FORM 10-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 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 #0-12293
NUCLEAR SUPPORT SERVICES, INC.
(Exact Name of Registrant as Specified in Charter)
VIRGINIA No. 54-0952207
(State of Incorporation) IRS Employer Identification
22 Northeast Drive, Hershey, Pennsylvania 17033
(Address of Principal Executive Offices and Zip Code)
Registrant's Telephone Number, Including Area Code
(717) 533-6370
Securities Registered Pursuant to Section 12 (b) of the
Act: None
Securities Registered Pursuant to Section 12 (g) of the
Act:
Common Stock, Par Value $.0025 Per Share
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 [ ]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive
proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value held by non-affiliates
of the registrant as of December 8, 1995:
Common Stock, par value $.0025 per share $2,302,236
The number of shares outstanding as of the close of
business on December 8, 1995, was 2,169,190 shares of
Common Stock, par value $.0025 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Annual Report to
Shareholders for the fiscal year ended September 30,
1995 and registrant's definitive Proxy Statement for
the Annual Meeting of Shareholders on March 5, 1996,
are incorporated into Parts II and III, respectively,
as set forth herein.
NUCLEAR SUPPORT SERVICES, INC.
1995 Form 10-K Annual Report
Table of Contents
PART I
<TABLE>
<S> <C>
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security
Holders 10
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the
Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 11
</TABLE>
PART I
ITEM 1 BUSINESS
Since Nuclear Support Services, Inc. (NSSI or the
Company) was organized in 1973 as a Virginia
business corporation, it has provided a variety
of services to power generation, pulp and paper,
petro-chemical, refining and other industries.
The Company's principal business has been
providing technical support personnel on an "as
needed" basis to assist in the maintenance and
operation of power generation facilities, and to
a lesser extent, providing valve repair and
maintenance services to power generation, pulp
and paper and petro-chemical customers. NSSI's
servicing capabilities were expanded in fiscal
year 1994 with the addition of surface
preparation, specialty coatings and industrial
cleaning services which are provided to the
Company's traditional markets and other
industries.
From 1987 through 1989, the Company acquired
companies which provided valve services to power
generation, petro-chemical and refining
industries, including maintenance of valves and
valve actuators and diagnostic testing of motor-
operated valves. These operations were
consolidated under Henze-Movats, Incorporated
(Henze-Movats) in order to provide a total range
of valve services for the operability and
reliability of valves in power plants and
processing facilities.
Effective December 31, 1990, the Company sold to
Westinghouse Electric Corporation (Westinghouse)
the nuclear portion of the valve diagnostic,
actuator and valve maintenance operations of its
subsidiary, Henze-Movats, in exchange for cash
and portions of Westinghouse's staff
augmentation businesses (Numanco and the nuclear
field services operations of WISCO). As part of
this transaction, the Company entered into a
Supply Agreement with Westinghouse by which the
Company, among other things, was designated
preferred supplier for certain staff
augmentation services to Westinghouse's Nuclear
Services Division.
Numanco supplied nuclear staff augmentation
services, primarily in the areas of radiation
protection and decontamination. The WISCO
operations supplied nuclear instrumentation,
electrical and mechanical staff augmentation
services through the Company's traditional
manpower operations. In April 1992, those
operations and Numanco were consolidated and
renamed NSS Numanco, Inc. (NSS Numanco),
headquartered in Hershey, Pennsylvania which now
provides all these services as a single unit.
The non-nuclear valve and actuator operations,
renamed Henze Services, Inc., (Henze) remains
part of the Company.
In June 1993, the Company created a new
subsidiary, IceSolv, Inc. (IceSolv) to provide
dry ice blasting services to nuclear,
electrical, commercial and other general
industries. IceSolv utilizes state of the art
equipment for decontamination, cleaning and
preparation of surfaces. Prior to the formation
of IceSolv, these services were provided through
NSS Numanco, Inc.
Effective October 1, 1993, NSSI acquired two
companies, Oliver B. Cannon & Son, Inc. and
Sline Industrial Painters, Inc., marketed
together as Cannon Sline. Cannon Sline provides
surface preparation, specialty coatings and
related services to power generation, pulp and
paper, marine and other general industries
across the United States.
In March 1995, the Company commenced a
restructuring plan which includes increased
emphasis on its more profitable lines of
business and a shift in focus from staff
augmentation to contract services.
In the first week of September 1995, the Company
and its subsidiaries filed voluntary bankruptcy
petitions under Chapter 11 Reorganization in the
U.S. Bankruptcy Court for the Middle District of
Pennsylvania in Harrisburg which are jointly
administered at Case Number 1-95-1767. This
action became necessary to gain access to the
Company's own cash for continued operations when
its participant lender refused to continue
funding its working capital line. The Company
has obtained debtor in possession financing with
its agent lender and continues to operate as
debtor in possession.
On January 31, 1996, the Company filed its Joint
Plan of Reorganization.
MARKETS AND SERVICES FOR NSSI
NSSI is an integrated service company which
provides a range of maintenance, repair and technical
services on an as-needed basis to power generation and
process industries, government facilities and major
industries in the United States through the Company's
operating subsidiaries. Services are provided on
either a contract service or staff augmentation basis.
Contract services involve contracting for the
accomplishment of defined tasks for the customer with
supervision retained by the Company's operating
subsidiary. Staff augmentation services entail
providing qualified manpower to work under the
direction of the customer. For fiscal year 1995,
contract services accounted for sixty-five percent
(65%) of revenue compared to fifty-eight percent (58%)
in fiscal year 1994 and twenty-two percent (22%) in
fiscal year 1993.
Power Generation Market
The power generation industry was the primary
market for the Company's services in fiscal year
1995. Fifty-one percent (51%) of consolidated
revenues was attributable to nuclear, fossil
fuel, hydro-electric and other customers whose
operations involve the production of
electricity. This is a reduction from sixty-
three percent (63%) in fiscal year 1994 and
eighty-eight percent (88%) in fiscal year 1993.
Much of the business performed in this market
occurs during scheduled or unscheduled shutdowns
of commercial power generation facilities. The
Company provides a wide range of services to
this industry including: staff augmentation in
areas of radiological protection;
decontamination; mechanical, instrumentation and
electrical maintenance; professional services
and contract services which includes cleaning,
surface preparation, decontamination, painting,
specialty coatings and linings, identification
systems, passive fireproofing systems and
valve/actuator repair services.
Petro-chemical and Refining Market
Eighteen percent (18%) of the Company's revenues
in fiscal year 1995 was generated from clients
in the petro-chemical and refining industry
which includes chemical, crude oil and natural
gas processing compared to fifteen percent (15%)
in fiscal year 1994 and five percent (5%) in
fiscal year 1993. The Company provides contract
services to this industry primarily consisting
of specialty cleaning, surface preparation,
painting, specialty coating and linings,
identification systems, passive fire protection
systems and valve/actuator repair services.
Pulp and Paper Market
Pulp and paper facilities serviced by the Company
include mills and production plants whose
primary operations involve the production of
paper, paperboard and pulp. Of the Company's
consolidated revenues in fiscal year 1995,
fifteen percent (15%) was generated from
customers in this industry compared to thirteen
percent (13%) in fiscal year 1994 and four
percent (4%) in fiscal year 1993. The Company
provides contract services to this industry,
substantially the same as provided to the Petro-
chemical and Refining Industry.
Other Markets Served
The Company provides services to government-owned
and operated facilities as well as automotive,
metals and mining, textiles, marine and printing
industries. No one of these industries is a
significant part of the Company's business. The
Company provides contract services and staff
augmentation in these industries similar to
those offered in the power, pulp and paper and
petro-chemical industries. Sixteen percent
(16%) of the Company's consolidated revenues
during fiscal year 1995 were generated from
services provided to this group of industries
compared to nine percent (9%) in fiscal year
1994 and three percent (3%) in fiscal year 1993.
The Company's business is impacted by seasonal
sensitivity. Historically, spring through fall are the
busiest time with the winter months being slowest. The
Company's assets are not assigned to a particular
market.
COMPETITION
In the contract services area the Company's
subsidiaries compete with approximately one
hundred (100) national and/or regional
competitors. Price, quality and customer
service are the governing factors. The major
competitive factors in staff augmentation
services are price, quality of service,
flexibility, and availability and capability of
a company's personnel. The Company competes for
contracts with approximately twenty-five
specialized engineering and service firms,
several of which have greater financial
resources than the Company. Additionally, there
are numerous smaller regional competitors.
CLIENTS
The Company's clients consist primarily of
electric utilities, major oil companies, paper
companies and other suppliers. Because of the
nature of the services offered by the Company
and the size of the projects in which the
Company is engaged, a small number of clients
often account for a significant percentage of
the Company's revenues in a given fiscal year.
In addition, cross-marketing of NSSI service
capabilities has increased the potential of
multiple subsidiaries servicing the same client.
For fiscal year ended September 30, 1995, sixteen
percent (16%) of consolidated revenues were
attributable to one customer, Westinghouse
Electric Corporation. For fiscal years ended
September 30, 1994 and 1993, this same customer
accounted for twelve percent (12%) and thirty-
two (32%) of consolidated revenues,
respectively.
The Company operates primarily within the United
States. The Company has or is performing
contracts in Alabama, Arkansas, Arizona,
California, Colorado, Connecticut, Delaware,
Florida, Georgia, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, Montana, Nebraska, New Hampshire, New
Jersey, New Mexico, New York, North Carolina,
Ohio, Oregon, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Utah, Vermont,
Virginia, Washington, West Virginia, Wisconsin,
and Wyoming.
The Company's contracts with its clients provide
for charges for services on a time and material,
fixed-price and/or modified fixed-price basis.
The time and materials contracts generally
permit the client to control the amount, type
and timing of services to be performed by the
Company, and most of the contracts permit the
client to terminate the contract at any time.
The Company's clients often modify the nature
and timing of services to be performed. The
fixed-price and modified fixed-price contracts
are recognized on the percentage of completion
method and are measured by the cost to cost
method.
Revenues from time and material contracts are
recognized as work progresses. Provisions for
estimated losses on uncompleted contracts are
made in the period in which losses are
determined.
The Company's uncompleted contracts include both
undetermined and specific dollar contracts for
services. The Company has found that the
undetermined dollar contracts are longer term
and give it more flexibility in being responsive
to customers' needs. Due to the number and
nature of undetermined dollar contracts and
customer scheduling changes which may effect the
timing of contract initiation and completion, it
is difficult for management to place an exact
dollar value on its present uncompleted
contracts.
