<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q/A
AMENDMENT NO. 1
(MARK ONE)
X AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9654
OHM CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-1503050
(State of Incorporation) (I.R.S. Employer Identification Number)
16406 U.S. ROUTE 224 EAST, FINDLAY, OH. 45840
(Address of principal executive offices) (Zip Code)
(419) 423-3529
(Registrant's telephone number, including area code)
Indicate by check 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
requirement for the past 90 days. Yes X No
----- -----
The number of shares of Common Stock, par value $0.10 per share,
outstanding on April 30, 1997 was 27,111,583.
<PAGE> 2
This report is an amendment to the OHM Corporation quarterly report on Form 10-Q
for the quarter ended March 31, 1997. This report is being amended to modify (1)
the Condensed Consolidated Financial Statements for the reclassification of
deferred contract costs from long-term to current, (2) the disclosures in the
Notes to the Condensed Consolidated Financial Statements and (3) Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
Results of Operations.
The following items to the Company's report on Form 10-Q are being filed
herewith:
Part I Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
<PAGE> 3
OHM CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Number
------
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 1997 (Unaudited)
and December 31, 1996............................................................................ 1
Condensed Consolidated Statements of Income (Unaudited) for the Three Months
Ended March 31, 1997 and 1996.................................................................... 2
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1997 and 1996.................................................................... 3
Notes to Condensed Consolidated Financial Statements (Unaudited)................................. 4
Independent Accountants' Review Report........................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 8
</TABLE>
PART II
OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Legal Proceedings................................................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................................................. 12
Signatures ............................................................................................... 13
</TABLE>
<PAGE> 4
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
OHM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 6,265 $ 14,002
Accounts receivable............................................................ 79,012 85,461
Costs and estimated earnings on contracts in process in excess of billings..... 52,431 56,303
Materials and supply inventory, at cost........................................ 14,443 13,899
Prepaid expenses and other assets.............................................. 26,274 22,663
Deferred income taxes.......................................................... 10,231 10,513
Refundable income taxes........................................................ 476 493
-------- --------
189,132 203,334
-------- --------
Property and Equipment, net...................................................... 72,166 70,521
-------- --------
Other Noncurrent Assets:
Investments in affiliated company.............................................. 23,370 23,185
Intangible assets relating to acquired businesses, net......................... 33,297 33,534
Deferred debt issuance and financing costs..................................... 1,348 1,412
Deferred income taxes.......................................................... 3,373 3,563
Other assets................................................................... 843 988
-------- --------
62,231 62,682
-------- --------
Total Assets............................................................ $323,529 $336,537
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................... $ 54,073 $ 69,230
Billings on contracts in process in excess of costs and estimated earnings..... 830 897
Accrued compensation and related taxes......................................... 8,147 6,528
Federal, state and local taxes................................................. 65 150
Other accrued liabilities...................................................... 21,496 21,477
Current portion of noncurrent liabilities..................................... 5,223 5,321
-------- --------
89,834 103,603
-------- --------
Noncurrent Liabilities:
Long-term debt................................................................. 51,840 52,972
Deferred gain from sale leaseback of equipment................................. 4,229 4,484
Capital leases................................................................. 31 32
Pension agreement.............................................................. 870 874
-------- --------
56,970 58,362
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $10.00 par value, 2,000,000 shares authorized;
none issued and outstanding................................................ -- --
Common stock, $.10 par value, 50,000,000 shares authorized;
Shares issued: 1997 - 27,078,464; 1996 - 26,992,140....................... 2,708 2,699
Additional paid-in capital..................................................... 139,693 138,989
Retained earnings.............................................................. 34,324 32,884
-------- --------
176,725 174,572
-------- --------
Total Liabilities and Shareholders' Equity................................. $323,529 $336,537
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 5
OHM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
-------- ---------
(Unaudited)
<S> <C> <C>
Revenue......................................................................... $108,498 $118,963
Cost of services................................................................ 94,647 103,933
-------- --------
Gross Profit.................................................................... 13,851 15,030
Selling, general and administrative expenses.................................... 10,409 11,176
-------- --------
Operating Income................................................................ 3,442 3,854
-------- --------
Other (Income) Expenses:
Investment income............................................................ (13) (11)
Interest expense............................................................. 1,333 1,908
Equity in net earnings of affiliate.......................................... (185) (225)
Miscellaneous expense, net................................................... 110 229
-------- --------
1,245 1,901
-------- --------
Income Before Income Taxes...................................................... 2,197 1,953
Income taxes.................................................................... 759 623
