<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
(mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file no.
0-017888
SERV-TECH, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1398757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 CEDAR CREST BOULEVARD
HOUSTON, TEXAS 77087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 644-9974
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 ________
The number of shares of Common Stock issued and outstanding, par value
$0.50 per share, as of August 8, 1995 was 6,732,278.
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SERV-TECH, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 1995 (Unaudited) and December 31, 1994........................ 3
Consolidated Statement of Income (Unaudited)
For the Three Months and Six Months Ended
June 30, 1995 and 1994................................................. 4
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended June 30, 1995 and 1994........................ 5
Notes to Consolidated Financial Statements (Unaudited)................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............. 13
Item 6. Exhibits and Reports on Form 8-K................................ 13
PART III. SIGNATURES......................................................... 14
</TABLE>
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SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 9,512,829 $ 1,851,431
Accounts receivable, net........................................... 48,647,265 37,887,180
Costs and estimated earnings in excess of billings on
uncompleted contracts............................................ 5,617,233 3,172,181
Inventory.......................................................... 2,499,978 1,324,568
Prepaid expenses................................................... 1,104,266 1,636,979
Deferred income taxes.............................................. 4,249,270 3,580,581
------------ -----------
Total current assets......................................... 71,630,841 49,452,920
PROPERTY, PLANT AND EQUIPMENT, NET.................................... 30,324,165 30,594,051
INVESTMENTS IN AND ADVANCES TO AFFILIATES............................. 255,965 966,277
INTANGIBLE ASSETS, NET................................................ 17,388,962 15,943,203
OTHER ASSETS.......................................................... 2,138,891 1,358,807
------------ -----------
Total assets................................................. $121,738,824 $98,315,258
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 16,766,744 $11,578,853
Accrued liabilities................................................ 16,999,265 13,500,090
Billings in excess of costs and estimated earnings on
uncompleted contracts........................................... 6,833,287 1,407,013
Revolving line of credit........................................... 5,500,000 --
Other.............................................................. 284,450 728,865
------------ -----------
Total current liabilities.................................... 46,383,746 27,214,821
LONG-TERM DEBT, LESS CURRENT MATURITIES............................... 15,468,458 15,025,140
DEFERRED INCOME TAXES................................................. 4,765,701 4,649,227
MINORITY INTEREST AND OTHER........................................... 630,402 862,429
CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value; 2,000,000 shares
authorized; no shares issued and outstanding..................... -- --
Common stock, par value $.50, authorized 20,000,000
shares; issued and outstanding shares of 6,712,278
and 6,504,778, respectively...................................... 3,356,139 3,252,390
Additional paid-in capital......................................... 43,334,958 41,828,709
Retained earnings.................................................. 7,798,078 5,614,467
Cumulative translation adjustment.................................. 1,342 (131,925)
------------ -----------
Total stockholders' equity................................... 54,490,517 50,563,641
------------ -----------
Total liabilities and stockholders' equity................... $121,738,824 $98,315,258
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES............................................ $65,747,796 $32,210,355 $137,298,168 $89,262,927
COSTS OF SERVICES................................... 54,431,826 24,600,296 113,433,639 73,124,497
----------- ----------- ------------ -----------
Gross profit................................... 11,315,970 7,610,059 23,864,529 16,138,430
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES......................................... 9,569,994 6,321,722 18,744,711 11,938,935
----------- ----------- ------------ -----------
Operating income............................... 1,745,976 1,288,337 5,119,818 4,199,495
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense............................... (504,073) (324,854) (916,635) (686,544)
Interest income................................ 15,847 124,822 43,531 359,844
Other, net..................................... 44,025 (22,331) 103,102 (26,310)
----------- ----------- ------------ -----------
(444,201) (222,363) (770,002) (353,010)
----------- ----------- ------------ -----------
MINORITY INTEREST AND OTHER......................... (247,487) (100,701) (560,875) (242,543)
EQUITY IN LOSSES OF AFFILIATES...................... - (86,535) (24,331) (77,996)
