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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 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 NUMBER 0-14992
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 38-2294876
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13455 NOEL ROAD, SUITE 1500, DALLAS, TEXAS 75240
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 770-1800
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
Common Stock, $0.01 par value NASDAQ National Market System
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___
On July 10, 1995, the registrant had 5,850,849 outstanding shares of common
stock outstanding.
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SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MAY 31, 1995
PART I. FINANCIAL INFORMATION
Page
Item 1: Financial Statements
Consolidated Balance Sheets as of May 31, 1995
(unaudited) and February 28, 1995 3-4
Consolidated Statements of Operations (unaudited)
for the Three Months Ended May 31, 1995 and 1994 5
Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended May 31, 1995 and 1994 6
Notes to Consolidated Financial Statements (unaudited) 7-8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 14
Signature 15
Exhibit 11 Computation of per share earnings,
three months ended May 31, 1995 (Unaudited)
Exhibit 27 Requirements for the format and input
of financial data schedules
2
PART I FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MAY 31 FEBRUARY 28,
1995 1995
(unaudited)
----------- -----------
ASSETS
Current Assets:
Cash $ 2,144 $ 2,345
Accounts receivable, less allowance for doubtful
accounts of $1,298 and $1,312 42,934 41,726
Costs and estimated earnings on long-term
contracts in excess of billings 2,179 1,803
Prepaid expenses and other current assets 3,596 3,086
-------- --------
Total current assets 50,853 48,960
Property and Equipment:
Equipment 19,061 18,712
Land and buildings 4,431 4,431
Leasehold improvements 1,451 1,448
-------- --------
Total property and equipment, at cost 24,943 24,591
Less accumulated depreciation and amortization 9,407 8,681
-------- --------
Property and equipment, net 15,536 15,910
Other Assets
Cost in excess of net assets of businesses acquired, net of
accumulated amortization of $547 and $310, respectively 28,258 28,495
Other assets 7,057 7,189
-------- --------
TOTAL ASSETS $101,704 $100,554
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
3
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
MAY 31 FEBRUARY 28,
1995 1995
(unaudited)
----------- -----------
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and subcontracts payable $20,734 $16,793
Payables to affiliates 461 1,092
Accrued expenses and other liabilities:
Compensation and related fringes 4,484 4,763
Severance and office closures 2,019 3,590
Other 9,066 8,684
Billings on long-term contracts in excess
of costs and estimated earnings 610 636
Current maturities of long-term debt
and short-term borrowings 1,984 2,310
-------- --------
Total current liabilities 39,358 37,868
Long-term debt 21,290 21,078
Other long-term liabilities 3,758 4,587
Convertible Senior Subordinated Note, 10% maturing
in 2004, convertible into 3,048,780 common
shares at $3.28 per share 10,000 10,000
Commitments and contingencies (Note 3)
Redeemable Preferred Stock, $0.01 par value; 78,000 shares
authorized; 76,218 and 78,000 shares issued, respectively;
5% cumulative dividend; $100 redemption value, aggregate
redemption value $7,621,800 and $7,800,000, respectively 6,779 6,923
Junior Convertible Preferred Stock, $0.01 par value;
371,500 shares authorized; none issued -- --
Preference stock, $0.01 par value; 1,000,000 shares
authorized; none issued -- --
Common Stockholders' Equity:
Common stock, $0.01 par value; 20,000,000 shares
authorized; 5,811,105 and 5,700,783 shares
issued, respectively 58 58
Additional paid-in capital 16,996 16,970
Retained earnings 3,465 3,070
-------- --------
Total common stockholders' equity 20,519 20,098
-------- --------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY $101,704 $100,554
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
4
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MAY 31,
-----------------
1995 1994
---- ----
Revenues $41,452 $18,345
Cost of revenues 35,203 15,826
------- -------
Gross profit 6,249 2,519
Selling, general, and administrative expenses 4,653 1,758
------- -------
Income from operations 1,596 761
Interest expense 846 30
------- -------
Income before income tax expense 750 731
Income tax expense (Note 2) 150 175
------- -------
Income before earnings (losses)
of unconsolidated affiliates: 600 556
Share in earnings (losses) of
unconsolidated affiliates: (74) 88
------- -------
Net income 526 644
Dividends and accretion on
Redeemable Preferred Stock 131 --
------- --------
Income applicable to common stock $ 395 $ 644
------- -------
------- -------
Weighted average number of common
and common equivalent shares outstanding 6,009 5,738
------- -------
------- -------
Earnings per common and common
equivalent share $ 0.07 $ 0.11
------- -------
------- -------
See accompanying notes to consolidated financial statements.