-------- --------
Net Income...................................................................... $ 1,438 $ 1,330
======== ========
Net Income Per Share............................................................ $ 0.05 $ 0.05
======== ========
Weighted average number of common and
common equivalent shares outstanding 27,090 26,695
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 6
OHM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31,
--------------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 1,438 $ 1,330
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization............................................ 3,734 3,185
Amortization of other noncurrent assets.................................. 792 839
Deferred income taxes.................................................... 471 444
Loss on sale of property and equipment................................... 90 16
Equity in net earnings of affiliate...................................... (185) (225)
Deferred translation adjustments and other............................... 26 24
Changes in current assets and liabilities:
Accounts receivable...................................................... 6,449 (13,390)
Costs and estimated earnings on contracts in process in excess
of billings............................................................ 3,872 21,933
Materials and supply inventory, at cost.................................. (544) (43)
Prepaid expenses and other assets........................................ (1,430) 267
Refundable income taxes and other adjustments............................ 17 42
Accounts payable......................................................... (15,411) (18,377)
Billings on contracts in process in excess of costs and
estimated earnings..................................................... (67) 691
Accrued compensation and related taxes................................... 1,619 (523)
Federal, state and local income taxes.................................... (85) (143)
Other accrued liabilities................................................ 19 599
-------- --------
Net cash flows provided by (used in) operating activities.............. 805 (3,331)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment...................................... (5,550) (4,542)
Proceeds from sale of property and equipment............................. 94 1,042
Decrease in receivable from affiliated company........................... -- 15,000
Increase in other noncurrent assets...................................... (2,527) (164)
-------- --------
Net cash (used in) provided by investing activities.................... (7,983) 11,336
-------- --------
Cash flows from financing activities:
Payments on long-term debt and capital leases............................ (1,244) (1,378)
Proceeds from borrowing under revolving credit agreement................. 42,000 51,900
Payments on revolving credit agreement................................... (42,000) (66,500)
Payments on pension agreement............................................ (28) (37)
Common stock issued for 401(k) funding and stock options................. 713 534
-------- --------
Net cash (used in) financing activities................................ (559) (15,481)
-------- --------
Net decrease in cash and cash equivalents.............................. (7,737) (7,476)
Cash and cash equivalents at beginning of period............................... 14,002 11,205
-------- --------
Cash and cash equivalents at end of period..................................... $ 6,265 $ 3,729
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 7
OHM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by OHM Corporation (the "Company") and reflect all adjustments of a
normal recurring nature which are, in the opinion of management, necessary for a
fair presentation of financial results for the three months ended March 31, 1997
and 1996, in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to Article 10 of Regulation S-X.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
interim condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. The results of operations for the three months ended March
31, 1997 and 1996 are not necessarily indicative of the results for the full
year.
In February 1997, The Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact on the calculation of earnings per
share for the first quarter ended March 31, 1997 and March 31, 1996 is not
expected to be significant.
The unaudited condensed consolidated financial statements include the accounts
of the Company and its subsidiaries. The Company's 40% owned asbestos abatement
affiliate, NSC Corporation ("NSC"), has been accounted for using the equity
method. All material intercompany transactions and balances have been eliminated
in consolidation.
The consolidated financial statements at March 31, 1997, and for the three
months then ended, have been reviewed, prior to filing, by Ernst & Young LLP,
the Company's independent accountants, and their report is included herein.
NOTE 2 - SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest was $564,000 and $1,240,000 and cash paid for income
taxes was $335,000 and $193,000 for the three months ended March 31, 1997 and
1996, respectively.
NOTE 3 - INCOME TAXES
The reasons for differences between the provisions for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before income taxes are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
----- ----
<S> <C> <C>
Federal statutory rate................................ 34.0% 34.0%
Add (deduct):
State income taxes, net of federal benefit.......... 4.7 4.5
Goodwill........................................... 3.4 2.2
Research and development tax credits............... (2.9) (8.6)
Equity in net earnings of affiliate................. (2.3) (3.1)
Other, net.......................................... (2.4) 2.9
----- ----
34.5% 31.9%
===== =====
</TABLE>
4
<PAGE> 8
NOTE 4 - SEASONALITY
The timing of revenue recognition is dependent on the Company's backlog,
contract awards and the performance requirements of each contract. The Company's
revenue is also affected by the timing of its clients' planned remediation work
which generally increases during the third and fourth quarters. Because of this
variability in demand, the Company's quarterly revenue can fluctuate, and
revenue for the first and second quarters of each year can normally be expected
to be lower than the third and fourth quarters. Although the Company believes
that the historical trend in quarterly revenue for the third and fourth quarters
of each year is generally higher than the first and second quarters, there can
be no assurance that this will occur in future periods. Accordingly, quarterly
or other interim results should not be considered indicative of results to be
expected for any quarter or for the full year.