INSURANCE
In addition to insurances required by statute,
the Company maintains insurance coverage for
general liability. Based on scope of
operations, subsidiaries maintain environmental
and pollution liability insurance as may be
applicable.
Liabilities associated with nuclear incidents are
not covered by those policies and are not
otherwise insurable by the Company. Federal
legislation provides liability protection
coverage for certain damages caused by nuclear
incidents, generally including bodily injury to
the general public and off site property damage.
Certain types of risk (for example, on-site
property damages and bodily injury to Company
personnel and employees of the nuclear facility)
are not covered by this system and are not
otherwise insurable by the Company. Few of the
Company's contracts with clients contain a
waiver of liability; thus, to the extent that it
is neither insured nor protected by an
enforceable waiver or an enforceable limitation
of liability, the Company could be materially
adversely affected by a nuclear incident. To
the extent possible, the Company requests being
listed as a named insured on its clients'
insurance policies in an effort to reduce risk.
PERSONNEL
The seasonality of the business causes the
employment of the Company to vary widely
throughout the year. During the fiscal year
ending September 30, 1995, the number of
personnel employed at one time by the Company
fluctuated between approximately 750 and 1,770.
Cannon Sline utilizes non-union managerial and
clerical employees and supplies union labor from
the International Brotherhood of Painters and
Allied Trades (IBPAT) on an as-needed, project
by project basis. Pertinent collective
bargaining agreements between IBPAT, its
district and/or its local unions and Cannon
Sline are: Collective bargaining agreements
between District Council No. 21 Brotherhood of
Painters and Allied Trades, and the Associated
Master Painters and Decorators of Philadelphia
and Vicinity and Cannon Sline (expires
04/30/98); National Power Generating Facilities
Agreement between IBPAT, AFL-CIO-CFL and Cannon
Sline; Corrosion Control Agreement in Industrial
Plants between IBPAT, AFL-CIO-CFL and Cannon
Sline; Agreement between Houston Chapter
Painting and Decorating Contractors of America,
Houston, Texas and the IBPAT Local Union No. 130
and Cannon Sline; Fire-Retardant Coatings
Agreement between IBPAT, AFL-CIO-CFL and Cannon
Sline; National Tank Agreement between IBPAT,
AFL-CIO-CFL and Cannon Sline; National
Rubberlining Agreement between the International
Brotherhood of Boilermakers, Iron Shipbuilders,
Blacksmiths, Forgers and Helpers, AFL-CIO and
Cannon Sline;
National Bridge & Tunnel Agreement between
IBPAT, AFL-CIO-CFL and Bridge Painting
Contractors and National Erectors Association
National Maintenance Agreement between IBPAT,
AFL-CIO-CFL and Cannon Sline.
Unless otherwise noted, the foregoing agreements
provide for annual renewal absent written
notice. Cannon Sline does not expect any
significant difficulty in renewal of its
agreements with IBPAT or its associates.
Henze primarily utilizes non-union employees at
all plant locations with the exception of
Henze's Portage, Indiana facility which is
subject to a collective bargaining agreement
with the United Steelworkers Union, AFL-CIO-CLC
(expires August 1996).
The following table sets forth the number of the
Company's union and non-union employees for the
period indicated.
The following table sets forth the number of the
Company's union and non-union employees for the
period indicated.
<TABLE>
<CAPTION>
Description At Year Ended September 30
1993 1994 1995
<S> <C> <C> <C>
Union Professional
and Technical Personnel 17 612 630
Non-Union Professional
and Technical Personnel 936 653 754
Clerical, Administrative,
Sales, and Management
Personnel 69 176 172
Total Personnel 1,022 1,441 1,556
</TABLE>
ITEM 2 PROPERTIES
The Company and its subsidiaries maintained
approximately 300,000 square feet for office and
shop/storage facilities. The list below
identifies facilities used by NSSI and its
subsidiary companies to support contract service
and staff augmentation operation activities in
all industries:
5600 Woodland Ave., Philadelphia, PA, 19143
(owned)
5308 Greenway Ave., Philadelphia, PA, 19143
(parking lot-owned)
5935 South Florida Ave., Lakeland, FL, 33813
(owned)
1851 Old Bermuda Hundred Road, Chester, VA, 23831
(owned)
3200 Elliswood Road, Lake Charles, LA (owned)
6900 North Loop East, Houston, TX, 77028 (owned)
1154 South River Road, Longview, WA, 99302 (lease
- expires 06/1997)
4208 West Clearwater Street, Kennewick, WA, 99302
(month to month lease)
1130 West Avenue, Cartersville, GA, 30120 (lease
- expires 12/2003)
2124 East Bakerview Drive, Bellingham, WA, 98226
(lease - expires 12/1999)
1447 West 27th Street, Norfolk, VA, 23508 (lease
- expires 08/1997)
4780 South 23rd Street, Beaumont, TX, 77705
(lease - expires 10/1996)
407 Old Mill Road, Cartersville, GA, 30120 (lease
- expires 12/2003)
State Road 149, Burns Harbor Industrial Park,
Portage, IN, 46368 (lease - expires 08/1997)
2007 East Stewart Street, Tacoma, WA, 98421
(lease - expires 01/1998)
4133 North Canal Street, Jacksonville, FL, 32209
(building owned-closed)
507 Diaz Street, Prichard, AL, 36610 (building
owned-closed)
32292 Tide Creek Road, Deer Island, OR, 97054
(open-end lease)
160 N. Forge Street, Palmyra, PA, 17078 (month to
month lease)
l902 Taylors Lane, Suite C, Cinnaminson, NJ,
08077 (month to month)
1178 North Grove Street, Unit D, Anaheim, CA,
92806 (month to month lease)
22 Northeast Drive, Hershey, PA, 17033 (lease -
expires 01/2005)
23 Schoolhouse Road, Old Saybrook, CT, 06475
(lease - expired 01/1996)
124 Route 6A, Sandwich, MA, 02563 (lease -
expires 05/1996)
109 East Jefferson Ave., Suite 18, Oak Ridge, TN,
37830 (month to month lease)
44 Penn Ave., Niantic, CT, 06357 (month to month
lease)
12401 Folsom Blvd., Suite 305, Rancho Cordova, CA
95742 (month to month lease)
140 Sheldon Road, Berea, OH 44017 (month to
month lease)
33731 Northcrest Rd., Suite 5, Atlanta, GA 30340
(month to month lease)
There are no major encumbrances on NSSI's real
properties with the exception of liens granted
to Chemical Bank on the Philadelphia, PA;
Lakeland, FL; Houston, TX; Lake Charles, LA;
Chester, VA and Jacksonville, FL properties
pursuant to the Chemical Bank revolving credit
and term loan agreement.
ITEM 3 LEGAL PROCEEDINGS
The Company or its subsidiaries are involved in
various claims and legal actions arising in the
ordinary course of business. In the opinion of
management, the ultimate disposition of these
matters will not have a material adverse effect
on the Company's consolidated financial
position.
On November 25, 1994, NSSI filed suit against
Westinghouse Electric Corporation in the Dauphin
County, Pennsylvania Court of Common Pleas
alleging the breach by Westinghouse of various
terms of the Asset Purchase Agreement and
related Supply Agreement dated January 7, 1991.
This suit is in the preliminary stages of
litigation and seeks monetary damages.
On September 1, 1995, Oliver B. Cannon & Son,
Inc., a wholly owned subsidiary of the Company
(Nuclear Support Services, Inc.), filed a
voluntary petition under Chapter 11 of the
Bankruptcy Code. On September 5, 1995, the
Company and its other subsidiaries also filed
for protection under Chapter 11. Those
subsidiaries are Sline Industrial Painters,
Inc., NSS Numanco, Inc., NSS of Delaware, Inc.,
IceSolv, Inc., and Henze Services, Inc. All
cases were filed in the United States Bankruptcy
Court for the Middle District of Pennsylvania in
Harrisburg. A number of first day orders were
presented to the Court, including an order
allowing joint administration under the style
and case of the parent, Nuclear Support
Services, Inc. at case number 1-95-01767. Since
the dates of the petitions, all of the debtors
have continued to operate their business as
debtors in possession under Section 1107 (a) of
the Bankruptcy Code. On January 31, 1996, the
Company filed its Joint Plan of Reorganization.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Information contained on in the Company's 1995
Annual Report to Shareholders entitled "Stock
Highlights as of September 30, 1995" is hereby
incorporated by reference. No cash dividends
have been declared for the two most recent
fiscal years. The market price as of December
8, 1995 for a common share was $1.25.
ITEM 6 SELECTED FINANCIAL DATA
Information contained in the Company's 1995
Annual Report to Shareholders entitled
"Financial Highlights" is hereby incorporated by
reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information contained in the Company's 1995
Annual Report to Shareholders is hereby
incorporated by reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information contained in the Company's 1995
Annual Report to Shareholders is hereby
incorporated by reference.
ITEM 9 CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required by Item 10 is presented
under captions "Election of Directors,"
"Executive Officers," and "Compliance with
Section 16(a)" in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be
held March 5, 1996 and is incorporated herein by
reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by Item 11 presented
under the caption "Committees and Meetings, and
under several captions commencing with
"Executive Compensation" and continuing through
and including "Performance Graph," in the
Company's Proxy Statement for the Annual Meeting
of Shareholders to be held March 5, 1996 and is
incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is presented
under the caption "Security Ownership of Certain
Beneficial Owners and Management," in the
Company's Proxy Statement for the Annual Meeting
of Shareholders to be held March 5, 1996 and is
incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information required by Item 13 is presented
under captions, "Compensation Committee
Interlocks and Insider Participation," and
"Certain Transactions," in the Company's Proxy
Statement for the Annual Meeting of Shareholders
to be held March 5, 1996 and is incorporated herein by
reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
A. Financial Statements
Items included in the Company's 1995 Annual
Report to Shareholders, incorporated herein
by reference in ITEM 8.
Independent Auditors' Report.
Consolidated Statements of Operations for
the Years ended September 30, 1995, 1994
and 1993.
Consolidated Balance Sheets as of September
30, 1995 and 1994.
A. Financial Statements (continued)
Statements of Shareholders' Equity for the
Years ended September 30, 1995, 1994 and
1993.
