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 June 30, 1999 Commission File Number 0-17536
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
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:
2,101,379 shares of Common Stock and 7,434,850 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)
________________________________________________________________
June 30, December 31,
1999 1998
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,586 $ 10,851
Marketable securities 46,107 49,073
Accounts receivable 24,057 13,439
Costs and estimated earnings on
contracts in progress in excess
of related billings 3,296 2,514
Prepaid expenses and other current
assets 339 621
_______ _______
Total current assets 75,385 76,498
_______ _______
PROPERTY AND EQUIPMENT:
Land 307 307
Buildings and improvements 3,529 3,529
Construction and field equipment 22,435 18,700
Vehicles 5,911 5,786
Office furniture and equipment 1,890 1,723
_______ _______
34,072 30,045
Less accumulated depreciation 18,353 16,996
_______ _______
Total property and equipment, net 15,719 13,049
_______ _______
INVESTMENT IN BROWNFIELD REAL ESTATE 8,382 10,192
_______ _______
OTHER ASSETS 9,108 3,725
_______ _______
TOTAL ASSETS $108,594 $103,464
======= =======
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,
1999 1998
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $ 4,703 $ 5,514
Retentions 264 396
Note payable - current 597 662
Compensation, income taxes and other
current liabilities 3,527 2,134
Deferred income taxes 0 102
Amounts billed in excess of costs and
estimated earnings on contracts
in progress 7,734 5,584
_______ _______
Total current liabilities 16,825 14,392
_______ _______
DEFERRED INCOME TAXES 1,700 1,712
_______ _______
NOTES PAYABLE 2,263 2,245
_______ _______
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; Authorized
12,000,000 shares, issued 3,212,830 shares 33 33
Class B Common Stock, $.01 par value, Authorized
8,000,000 shares, issued 7,434,850 shares 74 74
Preferred Stock, $.10 par value; Authorized
1,000,000 shares, outstanding - none 0 0
Additional paid-in capital 25,420 25,420
Retained earnings 69,799 67,001
_______ _______
95,326 92,528
Treasury stock (1,111,451 shares common
stock at cost) (8,563) (8,487)
_______ _______
86,763 84,041
Accumulated other comprehensive income:
Unrealized gain on marketable securities,
net of tax 1,043 1,074
_______ _______
Total accumulated other comprehensive
income 1,043 1,074
_______ _______
Total stockholders' equity 87,806 85,115
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $108,594 $103,464
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE-MONTH PERIODS ENDED JUNE 30,1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
_________________________________________________________________
1999 1998
REVENUES $ 27,698 $ 28,910
COSTS AND EXPENSES:
Direct and indirect costs 21,763 23,534
Selling, general and administrative 2,769 2,371
_______ _______
24,532 25,905
_______ _______
EARNINGS FROM OPERATIONS 3,166 3,005
OTHER:
Interest income 551 475
Interest expense (31) (46)
Realized gain (loss) on sale of
marketable securities 115 (57)
_______ _______
635 372
_______ _______
EARNINGS BEFORE INCOME TAXES 3,801 3,377
INCOME TAX EXPENSE 1,181 1,242
_______ _______
NET EARNINGS $ 2,620 $ 2,135
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 9,537 10,113
======= =======
BASIC AND DILUTED EARNINGS PER SHARE $ 0.28 $ 0.21
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
SIX-MONTH PERIODS ENDED JUNE 30,1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
_________________________________________________________________
1999 1998
REVENUES $ 45,806 $ 42,179
COSTS AND EXPENSES:
Direct and indirect costs 36,232 35,540
Selling, general and administrative 5,412 4,761
_______ _______
41,644 40,301
_______ _______
EARNINGS FROM OPERATIONS 4,162 1,878
OTHER:
Interest income 1,123 961
Interest expense (85) (92)
Realized (loss) gain on sale of
marketable securities (147) 125
_______ _______
891 994
_______ _______
EARNINGS BEFORE INCOME TAXES 5,053 2,872
INCOME TAX EXPENSE 1,637 976
_______ _______
NET EARNINGS $ 3,416 $ 1,896
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 9,541 10,121
======= =======
BASIC AND DILUTED EARNINGS PER SHARE $ 0.36 $ 0.19
======= =======
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 30,1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS)
___________________________________________________________________________
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 36,564 $ 34,558
Cash payments to subcontractors, suppliers
and employees (40,605) (31,192)
Interest received 1,123 961
Interest paid (85) (92)
Taxes paid (674) (330)
Tax refunds received 15 0
______ ______
Net cash (used in) provided by operating activities (3,662) 3,905
______ ______
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased (19,630) (10,676)
Investments sold 17,114 9,505
Capital expenditures (4,083) (505)
Brownfield acquisition and remediation costs 1,808 81
Proceeds from sale of fixed assets 11 0
