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 March 31, 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:
2,110,779 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)
___________________________________________________________________
March 31, December 31,
1999 1998
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,165 $ 10,851
Marketable securities 43,276 49,073
Accounts receivable 16,483 13,439
Costs and estimated earnings on
contracts in progress in excess of
related billings 3,764 2,514
Prepaid expenses and other current
assets 558 621
___________ ___________
Total current assets 78,246 76,498
___________ ___________
PROPERTY AND EQUIPMENT:
Land 307 307
Buildings and improvements 3,530 3,529
Construction and field equipment 19,144 18,700
Vehicles 5,850 5,786
Office furniture and equipment 1,730 1,723
___________ ___________
30,561 30,045
Less accumulated depreciation 17,603 16,996
___________ ___________
Total property and equipment, net 12,958 13,049
___________ ___________
INVESTMENT IN BROWNFIELD REAL ESTATE 10,343 10,192
___________ ___________
OTHER ASSETS 4,040 3,725
___________ ___________
TOTAL ASSETS $ 105,587 $ 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)
___________________________________________________________________
March 31, December 31,
1999 1998
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $ 7,072 $ 5,514
Retentions 159 396
Note payable - current 632 662
Compensation, income taxes and other
current liabilities 2,388 2,134
Deferred income taxes 0 102
Amounts billed in excess of costs
and estimated earnings on contracts
in progress 5,291 5,584
___________ ___________
Total current liabilities 15,542 14,392
___________ ___________
DEFERRED INCOME TAXES 2,021 1,712
___________ ___________
NOTES PAYABLE 2,245 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 67,489 67,001
___________ ___________
93,016 92,528
Treasury stock (1,102,051 shares
common stock at cost) (8,487) (8,487)
___________ ___________
84,529 84,041
Accumulated other comprehensive income:
Unrealized gain on marketable
securities, net of tax 1,250 1,074
___________ ___________
<PAGE>
Total accumulated other
comprehensive income 1,250 1,074
___________ ___________
Total stockholders' equity 85,779 85,115
___________ ___________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 105,587 $ 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 MARCH 31, 1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
___________________________________________________________________
1999 1998
REVENUES $ 18,108 $ 13,269
COSTS AND EXPENSES:
Direct and indirect costs 14,469 12,006
Selling, general and administrative 2,643 2,390
_________ _________
17,112 14,396
_________ _________
EARNINGS (LOSS) FROM OPERATIONS 996 (1,127)
OTHER:
Interest income 572 486
Interest expense (54) (46)
Realized (loss) gain on sale of
marketable securities (262) 182
_________ _________
256 622
_________ _________
EARNINGS (LOSS) BEFORE INCOME TAXES 1,252 (505)
INCOME TAX EXPENSE (BENEFIT) 456 (266)
_________ _________
NET EARNINGS (LOSS) $ 796 $ (239)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 9,546 10,647
========= =========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE $ 0.08 $ (0.02)
========= =========
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 13,537 $ 14,714
Cash payments to subcontractors,
suppliers and employees (15,263) (14,353)
Interest received 572 486
Interest paid (54) (46)
Taxes paid (148) (235)
Tax refunds received 15 0
_________ _________
Net cash (used in) provided by
operating activities (1,341) 566
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased (556) (2,600)
Investments sold 6,255 2,365
Capital expenditures (566) (265)
Acquisition and remediation costs (151) (53)
Proceeds from sale of fixed assets 11 0
_________ _________
Net cash provided by (used in)
investing activities 4,993 (553)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (30) 0
Acquisition of treasury stock 0 (17)
Dividends paid (309) (333)
_________ _________
Net cash used in financing
activities (339) (350)
_________ _________
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,313 (337)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 10,852 4,522
_________ _________
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 14,165 $ 4,185
========= =========
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
___________________________________________________________________
1999 1998
RECONCILIATION OF NET EARNINGS TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net earnings $ 796 $ (239)
Adjustments to reconcile net
earnings to net cash (used by)
provided by operating activities:
Depreciation and amortization 647 637
Increase in cash surrender value
of life insurance (60) (50)
Provision for deferred income taxes 20 (224)
(Loss) gain on sale of marketable
securities 262 (182)
Loss on sale of fixed assets 16 0
Change in assets and liabilities
affecting cash flow:
Accounts receivable (3,044) (1,536)
Material and supply inventories 1 0
Costs and estimated earnings on
contracts in progress in excess
of related billings (1,250) 1,632
Prepaid expenses and other
current assets 45 71
Other assets (57) (17)
Accounts payable 1,316 (123)
Compensation, income taxes and
other current liabilities 260 (752)
Amounts billed in excess of costs
and estimated earnings on
contracts in progress (293) 1,349
________ _________
NET CASH (USED BY) PROVIDED BY
OPERATING ACTIVITIES $ (1,341) $ 566
======== =========
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 first quarter were $18,108,000, 36% higher than
last year's first quarter revenues of $13,269,000. The increase
was due to higher backlog at the beginning of the quarter, $91.1
million, as compared to the backlog at the beginning of the first
quarter last year, $60.1 million. Backlog was higher due largely
to the receipt of two EPA Region II contracts with a combined value
of $26.9 million late in the third quarter of last year.