Consolidated Statements of Cash Flows for
the Years ended September 30, 1995, 1994
and 1993.
Notes to Consolidated Financial Statements.
Financial Statement Schedule (incorporated
herein by reference and filed as exhibits)
Independent Auditors' Report - Schedule.
Schedule VIII - Valuation and Qualifying
Accounts.
Schedules other than that referred to above
are omitted because they are either not
applicable or not required.
B. Reports on Form 8-K
Form 8-K filed September 20, 1995 relating
to the Bankruptcy.
C. Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description of Document
<S> <C>
2.1 Asset Purchase Agreement By
and Among Westinghouse
Electric Corporation,
Westinghouse Staffing
Services, Inc., Nuclear
Support Services, Inc., Henze-
Movats Incorporated, and NSS
of Delaware, Inc. dated
January 7, 1991 (excluding
schedules appurtenant
thereto, filed as Exhibit
2(f) to the Company's Form 8-
K dated January 20, 1991 and
incorporated herein by
reference.
2.2 Agreement for purchase of
stock of Oliver B. Cannon &
Son, Inc. and Sline
Industrial Painters, Inc.
(filed as Exhibit 2.1 to the
Company's form 8-K dated
November 19, 1993 and
incorporated herein by
reference).
3.1 Articles of Incorporation of
the Company, as amended
(filed as Exhibit 3.1 to
Registration Statement on
Form S-1 (No. 2-74351), and
incorporated herein by
reference).
3.2 By-laws of the Company (filed
as Exhibit 3.2 to
Registration Statement on
Form S-1 (No. 2-74351), and
incorporated herein by
reference).
4.1 Specimen Certificate
Representing Common Stock
(filed as Exhibit 4.1 to
report on Form 10-K for the
fiscal year ended September
30, 1985 and incorporated
herein by reference).
10.1 1990 Stock Option Plan (filed
as Exhibit 28.2 to
Registration Statement on
Form S-8 (No. 33-33180) and
incorporated herein by
reference)
10.2 Credit Agreement dated
November 19, 1993 between
Nuclear Support Services,
Inc. and Chemical Bank (filed
as Exhibit 10.2 to Company's
Form 10-K dated December 23,
1993 and incorporated herein
by reference.
13 1995 Annual Report to
Shareholders (Note 1).
22 Subsidiaries of the
Registrant.
23 Accountants' Consent.
27 Financial Data Schedule
99.1 Index to Financial Statement
Schedule.
99.2 Independent Auditors' Report -
Schedule.
99.3 Schedule VIII - Valuation and
Qualifying Accounts.
</TABLE>
NOTE 1. With the exception of information incorporated
in this 10-K by reference thereto, the Company's 1995
Annual Report to Shareholders shall not be deemed
"filed" as part of this form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
Annual Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DATE: February 6, 1996 NUCLEAR SUPPORT SERVICES, INC.
/s/ Ralph A. Trallo
Ralph A. Trallo
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons, on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Joe C. Quick Chairman of the Board February 6, 1996
Joe C. Quick Director
/s/ Robert A. Hess Director February 6, 1996
Robert A. Hess
/s/ Dale L. Ferguson Director February 6, 1996
Dale L. Ferguson
/s/ Lawrence Petcovic Director February 6, 1996
Wm. Lawrence Petcovic
Director February 6, 1996
Heath L. Allen
Director February 6, 1996
Thomas P. McShane
Director February 6, 1996
Donald E. Lyons
/s/ Ralph A. Trallo President, CEO February 6, 1996
Ralph A. Trallo Director
/s/ Michael J. Olson Chief Financial February 6, 1996
Michael J. Olson and Accounting
Officer
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Pg#
<S> <C>
13 1995 Annual Report to Shareholders
22 Subsidiaries of the Registrant
23 Accountant's Consent
27 Financial Data Schedule
99.1 Index to Financial Statement Schedule
99.2 Independent Auditors' Report
99.3 Schedule VIII - Valuation and Qualifying Accounts
</TABLE>
Exhibits to this 1995 Annual Report on Form 10-K will
be furnished to each shareholder upon written request
to the Secretary of the Company at 22 Northeast Drive,
Hershey, Pennsylvania, 17033.
About the Company
Nuclear Support Services, Inc. (NSSI) provides diversified
services to power generation, petro-chemical and refining, pulp
and paper and various other general industries. The Company is
comprised of three operating subsidiaries: NSS Numanco, Inc.,
IcsSolv, Inc. and Cannon Sline (a combination of Oliver B.
Cannon & Son, Inc. and Sline Industrial Painters, Inc.)
NSSI is an integrated service company which provides a range
of maintenance, repair and technical services on an as-needed basis
through the Company's operating subsidiaries.
Services are delivered through either staff augmentation
or as contract services.
The Company's staff augmentation services include
the areas of radiological protection; decontamination;
mechanical, instrumentation and electrical maintenance;
and professional services. Contract services includes
cleaning, surface preparation, decontamination, painting,
specialty coatings and linings, identification
systems and passive fireproofing systems.
Letter to Shareholders
1995 was a very difficult year for NSSI. It's net loss of
$2,849,000 stemmed primarily from the continued losses in
the Company's valve maintenance business, the write-offs
management elected to book in March and a substantial tax
accrual attributable to prior years. While this is not the
financial result any of us wanted to see, much of it was
caused by our efforts to restructure the Company for the
future. In fact, absent business restructuring expenses and
reorganization costs, continuing operations posted pre-tax
income of $1,122,000.
While the bankruptcy filing interrupted the momentum
gained in the second and third quarters, the fourth quarter
ended with positive results of $208,000 net of prior year
tax accruals of $750,000.
Retaining the diversification strategy of the prior
year, the Company has executed a letter of intent to sell
the commercial nuclear power staff augmentation support
business. This, coupled with the anticipated divestiture
of Henze, will result in a company with a new and improved
complexion.
Our bankruptcy exit plan provides for a revised
corporate structure, a new name and substantial debt
reduction accomplished through divestitures, the sale of
assets and positive cash flow generated from operations. It
retains our strategy to broaden services, balance our market
mix, reduce seasonality and increase profits. We plan to
continue to develop a company which is service driven
and which operates through subsidiaries possessing distinct
yet synergistic competencies. Additionally, these
subsidiaries have the capability to perform coincident
services which broadens our market penetration.
We are proud that as we exit from bankruptcy and
implement our plan, it is our intention that all creditors
will be paid every dollar owed to them. We sincerely thank
those vendors and customers who have supported the Company
throughout the past few months and anticipate that they
will be rewarded when the plan is approved and we emerge
as a most formidable presence in the market place.
Our focus on initiatives for growth is not diminished.
The reduction of revenues through divestitures will not
reduce earnings but enhance them and will allow working
capital to be directed toward higher margin services. While
we have achieved a balanced market mix we have not totally
overcome seasonality and will continue to strive toward
further diversification. Our strategy continues to be growth
in synergistic contract services to produce consistent profits
and value for our shareholders.
The efforts and dedication of our staff have been
outstanding and are greatly appreciated, especially during
the difficult environment brought on by the bankruptcy
filing near the end of the year and the comprehensive
restructuring efforts which began earlier which resulted
in fewer people doing more work. During all of this, they
managed to maintain high spirits while shouldering the
additional work load and maintaining quality performance.
On behalf of the Board of Directors, we wish to express
our appreciation to you, our shareholders, for your patience
and support during this most difficult year. With the
anticipation that our restructuring and backruptcy will be
behind us shortly, we look forward to sharing our expected
success with you going forward.
/s/ Ralph A. Trallo /s/ Joe C. Quick
Ralph A. Trallo Joe C. Quick
President and Chairman of the
Chief Executive Officer Board
Liquidity and Capital Resources
The Company's ability to generate cash adequate to meet its
needs depends primarily upon payments for its services and
periodic bank borrowings. These sources of liquidity are
reduced by the payment of direct costs, taxes, purchase of
property and equipment and periodic repayment of the
Company's revolving lines of credit and term debt.
The Company experienced a net loss of $2,849,000 on a
consolidated basis for fiscal year 1995 resulting primarily
from charges of approximately $3,400,000 for business
restructuring activities taken in the second quarter, an
accrual of $750,000 for Federal income taxes relating to
prior years and $185,000 of reorganization costs related
to bankruptcy. As a result of losses recognized
during the year, the Company, as reported, was not in
compliance with certain debt covenants under its lending
arrangement.
At the end of August 1995, the participating
lender and, in turn, its agent lender under the Company's
financing agreement, refused to continue funding the
Company's working capital line. This resulted in a
cessation of cash flow necessary to fund operations.
In the first week of September 1995, the Company and
its subsidiaries filed voluntary bankruptcy petitions under
Chapter 11 reorganization in the U.S. Bankruptcy Court for
the Middle District of Pennsylvania in Harrisburg which are
jointly administered at Case Number 1-95-1767. This action
became necessary for the Company to gain access to its own
cash for continued operations. Subsequently, the Company
was able to obtain a $3,500,000 debtor-in-possession
revolving credit and continue operations as
debtor-in-possession.
At September 30, 1995, the Company had borrowed
approximately $8,477,000 on its revolving credit line of
$18,000,000 and approximately $963,000 on its debtor-in-
possession revolving credit agreement and had an
outstanding principal balance of $5,586,524 on its long term
secured loan obligation. The Company is in compliance
with the covenants under its debtor-in-possession financing
arrangement.
On January 31, 1996 the Company filed its proposed
reorganization plan which is discussed below. The plan
anticipates full payment to the Company's creditors.
At September 30, 1995, the Company had working capital
of approximately $7,435,000 compared to working capital of
$11,743,000 for fiscal year end 1994. The decrease in
working capital was due primarily to the reclassification of
the Company's revolving loan notes payable to the bank of
approximately $9,400,000 from long term debt to current
liabilities, offset somewhat by an increase in accounts
receivable of approximately $5,000,000 primarily due to a
significant increase in revenue over the prior year's fourth
quarter revenues.
The Company anticipates that current working capital as
of September 30, 1995, cash provided by operations and
available bank credit will be sufficient to meet cash needs
through April, 1996. It also anticipates that improved
operating results in 1996 and the completion of current
negotiations with lenders will result in obtaining a multi-
year financing arrangement sufficient to allow the Company
to emerge from bankruptcy and to meet the Company's cash
needs going forward. Capital expenditures of approximately
$400,000 are budgeted for the coming year for additional
equipment to support existing and expected future contract
work.
