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, 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
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: 2,272,390 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------
September 30, December 31,
1998 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,402 $ 4,522
Marketable securities 43,139 47,090
Accounts receivable 22,496 16,532
Costs and estimated earnings on
contracts in progress in excess of
related billings 4,202 4,847
Prepaid expenses and other current assets 588 688
---------- ---------
Total current assets 78,827 73,679
---------- ---------
PROPERTY AND EQUIPMENT:
Land 306 308
Buildings and improvements 3,514 3,507
Construction and field equipment 18,598 18,040
Vehicles 5,786 5,596
Office furniture and equipment 1,698 1,671
---------- ---------
29,902 29,122
Less accumulated depreciation 16,586 14,763
---------- ---------
Total property and equipment 13,316 14,359
---------- ---------
INVESTMENT IN BROWNFIELD REAL ESTATE 8,505 8,631
OTHER ASSETS 3,545 2,603
---------- ---------
TOTAL ASSETS $104,193 $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)
- --------------------------------------------------------------------
September 30, December 31,
1998 1997
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $ 7,506 $ 5,392
Retentions 434 643
Note payable - current 410 12
Compensation, income taxes and other
current liabilities 2,670 1,773
Deferred income taxes 0 151
Amounts billed in excess of costs
and estimated earnings on
contracts in progress 5,456 3,065
----------- ---------
Total current liabilities 16,476 11,036
----------- ---------
DEFERRED INCOME TAXES 2,098 1,863
----------- ---------
NOTES PAYABLE 2,275 2,000
----------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
Authorized 12,000,000 shares,
issued 3,209,080 and 3,161,240 shares 32 32
Class B Common Stock, $.01 par
value; Authorized 8,000,000 shares,
issued 7,438,600 and
7,486,440 shares 74 75
Additional paid-in capital 25,421 25,420
Retained earnings 64,888 61,872
----------- ---------
90,415 87,399
Treasury stock (936,690 and 518,240
shares common stock, at cost) (7,197) (3,723)
----------- ---------
83,218 83,676
Unrealized gain on marketable
securities, net of taxes 221 792
Cumulative translation adjustment (95) (95)
----------- ---------
Total stockholders' equity 83,344 84,373
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 104,193 $ 99,272
=========== =========
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, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
- ------------------------------------------------------------------
1998 1997
REVENUES $ 62,439 $ 60,455
COSTS AND EXPENSES:
Direct and indirect costs 50,896 48,951
Selling, general and administrative 7,030 7,512
--------- ---------
57,926 56,463
--------- ---------
EARNINGS FROM OPERATIONS 4,513 3,992
OTHER:
Interest income 1,502 1,659
Interest expense (157) (168)
Realized gain on sale of
marketable securities 222 211
Realized gain on sale of real estate 0 299
--------- ----------
1,567 2,001
--------- ----------
EARNINGS BEFORE INCOME TAXES 6,080 5,993
INCOME TAX EXPENSE 2,072 2,050
--------- ----------
NET EARNINGS $ 4,008 $ 3,943
========= ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,060 10,098
========= ==========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.40 $ 0.39
========= ==========
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, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
- --------------------------------------------------------------------
1998 1997
REVENUES $ 20,260 $ 24,855
COSTS AND EXPENSES:
Direct and indirect costs 15,356 21,304
Selling, general and administrative 2,269 2,334
--------- --------
17,625 23,638
--------- --------
EARNINGS FROM OPERATIONS 2,635 1,217
OTHER:
Interest income 541 527
Interest expense (65) (76)
Realized gain on sale of
marketable securities 97 126
--------- ---------
573 577
--------- ---------
EARNINGS BEFORE INCOME TAXES 3,208 1,794
INCOME TAX EXPENSE 1,096 599
--------- ---------
NET EARNINGS $ 2,112 $ 1,195
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 9,941 10,017
========= =========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.21 $ 0.12
========= =========
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, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS)
- ---------------------------------------------------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 59,551 $ 65,324
Cash payments to subcontractors,
suppliers and employees (54,975) (55,320)
Interest received 1,502 1,659
Interest paid (157) (168)
Taxes paid (509) (2,251)
Tax refunds received 0 8
---------- ----------
Net cash provided by operating activities 5,412 9,252
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment purchased (13,194) (10,273)
Investments sold 16,575 15,280
Capital expenditures (959) (2,246)
Brownfield acquisition and remediation costs
net of interest 126 (6,796)
Acquisition of business (368) 0
Proceeds from sale of property and equipment 69 12
---------- ----------
Net cash provided by (used in)
investing activities 2,249 (4,023)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt 0 (225)
Debt proceeds 685 0
Exercise of stock options 0 224
Acquisition of treasury stock (3,474) 0
Dividends paid (992) (971)
---------- ----------
Net cash used in financing activities (3,781) (972)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,880 4,257
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 4,522 1,472
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,402 $ 5,729
========== ==========
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, 1998 AND 1997 - (UNAUDITED)
(IN THOUSANDS)
- ---------------------------------------------------------------------
1998 1997
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 4,008 $ 3,943
Adjustments to reconcile:
Depreciation and amortization 1,905 1,894
Increase in cash surrender value of
life insurance (150) (120)
Gain on sale of marketable securities (222) (211)
Provision for deferred income taxes 304 517
Loss on sale of property and equipment 40 17
Change in assets and liabilities
affecting cash flows:
Accounts receivable (5,964) 3,899
Material and supply inventories 6 8
Costs and estimated earnings on
contracts in progress in excess
of related billings 645 (301)
Prepaid expenses and other current assets 94 81
Other assets (437) 0
Accounts payable 1,905 (742)
Compensation, income taxes and other
current liabilities 887 82
Amounts billed in excess of costs and
estimated earnings on contracts in
progress 2,391 185
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,412 $ 9,252
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the quarter were $20,260,000, 18% lower than the
$24,855,000 in revenues in the same quarter last year. The decrease was
due to lower backlog at the beginning of the quarter ($63.7 million as
compared to $69.3 million at the same date last year), impeded progress
on one of the Company's larger projects, and a greater number of
smaller, more challenging projects.