NOTE 5 - LITIGATION AND CONTINGENCIES
The Company is subject to a number of claims and litigation. These matters
include the following items which were disclosed in the consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
The Company is currently in litigation in the U.S. District Court for the
Western District of Louisiana with Citgo Petroleum Corporation ("Citgo"), Oxy
USA Inc., and Occidental Oil & Gas (collectively "Oxy") relating to cost
overruns and production shortfalls on a remediation project which was performed
by the Company for Citgo at its Lake Charles, Louisiana refinery during 1993 and
1994. The Company has recorded in its financial statements approximately
$28,357,000 as a claim receivable and $5,381,000 of accounts receivable that are
in dispute for work performed under the terms of the Company's base contract
with Citgo. The Company is seeking damages in excess of $35,000,000. Citgo's
second amended complaint seeks damages under the contract for production
shortfalls, which Citgo has asserted in answer to the Company's interrogatories
to be approximately $27,600,000. The Company has filed a third party complaint
against Oxy for negligent misrepresentation and detrimental reliance as a result
of Oxy's involvement with the development of sample and analytical data relied
upon by the Company in preparation of its bid and cost estimates for work at the
Lake Charles refinery. In December 1996 and January 1997, Oxy and Citgo,
respectively, filed motions for summary judgment and partial summary judgment on
the Company's claims. These motions for summary judgment were denied by the
District Court in May 1997.
The Company is currently in litigation in the U.S. District Court for the
Western District of New York with Occidental Chemical Corporation ("Occidental")
relating to the Durez Inlet Project performed in 1993 and 1994 for Occidental in
North Tonawanda, New York. The Company's accounts receivable at March 31, 1997
include a claim receivable of $8,637,000 related to this matter. The Company's
work was substantially delayed and its costs of performance were substantially
increased as a result of conditions at the site which the Company believes were
materially different than as represented by Occidental. Occidental's amended
complaint seeks $8,806,000 in damages primarily for alleged costs incurred as a
result of project delays and added volumes of incinerated waste. The Company's
counterclaim seeks an amount in excess of $9,200,000 for damages arising from
Occidental's breach of contract, misrepresentation and failure to pay
outstanding contract amounts.
The Company is currently in arbitration proceedings with Separation and Recovery
Systems, Inc. ("SRS") resulting from SRS's failure to adequately perform it's
subcontract obligations to the Company for thermal desorption services at the
Hilton-Davis project in Cincinnati, Ohio. The Company's financial statements on
March 31, 1997 include a back charge receivable of approximately $7,348,000
representing additional costs the Company has and will incur as a result of
completing SRS's scope of work under its thermal desorption subcontract with the
Company. SRS has filed a counterclaim against the Company alleging wrongful
termination of the subcontract.
The Company is in litigation with General Motors Corp. in the U.S. District
Court for the Northern District of New York. GM filed suit in January 1996
alleging that the Company breached a contract between Hughes Environmental
Systems, Inc. (HESI), a GM subsidiary, for work in 1994 for the remediation of
22,000 cubic yards of PCB contaminated sediment in the St. Lawrence River in
Massena. GM seeks damages for $3.8 million. The Company in turn filed suit
against HESI and ERM Northeast, Inc. in U.S. District Court in Northern New York
seeking $3.6 million in damages for breach of contract. The GM suit was later
consolidated with the Company's suit against HESI and ERM. GM alleges that the
Company abandoned the contract through inability to perform while the Company
claims that performance was impacted by conditions at the site that were not as
represented.
Management has concluded based on the advice of counsel that it has established
adequate reserves should the resolution of the above matters be lower than the
amounts recorded. There is, however, always risk and uncertainty in pursuing and
defending litigation and arbitration proceedings in the course of the Company's
business and, notwithstanding the reserves currently established, adverse future
results in litigation or other proceedings could have a material adverse impact
upon the Company's
5
<PAGE> 9
consolidated future results of operations or financial condition.
In addition to the above, the Company is subject to a number of claims and
lawsuits in the ordinary course of its business. In the opinion of management,
the outcome of these actions, which are not clearly determinable at the present
time, are either adequately covered by insurance or other reserves, or if not
insured or reserved, will not, in the aggregate, have a material adverse impact
upon the Company's consolidated future results of operations or financial
condition.