Results of Operations 1995 Compared to 1994
During 1995, the Company determined that the valve repair
business as then currently conducted by its Henze
subsidiary, did not fit the Company's future strategy.
Steps have been taken to divest of this activity and it is
identified in the financial statements as a discontinued
operation. As a result, the line items on the Company's
Consolidated Statement of Operations for 1995 from "Revenues
from services" through "Loss from continuing operations" (inclusive)
are presented absent the effects of Henze's operations (which are
identified as discontinued operations and presented as a separate
line item on a net basis). Results from continuing and
discontinued operations are then combined
to produce net income. Results of operations
for fiscal years ending 1994 and 1993 are restated
accordingly.
The expansion and cross-marketing of staff augmentation and maintenance
services among the operating subsidiaries in recent years and
broadened market mix in fiscal 1995 has led management to conclude
that a discussion of comparative results on a market basis to be
preferrable.
Fiscal year 1995 revenues were $83,116,000 compared to
$83,729,000 for fiscal year 1994. The power generation market
contributed $44,255,000 or fifty-three percent (53%) of 1995
total revenues compared to $54,361,000 or sixty-five
percent (65%) of fiscal year 1994 revenues. The petro-chemical
business accounted for seventeen percent (17%) of revenues
compared to fourteen percent (14%) in fiscal year 1994. The
pulp and paper industry contributed fifteen percent (15%) of
revenue in 1995 versus eleven percent (11%) in fiscal year 1994. The
revenue contribution of all other businesses collectively
was fifteen percent (15%) compared to ten percent (10%) in
fiscal year 1994. These shifts in market contribution reflect the
effectiveness of the Company's diversification strategy.
The consolidated gross margin increased nine percent
(9%) in 1995 to $12,901,000 attributable to the Company's focus on
its more profitable lines of business. Margin contribution
from the power generation industry decreased fourteen percent (14%) to
$6,376,000. These were more than offset by gains from the
petro-chemical, pulp and paper and other
industries combined which contributed $6,525,000 compared to
$4,460,000 the prior year.
Consolidated general and administrative expenses
increased to $12,177,000 from $10,932,000 in fiscal year
1994. The increase in 1995 included one time business restructuring
expenses of $2,209,000. Net of these expenses, general and
administrative expenses decreased to $9,968,000 or twelve percent
(12%) of revenues compared to thirteen percent (13%) in fiscal year 1994.
Income from operations decreased to $724,000 from
$909,000 in fiscal year 1994 as gains made in gross margin
and reduction of ongoing general and administrative expenses
were offset in 1995
by the one-time business restructuring expenses.
Interest expenses increased from the prior year by
$313,000 to $1,554,000. This increase was attributable to
higher interest rates for 1995 over 1994.
As a result of recognizing an income tax accrual of
$750,000 related to prior years, offset somewhat by a
reduction in its valuation allowance, the Company's income
tax benefit was only $171,000. Fiscal year 1994 had an
income tax benefit of $111,000. (See note 6 to the
Consolidated Financial Statements)
Net loss from continuing operations in 1995 was $844,000
compared to a loss of $125,000 for fiscal year 1994
primarily due to the restructuring expenses of $2,209,000
noted above. Losses attributable to discontinued operations
were $2,005,000 versus $518,000 a year ago. Combining the
loss from continuing operations and discontinued operations,
the Company posted a net loss of $2,849,000 or $1.31 per
share loss for the year compared to a loss of $642,000 or
$0.30 per share loss in fiscal year 1994. Absent
business restructuring and prior year tax accruals the net
income was $1,491,000 or $0.69 per share.
Results of Operations 1994 Compared to 1993
Total revenues during fiscal year 1994 increased by
$34,324,000 to $83,729,000 or sixty-nine percent (69%) when
compared to fiscal year 1993 revenues of $49,405,000. This
increase was primarily attributable to the acquisition of
Cannon Sline, offset somewhat by revenues in the power
market which declined approximately $10,000,000 when compared
to fiscal 1993. Of the Company's consolidated 1994
revenues, sixty-five percent (65%) were for services to the
power market as compared to essentially one hundred
percent (100%) for fiscal year 1993.
In fiscal year 1994, petro-chemical business accounted
for fourteen percent (14%) of revenues, the pulp and paper
industry contributed eleven percent (11%) and the revenue
contribution of all other businesses collectively was
ten percent (10%). There was no appreciable
business in any of these markets in fiscal year 1993.
The consolidated gross margin for fiscal year 1994
compared to fiscal year 1993 increased sixty-seven
percent (67%) to $11,842,000. Margin contribution from the
power industry increased four percent (4%) to $7,382,000.
Petro-chemical, pulp and paper and other industries combined
contributed $4,460,000.
Consolidated general and administrative expenses
remained constant at thirteen percent (13%) of revenues for
fiscal years 1993 and 1994 despite the new mix of
business resulting from the acquisition of Cannon Sline.
Income from operations increased to $909,000 from a
loss of $1,688,000 in fiscal year 1993.
Interest expense in 1994 increased from the prior year by
$688,000 to $1,241,000 due to an increase in debt associated
with the Cannon Sline acquisition and operations and because
of increases in in the prime rate during the fiscal year.
The Company's had an income tax benefit of $111,000 in 1994
compared to a benefit of $758,000 in fiscal year 1993.
Net loss from continuing operations posted a $125,000
loss in 1994 compared to a loss of $1,492,000 in 1993.
Combining the loss from continuing and discontinued operations,
the Company posted a net loss of $642,000 or $0.30 per
share loss for 1994 compared to a loss of $2,997,000 or a
$1.38 per share loss in fiscal year 1993.
Looking Ahead
On January 31, 1996, the Company filed the Joint
Disclosure of its Reorganization Plan. The Plan includes
changes which simplify the corporate structure, making it
more cost effective. It also includes the divestiture
of the commercial nuclear power staff augmentation business
of NSS Numanco, Inc. and the asset sale of Henze
Services, Inc. The resulting organization will include
Cannon Sline and Icesolv reporting to a newly formed parent
yet to be named. Our new Company will bear all the
strengths of Nuclear Support Services, Inc. but will shed
the weaknesses brought about by the changing nuclear power
industry, the stigma associated with the nuclear market,
the shrinking market and the lower margins.
Financially the Plan anticipates an increase in equity,
an increase in available working capital and debt reduction.
A new revolving credit facility at substantially lower
interest rates is being negotiated as is a five year term
loan. The Plan anticipates all creditors of the Company to
be paid in full.
The remaining operating Companies will be stronger and
more efficient. Cannon and Sline will be legally merged.
Icesolv's expanded role will result in an economy of scale
needed to allow the business to grow. While each of the
Companies will retain its core competency, both have the capability
to provide the total range of
services provided by the other. Administratively, all
subsidiaries will be operating on the same data processing
system and internal controls. This will provide real time
reporting affording operations management the tools to react
quickly to changing conditions.
The Reorganization Plan provides the opportunity to
advance management's timetable to achieve a balanced
market mix as illustrated by the charts below.
<TABLE>
NSSI Revenues - 1994
Continuing Operations
<CAPTION>
Revenue Market % Revenue
<S> <C>
Power 65%
Petro 14%
Pulp & Paper 11%
Other 10%
</TABLE>
<TABLE>
NSSI Revenues - 1995
Continuing Operations
<CAPTION>
Revenue Market % Revenue
<S> <C>
Power 53%
Petro 17%
Pulp & Paper 15%
Other 15%
</TABLE>
<TABLE>
NSSI Revenues - 1995
Pro Forma After Reorganization
<CAPTION>
Revenue Market % Revenue
<S> <C>
Power 28%
Petro 26%
Pulp & Paper 23%
Other 23%
</TABLE>
An implementation date of the Plan of Reorganization
of April 1, 1996 is anticipated subject to certain
contingencies including the successful sale of assets,
negotiation of a replacement credit facility and ultimate
approval of the Plan by the court.
The seasonality of our new company should shift from a
bar bell to a traditional bell curve. The slowest period is
expected be the first calendar quarter while the peak of our
season is expected to be late summer. This shift in
business seasonality warrants the change of our fiscal year
to a March 31 ending. Management is taking the necessary
steps to affect this change under the plan of reorganization.
Preliminary results ofoperations for the first quarter
of fiscal year 1996 indicate a net profit of approximately
$171,000 or $0.08 per share. Substantial costs associated
with the outside professional support required by the
bankruptcy proceeding are expected in the second quarter
of 1996. It is anticipated that these costs will depress
earnings for that period.
Independent Auditors' Report
To The Board of Directors and Shareholders
Nuclear Support Services, Inc.:
We have audited the accompanying consolidated balance sheets
of Nuclear Support Services, Inc. and subsidiaries as of
September 30, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended
September 30, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Nuclear Support Services, Inc. and
subsidiaries at September 30, 1995 and 1994 and the results
of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1995, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 5 to the consolidated
financial statements, the Company is in default on its
revolving credit agreement and has sustained losses in
recent years. These events raise substantial doubt about
its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note
5. The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
November 17, 1995, except as to note 14, which is as of
January 31, 1996.
Atlanta, Georgia
<TABLE>
Nuclear Support Services, Inc. and Subsidiaries
(Debtor-in-Possession)
Consolidated Statements of Operations
Years ended September 30, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues from
services (note 8)$83,115,904 83,729,024 49,405,472
Cost of services 70,215,224 71,887,234 42,321,913
Gross margin 12,900,680 11,841,790 7,083,559
General and
administrative
expenses 12,176,557 10,932,301 6,340,080
Write-off of
intangible assets
and excess of cost
over net assets of
businesses
acquired (note 10) - - 2,431,970
Income (loss)
from operations 724,123 909,489 (1,688,491)
Interest expense (1,554,135)(1,241,150) (553,594)
Other (expense)
income, net (190) 96,133 (7,853)
Loss before
reorganization
costs and
income taxes (830,202) (235,528)(2,249,938)
Reorganization costs (185,019) - -
Loss from
continuing
operations
before income
taxes (1,015,221) (235,528)(2,249,938)
Income tax
benefit -
(note 6) (171,000) (111,000) (758,000)
Loss from
continuing
operations (844,221) (124,528)(1,491,938)
Discontinued
operations
(note 10):
Loss from
operations
of dis-
continued
subsidiary
(net of
income tax
benefit of
$1,080,000,
$424,000 and
$742,000 in
1995, 1994,
and 1993,
respective-
ly) (2,004,755) (517,765)(1,505,094)
Net loss $(2,848,976) (642,293)(2,997,032)
Loss per share:
Continuing
operations (.39) (.06) (.69)
Discontinued
operations (.92) (.24) (.69)
Net loss $(1.31) (.30) (1.38)
Weighted average
common and
common
equivalent
shares 2,169,190 2,169,190 2,167,220
See accompanying notes to consolidated financial statements.