Gross margin (revenues less direct and indirect costs) was 20.1% of
revenues as compared to 9.5% in the first quarter last year. The
Company considers gross margin of 20.1% to be within the normal
range for its operations of 17% to 27%. Gross margin in last
year's first quarter was below the normal range due to adverse
competitive conditions preceding and during that quarter and to
lower than expected margins on several projects.
Earnings from operations were $996,000 compared to a loss of
$1,127,000 in last year's first quarter. Higher revenues and
margins, offset in part by higher selling, general and
administrative (SG&A) expense, were responsible for the increase.
SG&A expense was $2,643,000, up 11% from $2,390,000 in last year's
first quarter. Higher business development, marketing and
estimating expenses were responsible for the increase.
Interest income for the quarter was $572,000 versus $486,000 last
year. Higher invested balances, offset in part by lower interest
rates on overnight investments, caused the increase.
The effective tax rate was 36.4% compared to the tax benefit
recognized last year due to the loss incurred during last year's
first quarter.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,341,000 compared to
net cash provided by operating activities of $566,000 last year.
Lower accounts receivable at the beginning of the quarter versus
last year ($13,439,000 versus $16,532,000) resulted in lower cash
receipts during the quarter ($13,537,000 versus $14,714,000).
Also, payments to subcontractors, suppliers and employees were
higher ($15,263,000 versus $14,353,000) reflecting the company's
greater activity in the quarter compared to the first quarter last
year.
Net cash provided by investing activities was $4,993,000 compared
to $553,000 used in investing activities last year. The difference
was due principally to differences in the timing of the sale and
purchase of investments. Capital expenditures were higher at
$566,000 compared to $265,000 last year. The increase reflects
greater current and anticipated operational activity.
<PAGE>
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 on March 10, 1999. Total dividends paid were $0.3 million.
The Board of Directors has authorized the repurchase of up to
1,200,000 shares of which 1,102,051 had been repurchased through
March 31, 1999. During the first quarter no shares were
repurchased.
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 nor have any sites been sold. However, the Company
has continued to invest in the cleanup of the two remaining sites
and in 1998 purchased the interest of another party in one of the
sites. At the end of the quarter, the Company's investment in
Brownfield sites was $10.3 million. The Company will invest
further funds in the cleanup of one of the remaining sites (cleanup
at the other site is substantially complete) 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.
On March 31, 1999, the Company had working capital of $62.7 million
versus $63.5 million a year earlier. Working capital included
$57.4 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.
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 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 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
<PAGE>
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.
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 March 31, 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: May 10, 1999
/s/ William J. McDermott
_____________________________________
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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<RECEIVABLES> 16,483
<ALLOWANCES> 41
<INVENTORY> 71
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<PP&E> 30,561
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0
0
<COMMON> 107
<OTHER-SE> 85,672
<TOTAL-LIABILITY-AND-EQUITY> 105,587
<SALES> 18,108
<TOTAL-REVENUES> 18,108
<CGS> 14,469
<TOTAL-COSTS> 14,469
<OTHER-EXPENSES> 2,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 1,252
<INCOME-TAX> 456
<INCOME-CONTINUING> 796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 796
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
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