5
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MAY 31,
1995 1994
------- -------
OPERATING ACTIVITIES:
Net income $ 526 $ 644
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,098 326
Loss on disposal of equipment -- 20
Share in (earnings) losses of affiliates 74 (88)
Changes in operating assets and liabilities, net
of effects from acquisitions:
Accounts receivable (1,208) (4,342)
Costs and estimated earnings on long-term
contracts in excess of billings (376) 3,277
Prepaid expenses and other current assets (510) (809)
Other assets (278) 3
Accounts and subcontracts payable 3,310 (789)
Accrued expenses and other liabilities (1,468) (608)
Billings on long-term contracts in excess of
costs and estimated earnings (26) 1,872
Other long-term liabilities (829) --
Other, net -- 15
------- -------
Net cash provided by (used in) operating activities 313 (479)
------- -------
INVESTING ACTIVITIES:
Capital expenditures (352) (77)
Investment in affiliate 200 0
Proceeds from sale of fixed assets -- 26
------- -------
Net cash used in investing activities (152) (51)
------- -------
FINANCING ACTIVITIES:
Proceeds from additional revolving credit subline 4,000
(Repayments) borrowings on revolving line of
credit, net (3,663) --
Repayment of debt (542) (900)
Repurchase of Redeemable Preferred Stock (178) --
Dividends paid on Redeemable Preferred Stock (96) --
Other 117 --
------- -------
Net cash provided (used) by financing activities (362) (900)
------- -------
Net increase (decrease) in cash (201) (1,430)
Cash at beginning of year 2,345 2,290
------- -------
Cash at May 31 $ 2,144 $ 860
------- -------
------- -------
See accompanying notes to consolidated financial statements.
6
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
GENERAL
Smith Environmental Technologies Corporation (the "Company"), (formerly
Canonie Environmental Services Corp.), provides a broad range of comprehensive
environmental consulting, engineering, remediation and construction services to
clients with sites contaminated with hazardous materials, primarily throughout
the United States, including to various federal, state and local government
agencies. The timing of the Company's revenues is dependent on its backlog,
contract awards and the performance requirements of each contract. The
Company's revenues are also affected by the timing of its clients' activities.
Due to these changes in demand, the Company's quarterly and annual revenues
fluctuate. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any quarter or full fiscal
year.
The Company uses the equity method of accounting for incorporated joint
ventures and affiliated companies where ownership ranges from 20 percent to
50 percent.
All references to fiscal 1996 and 1995 refer to the twelve month periods
ended February 28, 1996 and 1995, respectively. Certain costs related to
regional operations for prior periods have been reclassified from selling,
general and administrative (SG&A) expenses to cost of revenues to conform
with the fiscal 1996 presentation. The costs reclassified for the quarter
ended May 31, 1994 were $959,000.
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes the disclosures
made herein are adequate to make the information presented not misleading.
The financial statements reflect all material adjustments which are all of a
normal, recurring nature and, in the opinion of management, necessary for a
fair presentation. These financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K/A-1 for the fiscal year ended
February 28, 1995. The results of operations for the three-month period
ended May 31, 1995, are not necessarily indicative of the results that may be
expected for the full fiscal year.