</TABLE>
Nuclear Support Services, Inc. and Subsidiaries
(Debtor-in-Possession)
Consolidated Statements of Shareholders' Equity
Years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common stock Treasury stock
Number Additional Number
of paid-in Retained of
shares Amount capital earnings shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September
30, 1992 2,476,242 $6,190 $3,494,542 $11,295,459 309,022 $(4,659,843) $10,136,348
Net loss - - - (2,997,032) - - (2,997,032)
Balance,
September
30, 1993 2,476,242 6,190 3,494,542 8,298,427 309,022 (4,659,843) 7,139,316
Exercise
of options - - (22,036) - (1,970) 29,706 7,670
Net loss - - - (642,293) - - (642,293)
Balance,
September
30, 1994 2,476,242 6,190 3,472,506 7,656,134 307,052 (4,630,137) 6,504,693
Net loss - - - (2,848,976) - - (2,848,976)
Balance,
September
30, 1995 2,476,242 $6,190 $3,472,506 $4,807,158 307,052 $(4,630,137) $3,655,717
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Nuclear Support Services, Inc. and Subsidiaries
(Debtor-in-Possession)
Consolidated Balance Sheets
September 30, 1995 and 1994
<CAPTION>
1995 1994
<S> <C> <C>
Assets
Current assets
Cash $1,849,267 1,910,947
Accounts receivable,
net (notes 3 and 5):
Billed 19,990,695 14,803,818
Unbilled 333,723 1,069,313
Other 939,755 616,710
Total accounts
receivable 21,264,173 16,489,841
Inventory (note 5) 1,206,417 1,635,151
Deferred income taxes
(note 6) 2,078,000 822,000
Prepaid insurance 920,177 2,814,168
Other prepaid expenses
and current assets 760,270 984,673
Costs and estimated earnings
in excess of billings on
uncompleted contracts
(note 3) 2,760,439 1,361,263
Total current assets 30,838,743 26,018,043
Property and equipment
(note 5):
Land 964,100 964,100
Buildings and improvements 1,986,786 2,111,339
Machinery and equipment 7,688,132 7,481,577
Furniture and fixtures 2,173,200 2,137,291
Vehicles 689,284 390,635
13,501,502 13,084,942
Less accumulated
depreciation 6,828,442 5,571,929
6,673,060 7,513,013
Deferred income taxes
(note 6) 419,000 478,000
Excess of cost over
net assets of
businesses acquired,
net of
amortization of $532,868
and $458,924 in 1995 and
1994, respectively 1,127,663 1,201,607
Other assets 330,799 278,704
Total assets $39,389,265 35,489,367
</TABLE>
<TABLE>
Liabilities and Shareholders' Equity
<CAPTION>
1995 1994
<S> <C> <C>
Liabilities not subject
to compromise
Current liabilities:
Notes payable (note 5) $3,540,512 2,754,103
Notes payable to bank
(note 5) 9,440,147 -
Current portion of
long-term debt
(note 5) 1,402,524 1,236,125
Accounts payable 3,193,796 4,092,378
Accrued payroll and
employee benefits
(note 7) 2,737,211 2,930,327
Billings in excess of
costs and estimated
earnings on uncompleted
contracts (note 3) 779,721 368,581
Other accrued
expenses (note 10) 2,309,903 2,893,431
Total current
liabilities 23,403,814 14,274,945
Liabilities subject to
compromise under
reorganization
proceedings
(note 4) 8,145,734 -
Note payable to bank
(note 5) - 9,140,523
Long-term debt,
less current
portion (note 5) 4,184,000 5,569,206
Total liabilities 35,733,548 28,984,674
Shareholders' equity
(note 9):
Common stock, $.0025
par value, authorized
10,000,000 shares,
issued 2,476,242 shares;
outstanding 2,169,190
shares 6,190 6,190
Additional paid-in capital 3,472,506 3,472,506
Retained earnings 4,807,158 7,656,134
Treasury stock, at cost (4,630,137) (4,630,137)
Total shareholders'
equity 3,655,717 6,504,693
Commitments and
contingencies
(notes 7 and 11)
Total liabilities
and shareholders'
equity $39,389,265 35,489,367
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Nuclear Support Services, Inc. and Subsidiaries
(Debtor-in-Possession)
Consolidated Statements of Cash Flows
Years ended September 30, 1995, 1994, and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from
operating activities:
Net loss $(2,848,976) (642,293)(2,997,032)
Adjustments to
reconcile net
loss to net cash
provided by
operating
activities:
Depreciation and
amortization 1,441,179 1,493,619 1,528,116
Deferred income
taxes (1,197,000) (583,000)(1,056,000)
Provision for
restructuring
charges - - 440,059
Write-off of
intangible
assets and
excess of cost
over
net assets of
businesses
acquired - - 2,431,970
Other 1,640 373 (11,680)
Change in assets and
liabilities net of
effects
from purchases of
subsidiaries:
(Increase) decrease
in accounts
receivable (4,774,332) 2,700,422 3,625,025
Decrease (increase)
in inventory 428,734 (290,808) (214,239)
Decrease (increase)
in prepaid
expenses and
other
current assets 2,118,394 (442,617) (466,392)
(Increase) decrease
in costs and
estimated
earnings in excess
of billings on
uncompleted
contracts (1,399,176) 1,054,379 -
Decrease (increase)
in other assets 129,100 139,357 (92,292)
Increase (decrease)
in accounts
payable 4,853,357 994,149 (364,559)
Increase (decrease)
in accrued payroll
and employee
benefits 248,683 (413,328) (597,634)
Increase (decrease)
in accrued
expenses 1,304,819 734,420 (106,949)
Increase (decrease)
in billings in
excess
of costs and
estimated
earnings on
uncompleted
contracts 411,140 (1,929,331) -
Decrease in other
liabilities - - (39,144)
Net cash
provided by
operating
activities 717,562 2,815,342 2,079,249
Cash flows from
investing
activities:
Sale of property
and equipment 5,887 45,348 22,019
Sale of marketable
securities 37,232 - 45,062
Acquisition of
businesses, net of
cash acquired - (8,315,335) -
Purchase of
property
and equipment (534,809) (986,975) (685,845)
Purchase of
marketable
securities (218,427) - (145,325)
Net cash
used by
investing
activities (710,117) (9,256,962) (764,089)
Cash flows
from financing
activities:
Net borrowings
(payments) on
notes payable 1,086,033 1,568,162(1,241,750)
Principal payments
on long-term
debt (1,155,158) (455,283) (143,954)
Proceeds from
long-term debt - 7,000,000 -
Exercise of
stock options - 7,670 -
Net cash
provided
(used) by
financing
activities (69,125) 8,120,549 (1,385,704)
Net increase
(decrease)
in cash (61,680) 1,678,929 (70,544)
Cash at beginning
of year 1,910,947 232,018 302,562
Cash at end of year $1,849,267 1,910,947 232,018
See accompanying notes to consolidated financial statements.
</TABLE>
Nuclear Support Services, Inc. and Subsidiaries
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
1. Plan of Reorganization and Basis of Presentation
On September 5, 1995 (the "Petition Date"), Nuclear Support
Services, Inc. (the "Debtor") filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code
(Chapter 11) in the United States Bankruptcy Court for the
Middle District of Pennsylvania in Harrisburg. Under
Chapter 11, certain claims against the Debtor in existence
prior to the filing of the petition for relief under the
federal bankruptcy laws are stayed while the Debtor
continues business operations as Debtor-in-possession.
These claims are reflected in the September 30, 1995 balance
sheet as "liabilities subject to compromise under
reorganization proceedings." Additional liabilities subject
to compromise may arise subsequent to the filing date
resulting from rejection of executory contracts, including
leases, and from the determination by the court (or agreed
to by parties-in-interest) of allowed claims for
contingencies and other disputed amounts. Claims secured
against the Debtor's assets ("secured claims") also are
stayed, although the holders of such claims have the right
to move the court for relief from the stay. Secured claims
are secured primarily by liens on the Debtor's accounts
receivable, inventory and property and equipment.
2. Summary of Significant Accounting Policies
(a) Basis of Consolidation
The consolidated financial statements include the accounts
of Nuclear Support Services, Inc. and its wholly-owned
subsidiaries (together referred to as the "Company"). All
significant intercompany transactions and balances have been
eliminated in consolidation. The results of operations of
the Company's Henze Services, Inc. subsidiary are shown as
discontinued operations for all years presented.
(b) Revenue and Cost Recognition
Revenues from fixed-price and modified fixed-price
construction contracts are recognized on the percentage-of-
completion method, measured by the cost-to-cost method.
Revenues from cost-plus-fee contracts are recognized on the
basis of costs incurred during the period plus the fee
earned, measured by the cost-to-cost method. Revenues from
time and material contracts are recognized as the work
progresses.
Contract costs include all direct material and labor
costs and those indirect costs related to contract
performance, such as indirect labor, supplies and
depreciation. General and administrative costs are charged
to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such
losses are determined.
The asset, "Costs and estimated earnings in excess of
billings on uncompleted contracts," represents revenues
recognized in excess of amounts billed. The liability,
"Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of
revenues recognized.
(c) Inventory
Inventory consists primarily of replacement parts and
operating supplies and is stated at cost determined on the
first-in, first-out (FIFO) basis.
(d) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided
using the straight-line method over the estimated useful
lives of the assets. Capital leases are included at the
capitalized amount less accumulated amortization.
Amortization of capital leases is included in depreciation
expense. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the terms of the
respective leases .
Maintenance and repairs are expensed when incurred, and
expenditures for improvements are capitalized. Any gains or
losses from the disposal of assets are recorded in the year
of disposal.
(e) Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired
(goodwill) is being amortized using the straight-line method
over 20 years. The Company assesses the recoverability of
goodwill based upon historical trends and projected future
results of operations of the acquired entities.