______ ______
Net cash used in investing activities (4,780) (1,595)
______ ______
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (46) 0
Acquisition of treasury stock (76) (631)
Dividends paid (702) (662)
______ ______
Net cash used in financing activities (824) (1,293)
______ ______
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,266) 1,017
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,852 4,522
______ ______
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,586 $ 5,539
======= =======
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 30,1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS)
__________________________________________________________________________
1999 1998
RECONCILIATION OF NET EARNINGS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 3,416 $ 1,896
Adjustments to reconcile:
Depreciation and amortization 1,402 1,276
Increase in cash surrender value of life
insurance (120) (100)
Provision for deferred income taxes 82 225
(Loss) gain on sale of marketable securities 147 (125)
Loss on sale of fixed assets 8 0
Change in assets and liabilities affecting cash flow:
Accounts receivable (10,618) (9,655)
Material and supply inventories 1 3
Costs and estimated earnings on contracts in
progress in excess of related billings (782) (588)
Prepaid expenses and other current assets 273 216
Other assets 12 (16)
Accounts payable (949) 7,940
Compensation, income taxes and other current
liabilities 1,316 211
Amounts billed in excess of costs and estimated
earnings on contracts in progress 2,150 2,622
______ ______
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $(3,662) $ 3,905
====== ======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
_________________________________________________________________
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, 1998.
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
_____________________
Second quarter revenues were $27,698,000, down 4% from last
year's second quarter when revenues were $28,910,000. Last
year's second quarter revenues were higher due to one larger
($8.9 million) project which was started and completed during
that quarter. The absence of a single similar project during
this year's second quarter was largely made up for by revenues
from a number of projects acquired during this year's first
quarter including a $23 million project for the New York State
Department of Environmental Conservation at Plattsburgh, New
York.
At the end of the quarter the Company had a backlog of $115
million compared to $64 million at the same time a year earlier.
Backlog was higher due to the receipt of $70 million in new
contracts (or additions to existing contracts) since the
beginning of the year including the above mentioned Plattsburgh
project. The comparable figure for last year was $45 million.
The increase was due entirely to an increase in government
(federal and state) work.
Gross margin (revenues less direct and indirect costs) for the
quarter was 21.4% of revenue as compared to 18.6% for the second
quarter last year. Gross margin varies widely from quarter to
quarter dependent upon numerous factors including seasonal
effects and the nature, size and mix of projects underway during
a given quarter. The Company considers quarterly gross margin in
the range of 17% to 27% to be normal. Gross margin in last
year's second quarter was in the lower end of that range due
principally to one project which, because of its low degree of
difficulty, was bid at a lower margin.
Earnings from operations were $3,166,000, 5% higher than last
year's earnings from operations of $3,005,000. This increase was
lower than it otherwise would have been because higher contract
earnings were substantially offset by higher selling, general and
administrative (SG&A) expenses. SG&A expense increased $398,000,
or 17% to $2,769,000 from $2,371,000 last year. Higher business
development and employee benefit expenses accounted for most of
this increase.
Interest income was $551,000 compared to $475,000 last year.
Interest income was higher due to higher balances invested in
interest bearing securities.
The effective tax rate was 31.1% compared to 36.8% last year.
The lower rate was due to a combination of higher non-taxable
income and the tax benefit resulting from the increase in capital
expenditures during the quarter.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
For the six month period, the Company used net cash of $3,662,000
in operating activities compared to $3,905,000 of net cash
provided by operating activities in the same period last year.
Higher cash receipts from customers ($36,564,000 versus
$34,558,000 last year) were offset by higher cash payments to
subcontractors, suppliers and employees ($40,605,000 versus
$31,192,000 last year). Payments were higher due in part to
increased operating activity. Also, to expedite the Company's
switch to a new accounting software package as of July 1st, the
Company advanced to June the booking of payments which otherwise
would have been booked in July.