----------- ----------- ------------ -----------
INCOME BEFORE INCOME TAXES.......................... 1,054,288 878,738 3,764,610 3,525,946
PROVISION FOR INCOME TAXES.......................... 388,000 378,000 1,581,000 1,516,000
----------- ----------- ------------ -----------
NET INCOME.......................................... $ 666,288 $ 500,738 $ 2,183,610 $ 2,009,946
=========== =========== ============ ===========
Earnings per share............................. $ 0.10 $ .08 $ .32 $ .33
=========== =========== ============ ===========
Weighted average common shares
outstanding.................................... 6,734,343 6,050,682 6,726,574 6,034,127
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 2,183,610 $ 2,009,946
Adjustments:
Depreciation and amortization.................................. 3,381,400 2,608,772
Provision for losses on accounts and notes receivable.......... 435,556 226,746
Deferred income taxes.......................................... (452,722) (44,000)
Equity in losses of affiliates................................. 24,331 77,996
Minority interest and other.................................... 560,875 242,543
Other.......................................................... (20,582) 90,254
------------ -----------
6,112,468 5,212,257
Change in assets and liabilities, net of effect from acquisi-
tions of businesses:
Accounts receivable.......................................... (10,939,027) (983,134)
Net change in costs, estimated earnings and billings on
uncompleted contracts...................................... 2,981,222 3,034,218
Inventory.................................................... (758,065) --
Prepaid expenses and other current assets.................... 546,527 (20,133)
Other assets................................................. (776,696) (154,663)
Accounts payable............................................. 4,919,529 (5,284,985)
Accrued liabilities.......................................... 3,416,942 (115,390)
------------ -----------
Net cash provided by operating activities.................. 5,502,900 1,688,170
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (2,013,586) (2,508,350)
Investments in and advances to affiliates........................ (290,263) (1,553,190)
Acquisition of businesses, net of cash acquired.................. (625,514) (1,641,866)
Intangible assets................................................ (201,595) (22,455)
Proceeds from disposition of property, plant and
equipment ..................................................... 140,000 --
------------ -----------
Net cash used in investing activities...................... (2,990,958) (5,725,861)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt................................... 13,000,000 --
Principal payments of debt....................................... (7,918,110) (3,530,783)
Proceeds from issuance common stock.............................. 66,187 --
Proceeds of dividends on preferred stock of a subsidiary......... -- (40,000)
------------ -----------
Net cash provided by (used in) financing activities........ 5,148,077 (3,570,783)
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS................................................. 1,379 --
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ 7,661,398 (7,608,474)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 1,851,431 15,144,922
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $ 9,512,829 $ 7,536,448
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of
Serv-Tech, Inc., and its majority-owned subsidiaries ("Company"). The unaudited
consolidated financial statements have been prepared consistent with the
accounting policies reflected in the consolidated financial statements included
in the Company's Form 10-K filed with the Securities and Exchange Commission
for the year ended December 31, 1994, and should be read in conjunction
therewith.
In management's opinion, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the Company's consolidated
financial position at June 30, 1995, and the consolidated results of its
operations and cash flows for the three and six months ended June 30, 1995 and
1994. Interim results are not necessarily indicative of results for a full
year.
2. FINCHAA SUGAR MILL PROJECT
During the first quarter of 1995, F. C. Schaffer & Associates
("Schaffer"), a subsidiary of the Company, secured an $83 million contract to
engineer, design, procure and construct a 4,000 metric ton cane-per-day sugar
refinery and 45,000 liter-per-day ethanol plant in Finchaa, Ethiopia. The
project, which is financed by the African Development Bank, is expected to be
completed in the latter part of 1997 followed by a twelve month training and
warranty period. In conjunction with the effectiveness of the contract, the
Company received an advance payment equal to 20% of the contract value. Cash
and cash equivalents at June 30, 1995, consisted primarily of unused proceeds
from the advanced payment. Such cash balances are available to fund the
Finchaa project only and cannot be used for working capital requirements
outside of the project. The Company has issued letters of credit to support
performance and the 20% advance payment. Such letters of credit total
approximately $24.7 million. Contractual payment amounts to Schaffer are
supported by a revolving letter of credit issued by the Ethiopian government
via the African Development Bank.