(f) Income Taxes
Deferred income taxes result primarily from temporary
differences between the financial statement carrying amounts
and the tax basis of assets and liabilities.
(g) Earnings Per Share
Earnings per share are computed on the weighted average
number of shares outstanding during the year. Included in
the weighted average number of shares outstanding are common
stock equivalents derived from dilutive stock options.
(h) Reclassifications
Certain reclassifications were made to the 1994 and 1993
consolidated financial statements to conform to
classifications adopted in 1995.
3. Costs and Estimated Earnings on Uncompleted Contracts
and Retainage
Costs and estimated earnings on uncompleted contracts at
September 30, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1995 1994
<S> <C> <C>
Costs incurred on
uncompleted contracts $44,574,622 20,681,464
Estimated earnings 9,880,804 4,088,311
54,455,426 24,769,775
Less: Billings to date 52,474,708 23,777,093
1,980,718 992,682
Included in the
accompanying
consolidated balance
sheets under the
following captions:
Costs and estimated
earnings in excess
of billings on
uncompleted contracts 2,760,439 1,361,263
Billings in excess of
costs and estimated
earnings on uncompleted
contracts (779,721) (368,581)
$1,980,718 992,682
</TABLE>
Accounts receivable billed include amounts retained by
customers, in accordance with contract provisions, of
approximately $835,000 and $856,000 at September 30, 1995
and 1994, respectively.
4. Liabilities subject to Compromise Under Reorganization
Proceedings
Certain pre-petition liabilities were approved by the
Bankruptcy Court for payment. At September 30, 1995, such
liabilities are included in accounts payable, accrued
payroll and employee benefits, and other accrued expenses.
Additionally, secured debt which is expected to be paid in
full in accordance with the original terms is included in
notes payable to bank. The remainder of the Company's pre-
petition liabilities whose disposition is dependent upon the
outcome of the Chapter 11 proceedings are classified as
liabilities subject to compromise under reorganization
proceedings in the accompanying consolidated balance sheet.
These liabilities are summarized as follows as of September
30, 1995:
<TABLE>
<S> <C>
Unsecured capital lease obligations $63,649
Trade accounts payable and other
unsecured liabilities 8,082,085
$8,145,734
</TABLE>
5. Long-Term Debt and Notes Payable
Long-Term Debt
The Company's long term debt is expected to be settled in
accordance with the terms of the Plan. The secured term
loan is expected to be paid in full in accordance with its
original terms. The Company's unsecured capital lease
obligations have also been classified as liabilities subject
to compromise under reorganization proceedings.
Long-term debt, based on original terms, is summarized as
follows:
<TABLE>
<CAPTION>
September 30, 1995 1994
<S> <C> <C>
Term loan payable to bank,
collateralized by the Company's
accounts receivable, inventory,
machinery and equipment,
real estate, general intangibles
and stock of all subsidiaries.
The note bears interest at
prime + 3% (11.75% at
September 30, 1995), and is
payable in monthly installments
through December 1, 1999. $5,586,524 6,670,000
Unsecured capital lease
obligations at effective
interest rates ranging from
7% to 22% 63,649 135,331
5,650,173 6,805,331
Less current maturities 1,402,524 1,236,125
Less liabilities subject to
compromise under
reorganization proceedings 63,649 -
$4,184,000 5,569,206
</TABLE>
Notes Payable
The Company has installment notes payable for insurance
premiums of $629,286 and $1,138,936 at September 30, 1995
and 1994, respectively. The notes are secured by unearned
premiums, dividends and loss payments under policies in
force. The note at September 30, 1995 bears interest at
6.99% with payments due in nine equal monthly installments
of $71,974 commencing October 30, 1995. Also included in
notes payable at September 30, 1995 and 1994 are cash
overdrafts of $2,911,226 and $1,615,167, respectively.
Notes Payable to Bank
The Company has a revolving loan agreement with two
participating financial institutions under which there is no
current availability to the Company and under which the
Company is currently in default. Amounts outstanding under
this revolving loan agreement were $8,477,305 and $9,140,523
at September 30, 1995 and 1994, respectively. The amount
outstanding under the agreement at September 30, 1995 is
classified as a current liability in the accompanying
consolidated balance sheet due to the events of default.
Borrowings bear interest generally at the prime rate plus 3%
(11.75% at September 30, 1995), are evidenced by demand
notes, and are secured by the Company's accounts receivable,
inventory, machinery and equipment, real estate, general
intangibles and stock of all subsidiaries. This agreement,
among other things, requires the Company to meet various
covenants including minimum levels of working capital and
net worth and expires November 1997. Commitment fees during
the revolving loan period are 1/4 of one percent of the
average daily unused amount of the revolving loan
commitment, payable on a quarterly basis. The Company is
also required to pay an annual collateral monitoring fee of
$115,000, payable in advance in quarterly installments. The
Company's revolving loan agreement is expected to be paid in
full in accordance with its original terms.
The maximum amount outstanding, the average amount
outstanding, and weighted average interest rate under its
lines of credit during the period for each year presented
are as follows:
<TABLE>
<CAPTION>
Weighted
Maximum Average average
amount outstandinginterest rate
September 30,outstanding balance during year
<S> <C> <C> <C>
1995 $13,729,000 9,509,000 11.53%
1994 13,151,000 9,407,000 8.49%
1993 9,642,000 7,236,000 6.81%
</TABLE>
On September 20, 1995, the Company entered into a
debtor-in-possession revolving credit and security agreement
with a bank which provides interim financing of up to
$3,500,000 for working capital needs and general corporate
purposes. The revolving credit facility is secured by a
super priority interest in all assets of Company, bears
interest at the prime rate plus 3% (11.75% at September 30,
1995), and expires February 28, 1996. At September 30,
1995, $962,842 was outstanding under this agreement and is
included in notes payable to bank in the accompanying
consolidated balance sheet.
As discussed above, the Company is in default on its
revolving credit agreement and has sustained losses in
recent years. The Company plans to sell its unprofitable
Henze Services., Inc. subsidiary and certain operations of
another subsidiary in an effort to generate cash to reduce
its debt and to return the Company to profitability. The
ability of the Company to continue as a going concern is
largely dependent upon its ability to achieve profitable
operations and to generate adequate future cash flows.
6. Income Taxes
The provisions of the Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes,
have been applied to these financial statements.
Income tax benefit relating to continuing operations
consists of the following:
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $579,000 325,000 140,000
State (88,000) 62,000 -
Total current 491,000 387,000 140,000
Deferred
- Federal
and state (662,000) (498,000) (898,000)
Total income
tax benefit $(171,000) (111,000) (758,000)
</TABLE>
The reconciliation between the tax benefit computed by
multiplying pretax loss from continuing operations by the
U.S. Federal statutory tax rate and the reported amounts of
income tax benefit is as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Computed at U.S.
statutory tax rate $(345,000) (80,000) (765,000)
State income taxes,
net of Federal
income tax benefit (26,000) (29,000) -
Federal income taxes
relating to
prior year net of
available
carryback 534,000 - -
Amortization and
write-off of
goodwill 29,000 34,000 389,000
Decrease in
valuation
allowance (613,000) - -
Other, net 250,000 (36,000) (382,000)
Total income tax
benefit $(171,000) (111,000) (758,000)
</TABLE>
SFAS 109 requires the recognition of deferred tax
assets and liabilities for both the expected future tax
impact of differences between the financial statement and
tax basis of assets and liabilities, and for the expected
future tax benefit to be derived from tax loss and tax
credit carryforwards. SFAS 109 additionally requires the
establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. The tax
effects of temporary differences that give rise to
significant portions of the deferred tax assets and
liabilities at September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $128,000 282,000
Inventory uniform capitalization 20,000 18,000
Inventory valuation allowance 293,000 98,000
Capital loss carryforwards 567,000 600,000
Operating loss carryforward 458,000 -
Safe harbor leases 71,000 81,000
Accruals not deducted
for tax purposes 1,082,000 438,000
Unamortized intangible
assets for tax purposes 135,000 167,000
Fixed asset depreciation - 314,000
Total gross deferred tax assets 2,754,000 1,998,000
Less-valuation allowance 71,000 684,000
Net deferred tax assets 2,683,000 1,314,000
Deferred tax liabilities:
Fixed asset depreciation 166,000 -
Other 20,000 14,000
Net deferred tax asset $2,497,000 1,300,000
</TABLE>
The valuation allowance for deferred tax assets as of
October 1, 1994 was $684,000, which related primarily to the
Company's capital loss carryforward. The valuation
allowance decreased $613,000 for the year ended September
30, 1995, due to management's belief that the Company's
capital loss carryforward will be utilized in 1996. In
assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income
during the periods in which those temporary differences
become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable
income and projections for future taxable income over the
periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company
will realize the benefits of these deductible differences,
net of the existing valuation allowances at September 30,
1995.
In 1995, the Internal Revenue Service (IRS), completed
an audit of the Company's income tax returns for the years
ended September 30, 1993, 1992, 1991, and 1990. As a result
of the audit, the IRS challenged the write-off for tax
purposes of certain intangible assets made during the year
ended September 30, 1993. The Company has accrued $750,000
relating to the settlement of this matter. The Company has
asked for an appeal hearing with the IRS at which it plans
to vigorously contest the audit findings.
7. Employee Benefit Plans
Effective February 1, 1990, the Company established the
Nuclear Support Services, Inc. Retirement Savings Plan
(401(k) Plan) for qualified NSSI employees. The Plan was
amended effective January 1, 1991 to provide for
participation by all non-bargaining employees. The Plan
allows participants to contribute to the Plan by salary
reduction and is qualified pursuant to Section 401(k) of the
Internal Revenue Code. Participants may defer up to 15% of
their base compensation or $9,240 per year, whichever is the
lesser amount. The Company, at its discretion, can make
contributions to the Plan. No Company contributions were
made during fiscal years 1995, 1994 or 1993.
The Company has defined benefit pension plans covering
substantially all of the hourly employees of its subsidiary
Henze Services, Inc. (Henze). The total pension expense for
all Henze plans for the years ended September 30, 1995, 1994
and 1993 was approximately $30,000, $39,000 and $24,000,
respectively. The actuarial present value of accumulated
plan benefits and net assets available for plan benefits as
of the latest valuation date, September 30, 1995, is as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value
of accumulated plan benefits:
Vested $448,000 415,000
Nonvested 18,000 16,000
466,000 431,000
Net assets available for
benefits $406,000 350,000
</TABLE>
The assumed discount rate used in determining the
actuarial present value of accumulated plan benefits for the
plans was 7% for the years ended September 30, 1995 and
1994. The provisions of Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions, have
not been applied to these plans since their effect is not
considered significant.