Net cash used in investing activities was $4,780,000 compared to
$1,595,000 last year. The increase was due principally to an
increase in capital expenditures ($4,083,000 versus $505,000 last
year). The Company purchased equipment to service its current
operating needs and to replace older items of equipment. Much of
the equipment purchased was for the Company's water treatment and
sediments handling operations which continue to be an important
and growing part of the Company's business. During the second
quarter the Company also received cash from the sale of a parcel
of property acquired as part of the acquisition of a Brownfields
site. No gain or loss was recognized on the sale as the parcel
was sold at a price approximately equal to the Company's cost.
On March 10 and June 15, 1999, the Company paid a regular
quarterly dividend of 3.5 cents per share of Common Stock and
3.18 cents per share of Class B Common Stock. Total dividends
paid were $0.7 million.
The Board of Directors has authorized the repurchase of up to
1,200,000 shares of which 1,111,451 had been repurchased through
June 30, 1999. During the first six months of the year, the
Company repurchased 9,400 shares.
On June 30, 1999, the Company had working capital of $58.6
million versus $65.5 million a year earlier. Working capital
included $47.7 million in cash, cash equivalents and marketable
securities. The Company expects that existing funds and cash
generated by operations will be sufficient to meet all working
capital and capital investment needs for the foreseeable future.
BROWNFIELD INVESTMENTS
_______________________
In 1995 the Board of Directors authorized the Company to pursue
the business strategy of acquiring, cleaning-up and disposing of
"Brownfield" sites, real property that is unmarketable or of
substantially reduced value due to the presence of contamination.
In 1996 the Company acquired interests in, and commenced the
cleanup process at, two Brownfield sites. In 1997 the cleanup
and sale of one of those sites were completed and the Company
acquired interests in one additional site. Since 1997, no new
sites have been purchased. In 1998, the Company purchased the
<PAGE>
interest of another party in one of the sites. During the second
quarter of 1999, the Company sold a parcel of non-Brownfield
property which had been acquired as part of the acquisition of a
Brownfield site; the Company retained the Brownfield site itself.
The Company continues to invest in the cleanup of one of the two
Brownfield sites it retains. As of June 30, 1999, the Company's
investment in Brownfield sites was $8.4 million. The Company
will invest further funds in the cleanup of one of the remaining
sites and intends to make further investments in the Brownfield
redevelopment business. The Company's ultimate total investment
in this business will depend upon the Company's success in
finding and acquiring suitable Brownfield sites.
YEAR 2000
_________
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 readiness. Principal
among the actions which have been taken is the purchase and
installation of an entirely new, Year 2000 ready accounting
software system. The Company believes that it is on schedule to
complete its Year 2000 initiatives and does not expect the cost
of these initiatives 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 a material
adverse effect on its day to day operation.
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, 1998, 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.
<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 18, 1999 the nominees of the Board of Directors were
reelected based upon the following results:
CLASS A
Nominees For Withheld
Joseph J. Castiglia 1,905,804 1,802
Robert S. Kelso 1,905,804 1,802
CLASS B
Nominees For Withheld
Michael A. Elia 7,434,850 0
Laurence A. Elia 7,434,850 0
Richard A. Elia 7,434,850 0
William J. McDermott 7,434,850 0
Dena M. Armstrong 7,434,850 0
Arthur A. Elia 7,434,850 0
The appointment by the Board of Directors of Deloitte &
Touche LLP as independent accountants for the fiscal year ending
December 31, 1999 was ratified based upon the following vote.
For, 76,252,264; Against, 2,162; Abstain, 1,680.
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, 1999
<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 13, 1999
/s/ William J. McDermott
_____________________________________
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,586
<SECURITIES> 46,107
<RECEIVABLES> 24,057
<ALLOWANCES> 41
<INVENTORY> 71
<CURRENT-ASSETS> 75,385
<PP&E> 34,072
<DEPRECIATION> 18,353
<TOTAL-ASSETS> 108,594
<CURRENT-LIABILITIES> 16,825
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 87,699
<TOTAL-LIABILITY-AND-EQUITY> 108,594
<SALES> 27,698
<TOTAL-REVENUES> 27,698
<CGS> 21,763
<TOTAL-COSTS> 21,763
<OTHER-EXPENSES> 2,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 3,801
<INCOME-TAX> 1,181
<INCOME-CONTINUING> 2,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,620
<EPS-BASIC> .28
<EPS-DILUTED> .28
</TABLE>
