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
September 30, 1999 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
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: 2,101,379 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)
________________________________________________________________
September 30, December 31,
1999 1998
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,392 $ 10,851
Marketable securities 42,409 49,073
Accounts receivable 45,364 13,439
Costs and estimated earnings on
contracts in progress in excess
of related billings 2,090 2,514
Prepaid expenses and other current
assets 623 621
_______ _______
Total current assets 91,878 76,498
_______ _______
PROPERTY AND EQUIPMENT:
Land 323 307
Buildings and improvements 3,532 3,529
Construction and field equipment 23,332 18,700
Vehicles 6,041 5,786
Office furniture and equipment 1,890 1,723
_______ _______
35,118 30,045
Less accumulated depreciation 18,962 16,996
_______ _______
Total property and equipment, net 16,156 13,049
_______ _______
INVESTMENT IN BROWNFIELD REAL ESTATE 8,382 10,192
OTHER ASSETS 9,168 3,725
_______ _______
TOTAL ASSETS $125,584 $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)
__________________________________________________________________________
September 30, December 31,
1999 1998
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Current $ 13,803 $ 5,514
Retentions 506 396
Note payable - current 1,053 662
Compensation, income taxes and other
current liabilities 5,403 2,134
Deferred income taxes 0 102
Amounts billed in excess of costs and
estimated earnings on contracts
in progress 10,843 5,584
_______ _______
Total current liabilities 31,608 14,392
_______ _______
DEFERRED INCOME TAXES 1,484 1,712
_______ _______
NOTES PAYABLE 2,408 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 7,438,850 shares 74 74
Preferred Stock, $.01 par value; Authorized
1,000,000 shares, outstanding - none 0 0
Additional paid-in capital 25,420 25,420
Retained earnings 72,681 67,001
_______ _______
98,208 92,528
Treasury stock (1,111,451 shares common
stock, at cost) (8,563) (8,487)
_______ _______
89,645 84,041
Accumulated other comprehensive income:
Unrealized gain on marketable securities,
net of tax 439 1,074
_______ _______
Total accumulated other comprehensive
income 439 1,074
_______ _______
Total stockholders' equity 90,084 85,115
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $125,584 $103,464
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
NINE-MONTH PERIODS ENDED SEPTEMBER 30,1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
_________________________________________________________________
1999 1998
REVENUES $ 88,549 $ 62,439
COSTS AND EXPENSES:
Direct and indirect costs 71,835 50,896
Selling, general and administrative 8,000 7,030
_______ _______
79,835 57,926
_______ _______
EARNINGS FROM OPERATIONS 8,714 4,513
OTHER:
Interest income 1,647 1,502
Interest expense (139) (157)
Realized gain on sale of
marketable securities 55 222
_______ _______
1,563 1,567
_______ _______
EARNINGS BEFORE INCOME TAXES 10,277 6,080
INCOME TAX EXPENSE 3,668 2,072
_______ _______
NET EARNINGS $ 6,609 $ 4,008
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 9,547 10,060
======= =======
BASIC AND DILUTED EARNINGS PER SHARE $ 0.69 $ 0.40
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE-MONTH PERIODS ENDED SEPTEMBER 30,1999 AND 1998 -
(UNAUDITED) (IN THOUSANDS, EXCEPT PER-SHARE DATA)
_________________________________________________________________
1999 1998
REVENUES $ 42,743 $ 20,260
COSTS AND EXPENSES:
Direct and indirect costs 35,603 15,356
Selling, general and administrative 2,588 2,269
_______ _______
38,191 17,625
_______ _______
EARNINGS FROM OPERATIONS 4,552 2,635
OTHER:
Interest income 524 541
Interest expense (54) (65)
Realized gain on sale of
marketable securities 202 97
_______ _______
672 573
_______ _______
EARNINGS BEFORE INCOME TAXES 5,224 3,208
INCOME TAX EXPENSE 2,031 1,096
_______ _______
NET EARNINGS $ 3,193 $ 2,112
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 9,536 9,941
======= =======
BASIC AND DILUTED EARNINGS PER SHARE $ 0.33 $ 0.21
======= =======
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, 1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS)
___________________________________________________________________________
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash receipts from customers $ 62,315 $ 59,551
Cash payments to subcontractors, suppliers
and employees (68,262) (54,975)
Interest received 1,647 1,502
Interest paid (139) (157)
Taxes paid (1,624) (509)
Tax refunds received 15 0
______ ______
Net cash (used in) provided by operating activities (6,048) 5,412
______ ______
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased (25,135) (13,194)
Investments sold 25,657 16,575
Capital expenditures (5,311) (959)
Brownfield acquisition and remediation costs,
net of interest 1,810 126
Acquisition of business 0 (368)
Proceeds from sale of property and equipment 19 69
______ ______
Net cash (used in) provided by investing activities (2,960) 2,249
______ ______
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (272) 0
Debt proceeds 826 685
Acquisition of treasury stock (76) (3,474)
Dividends paid (930) (992)
______ ______
Net cash used in financing activities (452) (3,781)
______ ______
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,460) 3,880
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,852 4,522
______ ______
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,392 $ 8,402
======= =======
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, 1999 AND 1998 - (UNAUDITED)
(IN THOUSANDS)
__________________________________________________________________________
1999 1998
RECONCILIATION OF NET EARNINGS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 6,609 $ 4,008
Adjustments to reconcile:
Depreciation and amortization 2,185 1,905
Increase in cash surrender value of life
insurance (180) (150)
Gain on sale of marketable securities (55) (222)
Provision for deferred income taxes (43) 304
Loss on sale of property and equipment 8 40
Change in assets and liabilities affecting cash flows:
Accounts receivable (31,925) (5,964)
Material and supply inventories (22) 6
Costs and estimated earnings on contracts in
progress in excess of related billings 424 645
Prepaid expenses and other current assets 11 94
Other assets 12 (437)
Accounts payable 8,393 1,905
Compensation, income taxes and other current
liabilities 3,276 887
Amounts billed in excess of costs and estimated
earnings on contracts in progress 5,259 2,391
______ ______
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $(6,048) $ 5,412
====== ======
See notes to condensed consolidated financial statements.