The Company established an Employee Stock Purchase Plan
in 1988 for substantially all of its employees. The Plan
offers employees the opportunity to purchase Nuclear Support
Services, Inc. common stock through regular payroll
deductions. Participation in this Plan is voluntary, and
the Company pays transaction fees for purchases made under
this Plan.
During 1994, the Company acquired 100% of the
outstanding stock of Oliver B. Cannon & Son, Inc. and
subsidiary and Sline Industrial Painters, Inc. (collectively
referred to as Cannon Sline). As a result of this
acquisition described in note 10, the Company is obligated
under the terms of a thrift plan for substantially all
employees of Cannon Sline not covered by union-sponsored
plans. The Plan allows participants to contribute after-tax
earnings up to a maximum of 10% of annual compensation. The
Plan provides for Company matching and additional
discretionary contributions as defined in the Plan document.
Cannon Sline expensed approximately $74,000 and $135,000 in
matching and discretionary contributions to the Plan during
fiscal years 1995 and 1994, respectively.
Cannon Sline is required to contribute to pension plans
(defined contribution) administered by collective bargaining
organizations. Contributions are based on hours worked, as
specified in the various contracts. Information regarding
these plans is not currently made available by the union
administrators or trustees.
The Company implemented a Senior Executive Compensation
Program for fiscal years 1992 through 1994. Under the terms
of the program, incentive bonuses could be earned in the
form of cash, stock options, or other perquisites. During
1995 and 1994, cash of $42,915 and $63,466 and stock options
of 0 and 77,500, respectively, were awarded under this
program as incentive bonuses for the previous fiscal years.
The options granted under this program are included in the
1990 Plan and are exercisable at the fair market value of
the stock on the date of grant.
8. Major Customers
In 1995, 1994 and 1993, one customer accounted for 16%, 12%
and 32%, respectively, of consolidated revenues.
A majority of the Company's contracts with its clients
provide for charges on a time and materials basis. The time
and materials contracts generally permit the client to
control the amount, type, and timing of services to be
performed by the Company, and most of the contracts permit
the client to terminate the contract at any time.
9. Stock Option Plan
On February 6, 1990, the Board of Directors adopted the
Nuclear Support Services, Inc. 1990 Stock Option Plan (the
"1990 Plan") to provide incentive to key full-time employees
and consultants of the Company. Under the 1990 Plan, stock
options could be granted for up to 416,897 shares of common
stock. The options could be incentive stock options, which
qualify for certain tax benefits, or options which do not
qualify as incentive stock options. Incentive stock options
were granted at not less than the fair market value of the
stock on the date granted and non qualified stock options
were granted at not less than one-half of the fair market
value of the stock on the date granted. The 1990 Plan
became effective January 1, 1990 and expired December 31,
1994. Options outstanding under the Plan remain exercisable
by their terms after expiration of the Plan.
On February 8, 1991 the Board of Directors adopted the
Directors Stock Option Program wherein Directors, at their
election made in advance, could accept non qualified stock
options in lieu of cash for all or a portion of Director
compensation. Such options could be acquired at the rate of
17% of the market value of the stock as of the date such
compensation was payable. Options granted under this
program are included in the 1990 Plan and are exercisable at
the fair market value of the stock on the date each
Director's compensation becomes payable.
Following is a summary of activity in the 1990 Plan for the
three years ended September 30, 1995:
<TABLE>
<CAPTION>
Option Total
price per option
Shares share price
<S> <C> <C> <C>
Options outstanding at
September 30, 1992 38,018 $5.00-9.00 $244,791
Issued 173,385 3.25-7.13 908,057
Canceled or expired (17,906) 4.63-5.38 (85,441)
Options outstanding at
September 30, 1993 193,497 3.25-9.00 1,067,407
Issued 221,746 3.38-5.50 912,556
Exercised (1,970) 3.75 (7,388)
Canceled or expired (15,641) 3.75-6.88 (82,424)
Options outstanding
at September 30,
1994 397,632 3.25-9.00 1,890,151
Issued 11,258 3.75-4.13 46,403
Canceled or expired (76,292) 3.25-7.13 (335,743)
Options outstanding at
September 30, 1995 332,598 3.38-9.00$1,600,811
</TABLE>
10. Acquisitions, Dispositions and Discontinued Operations
During September 1995, the Company adopted plans to sell the
operations of its Henze Services subsidiary. No significant
gain or loss is anticipated on the disposal of Henze.
Revenues from this subsidiary were $14,567,000, $12,661,000
and $13,392,000 for the years ended September 30, 1995,
1994, and 1993, respectively. Certain expenses have been
allocated to discontinued operations, including interest
expense, which was allocated based on the ratio of Henze
net assets to the sum of total net assets of the
consolidated Company plus consolidated debt. Interest
expense allocated to discontinued operations for the years
ended September 30, 1995, 1994, and 1993 was $255,702,
$187,673, and $150,062, respectively. The assets and
liabilities of Henze are included in the Company's
consolidated balance sheet as of September 30, 1995 and 1994
and are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Current Assets $4,621,000 5,101,000
Property and
Equipment, net 2,104,000 2,876,000
Other Assets 32,000 15,000
Current Liabilities 2,559,000 1,256,000
Long-term debt - 62,000
$4,198,000 6,674,000
</TABLE>
Effective October 1, 1993, the Company acquired 100% of
the outstanding stock of Cannon Sline for approximately
$4,483,000 in cash and a note of $2,376,000. Cannon Sline
supplies surface preparation and specialty coatings services
to power generation, pulp and paper, marine and other
industries. The acquisition was accounted for using the
purchase method of accounting with the results of operations
of the business acquired included from the effective date of
the acquisition. There was no excess of cost over net
assets of business acquired.
The following is a summary of assets acquired and
liabilities assumed in the Cannon Sline acquisition:
<TABLE>
<S> <C>
Assets acquired, net of cash $14,161,000
Liabilities assumed (5,846,000)
Net assets acquired $8,315,000
</TABLE>
Pro forma results of operations for the year ended September
30, 1993, as if the acquisition of Cannon Sline had taken
place on October 1, 1992 are as follows:
<TABLE>
<S> <C>
Revenues from services $84,636,000
Net loss 2,469,000
Loss per share $1.14
</TABLE>
In December 1990, the Company sold the nuclear operations of
Henze-Movats Incorporated, consisting of certain intangible
assets, property and equipment and inventories, to
Westinghouse Electric Corporation ("Westinghouse") in
exchange for certain assets of Westinghouse's Numanco and
Wisco nuclear field services operations and cash. The
Company has not received the amount of contract referrals
and revenues initially expected from the Numanco and Wisco
acquisition. During 1993, it was determined that all
intangible assets received in the Numanco and Wisco
acquisition had no expected future benefit to the Company
and the net intangible balance of $1,431,970 at September
30, 1993 was written off. Additionally, based on the lower
volume of contracts and revenues from Westinghouse, the
Company determined that the excess of cost over net assets
of businesses acquired in this transaction exceeded the
expected future benefit. As a result, $1,000,000 of excess
of cost over net assets of businesses acquired was written
off during 1993.
11. Commitments and Contingencies
(a) Insurance Coverage
The Company has contracts to provide radiation protection
personnel, instrument, electrical and mechanical maintenance
personnel, and professional personnel at several nuclear-
powered electric generating facilities. The Company
maintains $11,000,000 general liability insurance coverage.
Federal legislation affecting the nuclear power industry
includes a liability protection system for certain damages
caused by nuclear incidents. However, certain types of
risks (for example, on-site property damage) are not covered
by this system and are not otherwise insurable by the
Company. Few of the Company's contracts with its clients
contain waivers of liability or an overall limitation of
liability; thus, to the extent that it is neither insured
nor protected by an enforceable waiver or an enforceable
limitation of liability, the Company could be materially
adversely affected by a nuclear incident. To the extent
possible, the Company requests being listed as a named
insured on its clients' insurance policies in an effort to
reduce risk.
(b) Legal Matters
The Company or its subsidiaries are involved in various
claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate
disposition of these matters will not have a material
adverse effect on the Company's consolidated financial
position.
In November 1994, NSSI filed suit against Westinghouse
alleging the breach of various terms of a certain Asset
Purchase Agreement and the related Supply Agreement
resulting from the transaction described in note 10. This
suit is still in the preliminary stages of litigation and
seeks monetary
damages.
(c) Rental Agreements
The Company leases office space and various equipment under
operating leases which provide for minimum rentals as
follows:
<TABLE>
<CAPTION>
September 30, Minimum Rental
<S> <C>
1996 $838,974
1997 652,706
1998 564,468
1999 427,444
2000 260,876
2001 and thereafter 955,207
Total minimum lease
payments $3,699,675
</TABLE>
Rental expense under all agreements for 1995, 1994 and 1993
was approximately $1,019,000, $890,000 and $797,000,
respectively.
The Company leases land and buildings under operating
leases from an individual who was a member of the Company's
board of directors during fiscal year 1994. Rent expense
included above under these leases for 1994 was approximately
$57,000.
12. Supplementary Statement of Cash Flow Information
Noncash Investing and Financing Activities
Capital lease obligations of $177,625 were incurred in 1993
when the Company entered into lease agreements for new
equipment.
Cash paid during the year for:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest $1,861,850 1,247,760 708,152
Income taxes 123,113 363,798 200,867
</TABLE>
13. Quarterly Financial Data (Unaudited)
The Company's quarterly financial data for fiscal 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
Fourth Third Second First
1995 quarter quarter quarter quarter
<S> <C> <C> <C> <C>
Revenues from
services $23,154,693 22,843,473 18,541,023 18,576,715
Gross margin 3,603,611 3,442,589 3,070,006 2,784,474
Earnings
(loss) from
continuing
operations
before
income taxes 929,032 497,697 (2,208,664) (233,286)
Net earnings
(loss) (166,671) 101,888 (2,444,566) (339,627)
Earnings
(loss) per
share $(.08) .05 (1.13) (.16)
Fourth Third Second First
1994 quarter quarter quarter quarter
Revenues from
services $18,919,135 22,211,228 19,578,722 23,019,939
Gross margin 2,612,128 3,389,974 2,752,723 3,086,965
Earnings
(loss) from
continuing
operations
before
income taxes (286,435) 288,942 (431,823) 193,788
Net earnings
(loss) (1,211,001) 279,408 3,226 286,074
Earnings (loss)
per share $(.56) .13 .00 .13
</TABLE>
The second quarter of 1995 includes pre-tax adjustments of
approximately $400,000 for uncollectible receivables,
$500,000 to write down inventory to its estimated net
realizable value and $2,546,000 of provisions for business
restructuring activities. The fourth quarter of 1995
includes an accrual of $750,000 for a Federal income tax
assessment relating to prior year and $185,000 of
reorganization costs related to Chapter 11.