7
NOTE 2 - INCOME TAXES
In the three-month period ended May 31, 1995, the Company provided for income
taxes of $150,000 at an effective tax rate of 20 percent. The effective tax
rate differs from the federal statutory rate of 34 percent as a result of
state income taxes and the utilization of net operating loss carryforwards.
In the same three-month period in 1994, the Company provided $175,000 at an
effective tax rate of 20 percent which was similarly reduced by the utili-
zation of available net operating loss carryforwards. A valuation allowance
has been recorded to reduce the deferred tax asset related to these carryfor-
wards and other deferred tax assets to zero since the realization of such
benefit is not assured.
The Company has significant net operating loss carryforwards to offset future
federal tax liabilities. However, due to a greater than 50 percent change in
ownership within the past three fiscal years, use of carryforwards to reduce
its future taxable income will be limited to approximately $900,000 annually.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company filed an action for breach of contract and rescission against
seven potentially responsible parties (the PRPs) in the Circuit Court,
Multnomah County, Oregon in February 1995. The Company is pursuing recovery
for amounts due as a result of its performance of services, including $1.3
million of accounts receivable and retainage, $2.5 million of unrecovered
equipment investment and other damages resulting in total amounts due exceeding
$6.5 million. Principal activity at the site had been previously suspended
pending approval by the EPA of changes in the remedial activities proposed by
the PRPs and supported by independent engineering reports which acknowledge
significant differences in the waste at the site from those conditions
specified in the EPA Record of Decision and in the initial remedial
investigation performed by others at the site. The court action has been
abated pending the arbitration before the American Arbitration Association of
issues initiated by the PRPs seeking reimbursement by the Company of $18.0
million paid for work performed under the contract. The Company will
vigorously defend its position and intends to aggressively pursue all
amounts recoverable related to its performance at this site.
In November 1993, second amended complaints and initial complaints were filed
in the Circuit Court of the State of Mississippi, County of Jackson, which
included Riedel Environmental Services, Inc. ("RES"), a wholly owned
subsidiary of the Company along with a number of other defendants in claims
pending in 27 separate civil actions. These civil actions involved approxi-
mately 219 plaintiffs and include two wrongful death claims. Plaintiffs allege
that RES was negligent in transferring and clean-up activities of the chemical
diethylamine released from an overturned tanker. The Company rejects every
allegation in its defense. The matter is in the discovery phase. The Company
is vigorously defending the described litigation.
The Company is also currently a party to other litigation relating to its
business. While such litigation, including the matters described above, could
result in judgments against the Company, management believes that the outcome
of the litigation described above and other incidental litigation will not
have a material adverse effect on the future financial condition or results of
operations of the Company and that adequate reserves have been established
at May 31, 1995.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Smith Environmental Technologies Corporation (the "Company"), (formerly
Canonie Environmental Services Corp.), provides a broad range of comprehensive
environmental consulting, engineering, remediation and construction services to
clients with sites contaminated with hazardous materials, primarily throughout
the United States, including to various federal, state and local government
agencies. The timing of the Company's revenues is dependent on its backlog,
contract awards and the performance requirements of each contract. The
Company's revenues are also affected by the timing of its clients' activities.
Due to these changes in demand, the Company's quarterly and annual revenues
fluctuate. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any quarter or full fiscal
year.
The Company uses the equity method of accounting for incorporated joint
ventures and affiliated companies where ownership ranges from 20 percent to
50 percent.
All references to fiscal 1996 and 1995 refer to the twelve month periods
ended February 28, 1996 and 1995, respectively. Certain costs related to
regional operations for prior periods have been reclassified from selling,
general and administrative (SG&A) expenses to cost of revenues to conform
with the fiscal 1996 presentation. The costs reclassified for the quarter
ended May 31, 1994 were $959,000.