In accordance with the terms of the Schaffer acquisition agreement,
former shareholders of that company participate in the earnings of the Finchaa
project. This deferred purchase price is estimated to be in the range of 30-
35% of the project profits and is recorded, as earned, over the life of the
project. The amounts accrued under the arrangement totaled $191,596 at June
30, 1995, and are reflected in the income statement as minority interest and
other.
As of June 30, 1995, the Finchaa project was approximately 13%
complete. Revenues from the Finchaa project for the three and six months ended
June 30, 1995, were $6.8 million and $10.7 million, respectively. Gross profit
recognized from the project for both the three and six months ended June 30,
1995 was $0.6 million.
3. ACQUISITION
Effective May 18, 1995, the Company acquired an additional 20% of the
outstanding common stock of its specialty welding subsidiary, ST Piping,
Inc., from the
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minority shareholders of that company. Consideration for the purchase
consisted of $600,000 cash and 180,000 shares of Company common stock with a
fair market value of approximately $1.4 million (total consideration of $2.0
million). ST Piping, Inc. was formed in January 1991, between the Company (70%
owner) and the Management Group of that company. This transaction now brings
the Company ownership to 90%. This acquisition has been accounted for using
the purchase method of accounting; accordingly, the assets and liabilities have
been recorded at their estimated fair values at the date of acquisition. The
purchase price and expenses associated with the acquisition exceeded the fair
value of net assets by approximately $1.2 million and is included in intangible
assets. The Company's consolidated financial statements have included the
results of operations of ST Piping, Inc. since January 1, 1991.
4. DEBT
In May 1995 the Company increased its revolving credit facility from
$20.0 million to $35.0 million by entering into a Revolving Credit Agreement
with two banks ("Revolving Note"). The Revolving Note is not collateralized
and expires May 1997. Interest is payable monthly, at rates not exceeding the
bank's prime rate. The Company pays a commitment fee of .25% on the unused
portion. The Revolving Note contains certain covenants which require, among
other things, that the Company maintain (1) minimum consolidated tangible net
worth, (2) minimum consolidated net worth, (3) funded debt coverage ratio, and
(4) fixed charge coverage ratio. In addition, the Revolving Note provides
certain restrictions on the payment of dividends. At June 30, 1995, working
capital borrowings of $5.5 million were outstanding under the Revolving Note.
5. BUSINESS SEGMENTS
Summarized financial information by business segment is set forth
below (dollars in thousands):
Three months ended June 30,
<TABLE>
<CAPTION>
Corporate
1995 Services EPC SECO & Other Consolidated
---- -------- --- ---- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 31,738 $ 19,413 $ 12,274 $ 2,323 $65,748
Operating income 907 1,488 795 (1,444) 1,746
1994
----
Revenues $ 18,534 $ 1,995 $ 11,382 $ 299 $32,210
Operating income 1,290 163 644 (809) 1,288
Six months ended June 30,
Corporate
1995 Services EPC SECO & Other Consolidated
---- -------- --- ---- -------- ------------
Revenues $ 78,898 $ 30,639 $ 23,079 $ 4,682 $137,298
Operating income 4,378 2,441 1,158 (2,857) 5,120
1994
----
Revenues $ 62,142 $ 3,727 $ 22,933 $ 461 $89,263
Operating income 5,107 255 1,232 (2,395) 4,199
</TABLE>
-7-
<PAGE> 8
6. CONTINGENCIES
The Company is involved in various claims and disputes incidental to
its business. The Company believes that the disposition of all such claims and
disputes, individually or in the aggregate, should not have a material adverse
effect upon the Company's financial position, results of operations or cash
flows.
