securities Exchange Act of 1934, as amended, if a stockholder who
intends to present a proposal at the 1999 Annual Meeting of
Stockholders does not notify the Company of such proposal on or prior
to February 27, 1999, then management proxies would be allowed to use
their discretionary voting authority to vote on the proposal when the
proposal is raised at the annual meeting, even though there is no
discussion of the proposal in the 1999 proxy statement.
Item 6 Exhibits and Reports on 8-K
(a) Exhibits: None required.
(b) Reports on Form 8-K: None required.
<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)
Date: August 7, 1998
/S/ William J. McDermott
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,539
<SECURITIES> 49,501
<RECEIVABLES> 26,187
<ALLOWANCES> (41)
<INVENTORY> 77
<CURRENT-ASSETS> 87,131
<PP&E> 29,626
<DEPRECIATION> 16,029
<TOTAL-ASSETS> 111,988
<CURRENT-LIABILITIES> 21,657
<BONDS> 2,000
0
0
<COMMON> 106
<OTHER-SE> 85,570
<TOTAL-LIABILITY-AND-EQUITY> 111,988
<SALES> 42,179
<TOTAL-REVENUES> 42,179
<CGS> 35,540
<TOTAL-COSTS> 35,540
<OTHER-EXPENSES> 4,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 2,872
<INCOME-TAX> 976
<INCOME-CONTINUING> 1,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,896
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
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