The following table sets forth, for the periods indicated, the percentages
which certain items from the consolidated statements of operations bear to
the revenues of the Company. This table and Management's Discussion and
Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Consolidated Financial Statements and the Notes to the
Consolidated Financial Statements of the Company included herein and the
Company's Annual Report on Form 10K/A-1 for the fiscal year ended February
28, 1995.
THREE MONTHS ENDED
MAY 31, MAY 31, PERIOD TO
1995 1994 PERIOD CHANGE
------ ------ -------------
Revenues 100.0% 100.0%
Cost of revenues 85.0 86.3 1.3
----- ----- ----
Gross profit 15.0 13.7 1.3
Selling, general and administrative expenses 11.2 9.6 (1.6)
----- ----- ----
Income (loss) from operations 3.8 4.1 (.3)
----- ----- ----
Interest expense 2.0 .1 (1.9)
----- ----- ----
Income (loss) before income tax expense (benefit) 1.8 4.0 (2.2)
----- ----- ----
Income tax expense (benefit) .4 1.0 .6
----- ----- ----
Income (loss) before earnings (losses) of
unconsolidated affiliates 1.4 3.0 (1.6)
----- ----- ----
Share in earnings (losses) of unconsolidated
affiliates (.2) .5 (.7)
----- ----- ----
Net income (loss) 1.2% 3.5% (2.3)%
----- ----- ----
----- ----- ----
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash, cash flows generated from
operations and available borrowings under the Company's existing credit
facility. Cash totaled $2.1 million at May 31, 1995 compared with $2.3
million at February 28, 1995 and $900,000 at May 31, 1994. The Company's
working capital increased to $11.5 million at May 31, 1995 from $11.1 million
at February 28, 1995 and $4.6 million at May 31, 1994. The increase in
working capital is primarily a result of increases in accounts receivable and
unbilled costs during the quarter, partially offset by increased accounts
payable. Accrued liabilities decreased during this quarter, primarily due to
payments for severance and office closure costs which were previously accrued.
At May 31, 1995, the Company had a $30.0 million credit facility consisting
of a $4.5 million term loan facility and a $25.5 million revolving credit
facility, subject to limitations pursuant to the calculation of a defined
borrowing base. At May 31, 1995, $20.8 million of borrowing capacity was
available to the Company against which the Company had outstanding borrowings
of $19.2 million. The calculation of the borrowing base is based, in large
part, on eligible accounts receivable, as defined in the credit agreement
with the lender. As a result, changes in the borrowing base can occur due to
the magnitude and timing of the Company's billings for services performed,
which in turn are impacted by, among other things, contractual terms and
seasonal considerations, the timing of collection of billed receivables, and
other factors.
On May 5, 1995, the Company and its lender amended the credit agreement to
increase the eligible borrowing base by an amount up to $4 million with the
creation of an "Unbilled Account Subline" whereby unbilled receivables,
previously excluded from the borrowing base calculation, are now included,
subject to limitations, in the calculation of the borrowing base.
Availability under the Unbilled Account Subline is automatically and
permanently reduced in monthly increments of $500,000 commencing on August 1,
1995 and reduces to zero upon the Company's receipt of at least $10 million
through the sale and issuance of its equity securities. The interest rate
charged under the amended revolving credit facility has been increased by
three-quarters of a percent (3/4%) until all amounts advanced under the
Unbilled Account Subline, and interest accrued thereon, have been paid and
the Unbilled Account Subline has been reduced to zero. In order to facilitate
the additional borrowings, E. Brian Smith, Chairman, President and CEO of the
Company agreed to pledge 800,000 shares of Company common stock
contemporaneously with the transaction. Pending the pledge of such stock,
Mr. Smith has personally guaranteed repayment of amounts advanced to the
Company under the agreement, as amended, up to $4 million. The personal
guarantee will terminate upon the pledge of 800,000 shares of Company common
stock and the passage of a period of 91 days following such pledge; the
repayment of all amounts advanced under the Unbilled Account Subline and the
termination of that subline; or a $10 million increase in equity. At July
11, 1995, $25.2 million of borrowing capacity was available to the Company
pursuant to the credit facility, as amended, against which the Company had
outstanding borrowings of $23.9 million.