At June 30, 1995, the Company had irrevocable letters of credit
outstanding of approximately $29.7 million. The letters of credit were issued
primarily to guarantee certain of the Company's insurance programs and to
support job performance on the Finchaa Sugar Mill Project (see Note 2).
7. SUPPLEMENTAL CASH FLOW INFORMATION
Components of cash used for acquisitions as reflected in the
consolidated statements of cash flows for the six months ended June 30, 1995
and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Fair value of current assets, net of
cash acquired....................................................... $ 623,917 $ 8,355,560
Fair value of noncurrent assets, excluding
intangibles......................................................... 342,895 4,811,749
Intangibles*........................................................... 531,216 1,127,864
Minority interest*..................................................... 600,000 --
Liabilities assumed.................................................... (1,472,514) (12,653,307)
------------ -------------
$ 625,514 $ 1,641,866
============ =============
</TABLE>
* Net of $1.5 million in 1995 and $2.6 million in 1994 of non-cash
consideration.
The issuance of 197,500 shares of Company common stock with a fair
market value of approximately $1.5 million issued in connection with
acquisitions (Note 3), has been excluded from the consolidated statement of
cash flows for the six months ended June 30, 1995. The issuance of 450,000
shares of Company common stock with a fair market value of approximately $3.7
million, in connection with the June 1994 acquisition of Hartney Industrial
Services, Inc. has been excluded from the consolidated statement of cash flows
for the six months ended June 30, 1994.
8. SUBSEQUENT EVENT
In August 1995, Richard W. Krajicek retired as Chairman of the
Company. Mr. Krajicek has been subsequently retained by the Company under a
five year consulting arrangement. Mr. Krajicek, along with certain family
members, owns 815,491 common shares of Company stock. The Company has agreed
to pay Mr. Krajicek an amount equal to the shortfall, if any, between the
average sales price and $8.00 per share up to 203,873 shares sold per year
commencing on November 9, 1995, and ending on November 9, 1999. The average
sales price, related to stock sold, shall be computed in arrears at the end of
each twelve month period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated revenues for the second quarter of 1995 were $65.7
million, more than double revenues of $32.2 million for the same period of
1994. Consolidated revenues for the first half of 1995 were $137.3 million, an
increase of $48.0 million, or 53.8%, over the comparable 1994 period. The
increase is attributable primarily to higher levels of activity in the
specialty turnaround maintenance business, Serv-Tech Services ("Services") and
the engineering, procurement and construction subsidiary, Serv-Tech EPC
("EPC").
Services revenues for the three month and six month periods ended June
30, 1995, include $5.0 million and $14.2 million, respectively, generated by
the refractory group, Hartney Industrial Services ("Hartney"), acquired in June
1994. Additionally, EPC revenues for the three and six month periods ended
June 30, 1995, include $6.8 million and $10.7 million, respectively,
attributable to the Finchaa Sugar Refinery and Ethanol Plant Project, which was
approximately 13.0% complete at June 30, 1995.
Consolidated gross profit margins as a percentage of revenues
decreased from 23.6% for the second quarter of 1994 to 17.2% for the second
quarter of 1995, and 18.1% for the first half of 1994 to 17.4% for the first
half of 1995. The decline in gross profit margins reflect lower than expected
profits from a few projects within Services. In addition, gross profits for
the three and six month periods of 1995 include $0.6 million from the Finchaa
project discussed above. Excluding the Finchaa project, gross profit
percentages for the three and six months ended June 30, 1995, were 18.2% and
18.4%, respectively.