<PAGE>
SEVENSON ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 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
Third quarter revenues were a record $42,743,000, up 111% over
last year's third quarter revenues of $20,260,000. Revenues were
higher due to higher backlog at the beginning of the quarter,
$115 million compared to $64 million at the same point a year
earlier. A significant contributor to both the increase in
revenues and backlog was a $23 million project at Plattsburgh,
New York which the Company received earlier in the year.
At the end of the quarter, the Company had backlog of $109
million, which was a record for that date, compared to $98
million at the same point a year earlier. During the quarter the
Company received $37 million in new contracts (or additions to
existing contracts), compared to $55 in the third quarter last
year. Since the beginning of the year the Company has received
$107 million in new contracts (or additions to existing
contracts) compared to $100 million in the same period last year.
The third quarter was the fifth consecutive quarter to end with
record backlog. Record backlog in the earlier quarters was due
largely or entirely to increases in government (federal, state
and local) funded work. However, in the most recent quarter
approximately 80% of the new contracts were from private sector
customers.
Third quarter gross margin (revenues less direct and indirect
costs) was 16.7% of revenues as compared to 24.2% for the third
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 the third
quarter was slightly below this range due to a reserve taken on a
project which earlier had been carried at a profit but is now
expected to be a loss and due to an increase in another reserve
for a dispute. Without these two items, reported gross margin
would have been 18.5%.
Selling, general and administrative expenses were higher at
$2,588,000 compared to last year's $2,269,000. SG&A expenses
were higher this year due to higher business development and
travel expenses and to expenses associated with the Company's
conversion to a new accounting software system.
Interest income was slightly lower at $524,000 compared to
$541,000 in the second quarter last year. Interest income was
lower due to lower invested balances and interest rates.
The effective tax rate was 38.9% compared to 34.2%. The tax rate
was higher due to lower non-taxable income as a percentage of
book income versus last year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period, the Company used net cash of
$6,048,000 in operating activities compared to $5,412,000 of net
cash provided by operating activities in the same period last
year. Higher cash receipts from customers ($62,315,000 versus
$59,551,000 last year) were offset by higher cash payments to
subcontractors, suppliers and employees ($68,262,000 versus
$54,975,000 last year). The timing of project activities and
payment terms caused cash receipts to slow relative to revenue
recognition. Payments to subcontractors, etc., were higher due
to increased operating activity.
Net cash used in investing activities was $2,960,000 compared to
$2,249,000 provided by investing activities last year. The
increase in cash used was due principally to an increase in
capital expenditures ($5,311,000 versus $959,000 last year). The
Company purchased equipment to service its current operating
needs and to replace older items of equipment The Company
continued to invest in equipment to service 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 received cash from the sale of a
parcel of property acquired as part of the acquisition of a
Brownfield 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, June 15 and September 9, 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 $0.9 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
September 30, 1999. During the first nine months of the year,
the Company repurchased 9,400 shares.
On September 30, 1999, the Company had working capital of $60.3
million versus $62.1 million a year earlier. Working capital
included $43.8 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
interest of another party in one of the sites. During the second
<PAGE>
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 September 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 all its Year 2000 initiatives and does not expect the
cost of these initiatives to exceed $200,000. Through the end of
the third quarter the Company had spent approximately $170,000.
The Company does not believe its operations are significantly
imperiled by Year 2000 issues. Other than accounting functions,
which have been 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 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
___________________________________________________
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, 1999.
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 1, 1999
/s/ William J. McDermott
_______________________________________
William J. McDermott
Vice President, Secretary and
Chief Financial Officer
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,392
<SECURITIES> 42,409
<RECEIVABLES> 45,364
<ALLOWANCES> (41)
<INVENTORY> 94
<CURRENT-ASSETS> 91,878
<PP&E> 35,118
<DEPRECIATION> 18,962
<TOTAL-ASSETS> 125,584
<CURRENT-LIABILITIES> 31,608
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 89,977
<TOTAL-LIABILITY-AND-EQUITY> 125,584
<SALES> 88,549
<TOTAL-REVENUES> 88,549
<CGS> 71,835
<TOTAL-COSTS> 71,835
<OTHER-EXPENSES> 8,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139
<INCOME-PRETAX> 10,277
<INCOME-TAX> 3,668
<INCOME-CONTINUING> 6,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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