The fourth quarter of 1994 includes pre-tax adjustments of
approximately $661,000 for uncollectible receivables and
$250,000 to write-down inventory to its net realizable
value.
14. Subsequent Events
The Company entered into a Letter of Intent in January 1996
pursuant to which a third party proposed to purchase certain
operations of the Company's NSS Numanco subsidiary. A gain
of approximately $750,000 is anticipated on this
transaction if it is consummated.
The Company filed its Plan of Reorganization and the
restructuring contemplated thereby on January 31, 1996. The
Company expects the restructuring to be effective on or
about March 31, 1996.
Financial Highlights
For the Fiscal Years Ended September 30 (In
thousands except per share amounts)
For Continuing Operations
<TABLE>
<CAPTION>
1995(1) 1994(2)* 1993(3)* 1992(4)* 1991(5)*
<S> <C> <C> <C> <C> <C>
Revenues $83,116 83,729 49,405 63,813 55,490
Earnings
(loss)
before
reorgani-
zation
costs
and
income
taxes $(1,015) (236) (2,250) 1,272 1,051
Net
earnings
(loss) $(2,849) $(642) (2,997) 685 987
Net
earnings
per share $(1.31) (.30) (1.38) .32 .45
Total
assets $39,389 35,489 22,780 28,090 23,962
Total
long-term
debt $5,587 15,946 8,935 2,214 900
Liabil-
ities
subject
to
compro-
mise $8,146 - - - -
Equity
per
share $1.69 3.00 3.29 4.68 4.36
Return on
average
equity - - - 7% 11%
Weighted
average
common and
common
equivalent
shares 2,169 2,169 2,167 2,171 2,191
</TABLE>
(1)Reflects the discontinuance of Henze
operations, a one-time write-off of
approximately $3.4 million and an accrual of
$750,000 for Federal Income Tax relating to a
prior year.
(2)Purchased Oliver B. Cannon & Son, Inc. and
Sline Industrial Painters, Inc. (Cannon Sline)
(3)Reflects a one-time write-off of approximately
$2.4 million (See Management's Discussion and
Analysis).
(4)Includes one-time tax credit of $103,000 or
$.05 per share reflecting the adoption of FASB
No. 109 relative to income taxes.
(5)Sold the nuclear operations of Henze-Movats
Incorporated to Westinghouse Electric
Corporation (Westinghouse) in exchange for
certain assets of Westinghouse's Numanco and
Wisco nuclear field services operations and
cash.
*These years have been restated to present Henze
as discontinued operations.
Stock Highlights as of September 30, 1995
Nuclear Support Services, Inc. had 2,169,190
shares of common stock outstanding and 468 known
shareholders of record. The Company's common
stock trades on the Nasdaq Stock Market under the
symbol of "NSSI."
<TABLE>
<CAPTION>
1995 1994
High Low High Low
Quarter Trade Trade Trade Trade
<S> <C> <C> <C> <C>
First 4 1/8 2 1/4 4 3/4 2 1/2
Second 2 3/4 1 7/8 6 3 3/4
Third 2 3/8 1 1/2 5 1/2 3 5/8
Fourth 2 3/4 3/4 4 1/4 3 1/4
</TABLE>
Board of Directors
Joe C. Quick
Chairman of the Board; Member, Executive Committee;
Member, Strategic Planning Committee
Heath Allen
Chairman, Audit Committee;
Member, Executive Committee
Dale Ferguson
Chairman, Executive Committee
Robert A. Hess
Member, Audit Committee
Donald Lyons
Chairman, Strategic Planning Committee;
Member, Compensation Committee
Thomas P. McShane
Member, Executive Committee;
Member, Compensation Committee
Wm. Lawrence Petcovic
Chairman, Compensation Committee
Member, Audit Committee
Corporate Officers
Joe C. Quick, Chairman
Ralph A. Trallo, President and Chief Executive Officer
Michael J. Olson, Vice President, Chief Financial
Officer, Secretary/Treasurer
A copy of Nuclear Support Services, Inc. 1995
Form 10K, as filed with the U.S. Securities
and Exchange Commission, will be provided without
charge to each shareholder making a written request
to the Secretary of the Company at 22 Northeast
Drive, Hershey, Pennsylvania 17033.
SUBSIDIARIES OF THE REGISTRANT
NSS Numanco, Inc.
Henze Services, Inc.
NSS of Delaware, Inc.
IceSolv, Inc.
Oliver B. Cannon & Son, Inc.
Sline Industrial Painters, Inc.
(1) NSS Henze Service, Inc. and Movats Incorporated
were merged to form Henze-Movats Incorporated on
October 1, 1989. Valve Service Center, Inc.,
acquired on November 1, 1989 was merged into Henze-
Movats Incorporated on March 22, 1990. Effective
December 31, 1990 the Company sold to Westinghouse
Electric Corporation the nuclear valve diagnostic,
actuator and valve maintenance operations of the
subsidiary. The non-nuclear valve, actuator and
maintenance operations remain part of the Company
and operate under the name of Henze Services, Inc.
(2) IceSolv, Inc., a Pennsylvania corporation,
was formed in June 1993.
(3) On November 19, 1993 and effective for financial
purposes, October 1, 1993, Nuclear Support
Services, Inc. purchased 100% of the outstanding
stock of Oliver B. Cannon & Son, Inc. and Sline
Industrial Painters, Inc. The two companies are
marketed together as Cannon Sline.
Exhibit 22
ACCOUNTANTS' CONSENT
We consent to incorporation by reference in the
Registration Statement (No. 33-33180) on Form S-8 of
Nuclear Support Services, Inc. of our report dated
November 17, 1995, except as to note 14 which is as of
January 31, 1996, relating to the consolidated balance
sheets of Nuclear Support Services, Inc. and
subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of operations,
shareholders' equity, and cash flows and related
schedule for each of the years in the three-year period
ended September 30, 1995, which report appears in the
September 30, 1995 annual report on Form 10-K of
Nuclear Support Services, Inc.
Our report dated November 17, 1995, except as to note
14, which is as of January 31, 1996, contains an
explanatory paragraph that states that the Company is
in default on its revolving credit agreement and has
sustained losses in recent years, which raise
substantial doubt about its ability to continue as a
going concern. The consolidated financial statements
and financial statement schedule do not include any
adjustments that might result from the outcome of that
uncertainty.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 1, 1996
Exhibit 23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,849,267
<SECURITIES> 0
<RECEIVABLES> 21,850,114
<ALLOWANCES> (585,941)
<INVENTORY> 1,206,417
<CURRENT-ASSETS> 30,838,743
<PP&E> 13,501,502
<DEPRECIATION> 6,828,442
<TOTAL-ASSETS> 39,389,265
<CURRENT-LIABILITIES> 23,403,814
<BONDS> 4,184,000
0
0
<COMMON> 6,190
<OTHER-SE> 3,649,527
<TOTAL-LIABILITY-AND-EQUITY> 39,389,265
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 70,215,224
<TOTAL-COSTS> 12,176,557
<OTHER-EXPENSES> 185,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,554,135
<INCOME-PRETAX> (1,015,221)
<INCOME-TAX> (171,000)
<INCOME-CONTINUING> (844,221)
<DISCONTINUED> (2,004,755)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,848,976)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
FOR NUCLEAR SUPPORT SERVICES, INC.
SEPTEMBER 30, 1995, 1994 AND 1993
Schedule VIII Valuation and Qualifying
Accounts
Exhibit 99.1
Independent Auditor's Report
The Board of Directors and Stockholders
Nuclear Support Services, Inc.
Under date of November 17, 1995, except as to note 14
which is as of January 31, 1996, we reported on the
consolidated balance sheets of Nuclear Support
Services, Inc. and subsidiaries as of September 30,
1995, and 1994, and the related consolidated statements
of operations, shareholders' equity , and cash flows
for each of the years in the three-year period ended
September 30, 1995, as contained in the 1995 annual
report to shareholders. These consolidated financial
statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the
year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we
also audited the related financial statement schedule
as listed in the accompanying index. This financial
statement schedule is the responsibility of the
Company's management. Our responsibility is to express
an opinion on this financial statement schedule based
on our audits.
In our opinion, such financial statements schedule,
when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly,
in all material respects, the information set forth
therein.
The audit report on the consolidated financial
statements of Nuclear Support Services, Inc. and
subsidiaries referred to above contains an explanatory
paragraph that states that the Company is in default on
its revolving credit agreement and has sustained losses
in recent years, which raise substantial doubt about
its ability to continue as a going concern. The
financial statement schedule included in the
registration statement does not include any adjustments
that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
November 17, 1995, except as to note 14, which is as of
January 31, 1996
Exhibit 99.2
SCHEDULE VIII
NUCLEAR SUPPORT SERVICES, INC.
<TABLE>
September 30, 1995, 1994 and 1993
<CAPTION>
Additions
Balance at Charged Balance
beginning to oper- at
of ating Ded- end of
Description period expense Other ductions period
<S> <C> <C> <C> <C> <C>
Allowance
for doubt-
ful accounts
deducted from
accounts re-
ceivable in
the consol-
idated balance
sheets:
September 30,
1995 784,330 572,096 770,485(1) 585,941
September 30,
1994 107,606 1,359,415 276,434(2) 959,125(1) 784,330
September 30,
1993 30,000 108,259 30,653(1) 107,606
Inventory
reserves de-
ducted from
inventories
in the
consolidated
balance
sheets:
September 30,
1995 300,000 500,000 800,000
September 30,
1994 150,000 100,000 50,000(2) - 300,000
September 30,
1993 50,000 100,000 - - 150,000
</TABLE>
(1) Write-off of uncollectible accounts.
(2) Increase from acquisition of subsidiary.
Exhibit 99.3