Consolidated selling, general and administrative expenses were $9.6
million in the second quarter of 1995, an increase of $3.2 million, or 51.4%,
over the second quarter of 1994. For the six months ended June 30, 1995,
consolidated selling, general and administrative expenses were $18.7 million,
an increase of $6.8 million, or 57.0%, over the same period of 1994. The
increase is attributable primarily to acquisitions in the latter half of 1994
and in 1995 including Hartney in June 1994, increase in goodwill amortization,
and expansion of the Company's EPC business. The increase in consolidated
selling, general and administrative expenses is also consistent with the higher
level of activity and growth of the Company. Additionally, as a percentage of
revenues consolidated overhead declined from 19.6% in the second quarter of
1994 to 14.6% in the second quarter of 1995 and has remained relatively flat
for the year to date periods. Management believes overhead expenses have been
positively impacted by the Company's cost reduction program initiated in the
fourth quarter of 1994.
Interest expense increased $0.2 million for both the three and six
month periods ended June 30, 1995, to $0.5 million and $0.9 million,
respectively. The increase is due to borrowings during 1995 under the
Company's line of credit necessary to support the higher level of business
activity.
Interest income decreased $0.3 million during the first half of 1995,
resulting from lower available cash balances during the period.
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Minority interest and other for the three and six month periods of
1995 include the earnings participation in the estimated profits, of
approximately $0.2 million, of the Finchaa project (see Note 2 of Notes to
Consolidated Financial Statements). Effective May 18, 1995, the Company
acquired an additional 20% of the outstanding common stock of ST Piping, Inc.
from the minority shareholders of that company. Prior to the acquisition the
Company owned 70% (see Note 3 of Notes to Consolidated Financial Statements).
SERVICES
Services generated revenues of $31.7 million for the second quarter of
1995, an increase of $13.2 million, or 71.2%, over the second quarter of 1994.
For the six months ended June 30, 1995, Services revenues amounted to $78.9
million, an increase of $16.8 million, or 27.0%, over the same period of 1994.
The increase is attributable to (i) the acquisition of Hartney in June 1994,
which contributed revenues of $5.0 million and $14.2 million for the three and
six months ended June 30, 1995, respectively, and (ii) a higher level of
business activity throughout the turnaround maintenance business.
Operating income for the second quarter of 1995 amounted to $0.9
million, a decrease of $0.4 million over the same period of 1994. Operating
income for the first half of 1995 totaled $4.4 million, a decrease of $0.7
million from the comparable period of 1994. The decrease is attributable to
lower than expected profits on certain turnaround maintenance projects during
the second quarter of 1995 and increased selling, general and administrative
expenses. The increase in overhead expenses is attributable primarily to the
acquisition of Hartney in June 1994. Selling, general and administrative as a
percentage of revenues for the first half of 1995 of 10.7% has decreased from
11.1% in the fourth quarter of 1994. Management believes that overhead
expenses have been positively impacted by the strategic reorganization and cost
reduction program implemented for 1995.
EPC
EPC revenues increased from $2.0 million for the second quarter of
1994 to $19.4 million for the second quarter of 1995 representing an increase
of $17.4 million. Revenues increased $26.9 million for the first half of 1995
over the same period of 1994, to $30.6 million. The increase resulted
primarily from the introduction of procurement and construction services in the
latter half of 1994. As previously discussed, EPC revenues included
approximately $6.8 million and $10.7 million for the three and six month
periods ended June 30, 1995, respectively, attributable to the Sugar Refinery
and Ethanol Plant Project in Finchaa, Ethiopia.
Operating income was $1.5 million for the second quarter of 1995, an
increase of $1.3 million over the corresponding quarter of 1994. Operating
income was $2.4 million for the first half of 1995 an increase of $2.2 million
over the first half of 1994. Excluding the Finchaa project discussed above,
operating income as a percentage of revenue was 9.2% for the six months ended
June 30, 1995, compared to 6.8% for the same period of 1994. The increase is
due to the higher level of activity which was partially offset by an increase
in overhead expenses. The increase in selling, general and administrative
expenses resulted primarily from the expansion of these services in the latter
half of 1994 and are consistent with the increased level of activity during
1995.