10
The Company's funding requirements arise primarily from its operating
expenses and the debt service and acquisition related expenses incurred in
fiscal 1995. Historically, the Company has met such requirements primarily
with cash flows generated by operations and limited debt financing. During
fiscal 1995, the Company substantially increased its size through the
acquisition of BCM Engineers Inc., ("BCM"), Riedel Environmental Services,
Inc. ("RES"), and certain assets of RESNA Industries, Inc. ("RESNA"), and in
the process, incurred long-term debt of approximately $31 million and issued
$7.8 million of Redeemable Preferred Stock. At May 31, 1995, the components
of outstanding debt were borrowings under the Company's credit facility of
approximately $19 million, a $10 million convertible senior note, and a $2
million senior note.
During the first quarter of fiscal 1996, management of the Company has
continued its focus on resolving ongoing operational issues, taking actions
to increase the efficiency of the Company's operations and improving the
management of its working capital. Management of the Company believes these
actions will enhance the Company's ability to fund its obligations in fiscal
1996.
The Company is currently in discussions with additional sources of capital to
meet its working capital requirements as well as to fund future expansion.
Management believes, based on its discussions with sources of potential
financing, that it will be able to raise capital through additional debt
and/or equity. However, in the event the Company fails to improve the
management of its working capital and is unable to raise additional capital
on a timely basis, its liquidity and financial position could be materially
adversely impacted.
RESULTS OF OPERATIONS
Revenues for the three months ended May 31, 1995 were $41,452,000 compared
with $18,345,000 for the same period last year, an increase of $23,107,000 or
126 percent. The increase in revenues was primarily attributable to the
acquisition of BCM and RES in September and November 1994, respectively.
Revenues of BCM and RES included in the quarter were approximately $12,900,000
and $20,500,000, respectively. Revenues for the quarter ended May 31, 1995,
exclusive of revenues attributable to BCM and RES, were approximately
$8,050,000; 56 percent lower than the three months ended May 31, 1994. The
decrease in revenues, is primarily due to delays in starting-up several
contracts recently awarded to Canonie and remobilizing two existing projects. A
lower level of contract awards during the second and third quarter of fiscal
1995, which would normally have provided revenues during this quarter, also
contributed to the reduced revenue volume.
Gross profit for the three months ended May 31, 1995 was $6,249,000 or 15
percent of revenues compared with $2,519,000 or 13.7 percent of revenues for
the three months ended May 31, 1994, an increase of $3,730,000 or 148
percent. The increase in gross profit was primarily attributable to the
acquisitions of BCM and RES in September and November of 1994, respectively.
Gross profit, exclusive of operating results attributable to acquisitions,
was approximately $400,000 during the first quarter of fiscal 1996, a
decrease of approximately $2,119,000. The decrease in gross profit is
primarily due to delays in starting-up several contracts recently awarded to
Canonie, remobilizing two existing projects and proposal expenses at certain
regional locations.
11
Selling, general and administrative expenses (SG&A) for the three months
ended May 31, 1995 were $4,653,000 compared with $1,758,000 for the same
period last year, an increase of $2,895,000 or 165 percent. SG&A as a
percentage of revenues for the first quarter of fiscal 1996 was 11.2 percent
compared with 9.6 percent for the first quarter of fiscal 1995. The increase
in SG&A is attributable to goodwill amortization, loan origination fee
amortization and higher administration costs, primarily marketing and legal.
Net interest expense for the three month-period ended May 31, 1995 was
$846,000 compared with $30,000 for the same three-month period in 1994. The
increase in interest expense from 1994 is primarily due to increased bank
borrowings in connection with the acquisitions of BCM and RES.