Gross margin (revenues less direct and indirect costs) percentage for
the quarter was 24.2% as compared to 14.3% in the third quarter last
year. Last year's gross margin was reduced by the recognition of a
substantial shortfall in the revenue and profit expected from one of the
Company's larger projects. No similar impact occurred this year,
allowing the gross margin recognized to return to within the Company's
normal range. Typically, 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% to be normal.
At the end of the quarter the Company had a record backlog of $98.7
million. At the same date last year, the Company's backlog was $63.7
million. Among the contracts received by the Company during the quarter
were two contracts with a total value of $26.9 million awarded by EPA
Region II.
Selling, general and administrative expenses were down 3% to $2,269,000
from $2,334,000 in the third quarter last year. Lower home office and
professional fee expenses were partially offset by higher branch office
and benefit expenses.
Interest income was slightly higher at $541,000 as compared to $527,000
last year. Invested balances and interest rates were relatively
equivalent during the two periods.
The effective tax rate was 34.2% as compared to 33.4% last year. Both
rates are lower than statutory rates due to income from non-taxable
sources, principally municipal securities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine month period was
$5,412,000 as compared to $9,252,000 in the same period last year. The
difference is due to lower cash receipts from customers, $59,551,000 as
compared to $65,324,000, offset partially by lower tax payments,
$509,000 as compared to $2,251,000. Cash receipts were lower due to
delay in payment on one larger contract. Tax payments were lower due to
net losses at the beginning of the year, in addition to various tax
elections at that time, which resulted in lower estimated payments.
Net cash provided by investing activities was $2,249,000 as compared to
last year's net cash used in investing activities of $4,023,000. The
principal cause of the difference was a large investment made last year
<PAGE>
in Brownfields properties, $6,796,000, as opposed to this year's cash
returns from Brownfields investments totaling $126,000. Last year the
Company invested $6,796,000 in the acquisition and remediation of
Brownfield properties. For the first three quarters of 1998, the
Company's additional Brownfields investment was offset by income
received from Brownfields properties. A gain or loss from a Brownfields
property will be recognized upon sale of the property.
This year's capital expenditures were lower, $959,000 as compared to
$2,246,000 last year. Last year the Company invested more heavily in
field equipment to replace older units and to add new units to suit its
then-upcoming needs. This year the Company has continued to update its
fleet of field equipment as needed. The Company expects to continue to
purchase field equipment as its needs dictate.
As of September 30, 1998, the Company had working capital of $62,351,000
including cash, cash equivalents and marketable securities of
$51,541,000. The Company believes that existing funds and cash
generated by operations will suffice to meet all working capital and
capital investment needs for the foreseeable future.
During the nine month period, the Company repurchased 418,450 shares of
its Common Stock at a cost of $3,474,000 or an average of $8.30 per
share.
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 consideration of the
purchase of an entirely new, Year 2000 ready accounting software system.
The Company believes that it is on schedule to complete its Year 2000
initiatives before mid-year 1999 and does not expect that the cost of
compliance to exceed $200,000.
The Company does not believe its operations are significantly imperiled
by Year 2000 issues. Other than accounting functions, which are being
addressed, the principal operating functions of the Company are not
dependent on information systems and thus are not exposed to material
disruption by the failure of information systems to operate properly.
To the extent that information systems are used as tools in these
operating functions and their availability is reduced or lost due to
Year 2000 issues, the Company would revert to manual backup systems
without material adverse effect.
Certain statements and information included herein constitute "forward-
looking statements" within the meaning of the Federal Private Securities
Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement
will include words such as the Company "believes", "expects",
"anticipates", "hopes", or words of similar import. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or
implied in such forward-looking statements. You are urged to review the
Company's Annual Report on Form 10-K for the year ended December 31,
<PAGE>
1997, as well as all reports filed by the Company subsequent to the Form
10-K with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
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
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,
1998
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 6, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,402
<SECURITIES> 43,139
<RECEIVABLES> 22,496
<ALLOWANCES> (41)
<INVENTORY> 74
<CURRENT-ASSETS> 78,827
<PP&E> 29,902
<DEPRECIATION> 16,586
<TOTAL-ASSETS> 104,193
<CURRENT-LIABILITIES> 16,476
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 83,238
<TOTAL-LIABILITY-AND-EQUITY> 104,193
<SALES> 62,439
<TOTAL-REVENUES> 62,439
<CGS> 50,896
<TOTAL-COSTS> 50,896
<OTHER-EXPENSES> 7,030
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> 6,080
<INCOME-TAX> 2,072
<INCOME-CONTINUING> 4,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,008
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