SECO
SECO Industries ("SECO"), the electrical and instrumentation
subsidiary contributed revenues of $12.3 million to the second quarter of
1995, an increase of $0.9
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<PAGE> 11
million, or 7.8%, over the same period of 1994. In January 1995, SECO was
awarded the electrical and instrumentation installation on Shell's Mars
deepwater production platform. The installation, which was partially
performed during the second quarter of 1995, accounted for the majority of
the increase in revenues. Revenues for the first half of 1995 amounted to
$23.1 million consistent with revenues for the same period of 1994. Revenues
for the 1995 fiscal year are anticipated to be consistent with the 1994 level.
Operating income was $0.8 million for the second quarter of 1995, an
increase of $0.2 million over the corresponding quarter of 1994. The increase
is primarily due to the higher level of revenues and related gross profit which
was partially offset by increased selling, general and administrative expenses.
The increase in overhead is due primarily to the international expansion of
these services. Operating income for the six months ended June 30, 1995
amounted to $1.2 million and is relatively unchanged from the same period of
1994 resulting primarily from the consistent level of business activity.
OTHER
Serv-Tech Environmental revenues amounted to $3.1 million for the
second quarter of 1995 and $5.5 million for the six months ended June 30, 1995.
In November 1994, the Company acquired the remaining 50.0% interest in
Chemisolv Holdings, Inc. ("Chemisolv"), a performance chemical company.
Chemisolv contributed approximately $1.3 million and $2.8 million to the three
and six month periods ended June 30, 1995, respectively. Terminal
Technologies, Inc., the tank cleaning business, generated revenues of $1.6
million and $2.4 million for the three and six month periods ended June 30,
1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for the first half of 1995, excluding
acquisitions, were approximately $2.0 million. These expenditures were
primarily for the purchase and manufacture of equipment necessary to support
the Company's business activities. Capital expenditures for the remainder of
1995, excluding acquisitions, are expected to be approximately $1.5 million.
At June 30, 1995, the Company's working capital totaled approximately
$25.2 million. The Company has been able to finance its working capital
requirements primarily through its cash flows from operations and bank
borrowings. In May 1995, the Company entered into a Revolving Credit Agreement
with two banks and increased its line of credit from $20.0 million to $35.0
million which expires in May 1997 (see Note 4 of Notes to Consolidated
Financial Statements). The additional funds were required to support the
Company's growing operations. At June 30, 1995, $5.5 million was outstanding
under the Revolving Credit Agreement. Available borrowings under the Revolving
Credit Agreement amounted to $24.5 million at June 30, 1995. In addition, the
Company has $15 million in 8.41 percent Senior Notes Payable due June 2003.
The continued expected growth of the Company will require additional working
capital needs.
As further discussed in Note 2 of Notes to Consolidated Financial
Statements, the Company secured an $83.0 million contract to engineer, design,
procure and construct a 4,000 metric ton cane per day sugar refinery and 45,000
liter per day ethanol facility in Finchaa, Ethiopia. The project, which is
financed by the African Development Bank, is expected to be completed in the
latter part of 1997. In the first quarter of 1995, the Company received an
advanced payment equal to 20% of the contract value. Cash and cash
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<PAGE> 12
equivalents at June 30, 1995, consisted primarily of unused proceeds from the
advanced payment. Such cash balances are available to fund the Finchaa
project only and cannot be used for other working capital requirements. The
Company has issued letters of credit to support performance and the 20% advance
payment. Such letters of credit total approximately $24.7 million.
Contractual payments to the Company are supported by a revolving letter of
credit issued by the Ethiopian government via the African Development Bank.
The project is expected to be self funding and therefore should not require
working capital support other than that received from the project owner.