In the three-month period ended May 31, 1995, the Company provided for income
taxes of $150,000 at an effective tax rate of 20 percent. The effective tax
rate differs from the federal statutory rate of 34 percent as a result of
state income taxes and the utilization of net operating loss carryforwards.
In the same three-month period in 1994, the Company provided $175,000 at an
effective tax rate of 20 percent which was similarly reduced by the
utilization of available net operating loss carryforwards. A valuation
allowance has been recorded to reduce the deferred tax asset related to these
carryforwards and other deferred tax assets to zero since the realization of
such benefit is not assured.
The Company has significant net operating loss carryforwards to offset future
federal tax liabilities. However, due to a greater than 50 percent change in
ownership within the past three fiscal years, use of carryforwards to reduce
its future taxable income will be limited to approximately $900,000 annually.
The Company's share of operating losses of its unconsolidated affiliate in
the three-month period ended May 31, 1995 was $74,000 compared with income of
$88,000 in the first quarter of fiscal 1995. The decrease in income was
primarily due to overhead costs associated with the affiliate's operations.
During the first quarter of fiscal 1995, the affiliate performed work on two
significant contracts. During the first quarter of fiscal 1996, the affiliate
did not perform work on similar contracts.
BACKLOG
As of May 31, 1995, the Company had a contract backlog of orders it believed
to be firm of approximately $110 million compared with $105 million at
February 28, 1995 and $48 million at May 31, 1994. The value of unfunded or
indefinite delivery order contracts was approximately $165 million at May 31,
1995 compared with $170 million at February 28, 1995, and when combined with
contract backlog, totals $275 million at both May 31, 1995 and February 28,
1995. The ultimate value of the backlog is subject to change as the scope of
work on projects changes. Customers often retain the right to change the
scope of work with an appropriate increase or decrease in the contract price.
There was no unfunded backlog at May 31, 1994.
12
OTHER ITEMS AFFECTING OPERATING RESULTS
With the acquisition of RES in November of 1994, the Company now generates a
significant portion of its revenues under contracts with the Environmental
Protection Agency ("EPA"). Under its current Emergency Response Cleanup
Services ("ERCS") contracts, the Company is the prime contractor for removal
of hazardous substances in ERCS Zone 4A, comprising 15 midwestern and
southern states, and ERCS Region 5, comprising six states bordering the Great
Lakes. ERCS Zone 4A and ERCS Region 5 contracts are renewable for one year
periods through February 1996 and September 1997, respectively.
Revenues from EPA contracts for the three months in fiscal 1996 were $12.3
million. Annual revenues from EPA contracts for RES in the years prior to
the Company's acquisition averaged approximately $35 million. The Company
anticipates that it will receive a similar level of revenues from EPA contracts
in fiscal 1996. The Company intends to actively seek the award of future EPA
contracts as the requests for proposals are issued.
Results of the first quarter 1996 may not be indicative of future quarters as
the Company's and its clients' businesses are subject to evolving regulations
by the EPA and other federal, state and local environmental authorities.
Changes in applicable regulatory standards or current regulatory policies,
resulting in delays in project approvals or modified treatment standards, may
impact environmental compliance and cleanup spending levels, especially with
respect to discretionary cleanups by industrial companies. Accordingly, the
Company's revenues, particularly from remediation projects, may vary from
year to year. The Company believes that, despite possible changes in
regulatory policies and spending levels for both the public and private
sectors, the Company will continue to gain market share as a result of its
expanded service capabilities resulting from its recent acquisitions.
13
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement regarding computation of per share earnings
Exhibit 27 - Requirements for this format and input of financial
data schedules.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the three
months ended May 31, 1995
Form 8-K dated May 5, 1995 relating to the execution of the
Fourth Amendment to the Company's Credit facility with LaSalle
Business Credit, Inc.
14
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.
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(Registrant)
By: /s/ WILLIAM T. CAMPBELL
___________________________________
William T. Campbell
Vice President - Finance
Date: July 17, 1995
15