For the six months ended June 30, 1995, net cash flows from operations
were $5.5 million resulting primarily from net income of $2.2 million,
depreciation and amortization of $3.4 million, increase in accounts payable and
accrued liabilities of $8.3 million, and a $3.0 increase in net billings, costs
and estimated earnings on uncompleted contracts offset partially by a $10.9
million increase in accounts receivable. The increase in accounts payable,
accrued liabilities and accounts receivable were due to the higher level of
business activity during the first half of 1995. The increase in net billings,
cost and estimated earnings resulted primarily from the unspent portion of the
20% advance payment received on the Finchaa, Ethiopia, project (see Note 2 of
Notes to Consolidated financial Statements) which has been offset partially by
increased activity in other business areas. Net cash used in investing
activities were $3.0 million, consisting primarily of $2.0 million in capital
expenditures and $0.6 million in acquisitions of businesses (see Note 3 of
Notes to Consolidated Financial Statements). Cash flows from financing
activity totaled $5.1 million resulting primarily from net borrowing under the
Revolving Credit Agreement.
Backlog totaled $160.1 million at June 30, 1995, versus $159.7
million at March 31, 1994.
-12-
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting of Stockholders on May 18, 1995, the
stockholders voted on the following matters:
1. Approved and adopted the 1995 Serv-Tech, Inc. Long Term
Incentive Plan with the authority to award up to 300,000
shares pursuant to such plan.
Holders of 4,633,835 shares voted for the amendment,
1,045,007 voted against the amendment, and 9,208 shares
abstained from voting.
2. Elected the following directors to serve until the next
annual meeting and until their successors are elected
and qualify:
<TABLE>
<S> <C> <C>
Richard W. Krajicek 5,615,608 72,442
Richard L. Daerr 5,665,608 22,442
Robert J. Cresci 5,665,608 22,442
Mike M. Mustafoglu 5,665,608 22,442
John B. O'Brien 5,665,608 22,442
Michael T. Willis 5,665,608 22,442
James M. Piette 5,665,608 22,442
</TABLE>
As discussed in Note 8 of Notes to Consolidated Financial
Statements, Mr. Krajicek retired and resigned his
position of Chairman of the Board of the Company in
August 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-13-
<PAGE> 14
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, thereunto duly authorized.
SERV-TECH, INC.
By /s/ DAVID P. TUSA
-------------------------------------------------
David P. Tusa
Sr. Vice President,
Finance and Administration
Date August 14, 1995
By /s/ DALE W. WILHELM
-------------------------------------------------
Dale W. Wilhelm
Corporate Controller
Date August 14, 1995
-14-
<PAGE> 15
INDEX TO EXHIBITS
Exhibit 27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) the
unaudited Consolidated Financial Statements of Serv-Tech, Inc. and subsidiaries
as of June 30, 1995 and for the six months ended June 30, 1995 and is qualified
in its entirety by reference to such (b) Consolidated Financial Statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 9,512,829
<SECURITIES> 0
<RECEIVABLES> 50,589,690
<ALLOWANCES> 1,942,425
<INVENTORY> 2,499,978
<CURRENT-ASSETS> 71,630,841
<PP&E> 46,060,457
<DEPRECIATION> 15,736,292
<TOTAL-ASSETS> 121,738,824
<CURRENT-LIABILITIES> 46,383,746
<BONDS> 20,968,458
<COMMON> 3,356,139
0
0
<OTHER-SE> 51,134,378
<TOTAL-LIABILITY-AND-EQUITY> 121,738,824
<SALES> 137,298,168
<TOTAL-REVENUES> 137,298,168
<CGS> 0
<TOTAL-COSTS> 113,433,636
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 435,556
<INTEREST-EXPENSE> 916,635
<INCOME-PRETAX> 3,764,610
<INCOME-TAX> 1,581,000
<INCOME-CONTINUING> 2,183,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,183,610
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