6
<PAGE> 10
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
OHM Corporation
We have reviewed the accompanying consolidated balance sheet of OHM Corporation
and subsidiaries as of March 31, 1997, and the related consolidated statements
of income and cash flows for the three month periods ended March 31, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of OHM Corporation and subsidiaries as
of December 31, 1996, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for the year then ended, not
present herein, and in our report dated February 7, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1996, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Columbus, Ohio
May 2, 1997
7
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company provides a broad range of environmental and hazardous waste
remediation services to its clients located primarily in the United States. The
timing of the Company's revenue is dependent on its backlog, contract awards and
the performance requirements of each contract. The Company's revenue is also
affected by the timing of its clients' planned remediation activities which
generally increase during the third and fourth quarters. Because of this change
in demand, the Company's quarterly revenue can fluctuate, and revenue for the
first and second quarters of each year have historically been lower than for the
third and fourth quarters, although there can be no assurance that this will
occur in future years. Accordingly, quarterly or other interim results should
not be considered indicative of results to be expected for any quarter or full
fiscal year.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 VERSUS
THREE MONTHS ENDED MARCH 31, 1996
REVENUE. The following table sets forth the Company's revenue by client
type for the three months ended March 31, 1997 and 1996 (in thousands, except
percentages):
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
<S> <C> <C> <C> <C>
Federal, State, and Local Government $ 92,386 85% $ 90,572 76%
Industrial 16,112 15% 28,391 24%
-------- --- -------- ---
Total Revenue $108,498 100% $118,963 100%
======== === ======== ===
</TABLE>
Total revenue for the three months ended March 31, 1997, decreased 9%
to $108,498,000 from $118,963,000 for the same period in 1996. Such decrease
resulted primarily from decreased revenue from industrial clients for the three
months ended March 31, 1997 when compared to the same period in 1996.
Revenue from government agencies for the three months ended March 31,
1997 increased $1,814,000 or 2% compared to the same period in 1996. This
improvement resulted primarily from an increase in revenue from the Company's
term contracts with the United States Army Corps of Engineers, the Environmental
Protection Agency and state and local governments. Such increases were partially
offset by a decrease in revenue from the United States Air Force during the
first quarter of 1997 when compared to the same period in 1996. The Company
expects to continue to receive funding under its federal contracts into the
foreseeable future and is experiencing a significant amount of proposal activity
for new contracts with the various Department of Defense agencies, as well as
the Department of Energy. However, reductions by Congress in future
environmental remediation budgets of government agencies may have a material
adverse impact upon future revenue from such agencies and the funding of the
Company's government term contracts included in contract backlog.
The Company experienced a $12,279,000 or 43% decrease in revenue from
industrial clients for the three months ended March 31, 1997 as compared to the
same period in 1996. The Company believes that demand for its services from the
industrial sector has been negatively impacted due to anticipated changes in the
Superfund law pending its reauthorization as well as current economic conditions
in certain industry and geographic sectors. Although the Company cannot predict
the impact upon the environmental industry of the failure of Congress to
reauthorize the Superfund law, further delays in Superfund reauthorization may
have a material impact upon the demand for the Company's services in the form of
project delays as clients and potential clients wait for and anticipate changes
in these regulations. The result of decreased demand from the industrial sector
has increased the competitive pressures on the contracts available for bid from
the industrial market. The Company has been very selective in bidding industrial
contracts and has established specific minimum criteria on profitability and
risk in determining whether or not to compete for any given contract. The
Company expects the current market conditions to continue in the industrial
sector into the foreseeable future.
8
<PAGE> 12
COST OF SERVICES AND GROSS PROFIT. Cost of services for the three
months ended March 31, 1997 decreased 9% to $94,647,000 from $103,933,000 for
the same period in 1996 primarily due to decreased revenue. Cost of services as
a percentage of revenue was 87% for each of the three months ended March 31,
1997 and 1996. Gross profit decreased 8% to $13,851,000 for the three months
ended March 31, 1997 from $15,030,000 for the same period in 1996. The decrease
in gross profit is primarily due to the decrease in revenue. Gross profit as a
percent of revenue was 13% for each of the three months ended March 31, 1997 and
1996. The Company's gross profit as a percentage of revenue was negatively
impacted during the first quarter of 1997 when compared to the same period in
1996 by the competitive pressures in the industrial sector which was offset by
an increase in the margin percent on its government projects.
PROVISIONS FOR BAD DEBTS. The Company's provision for bad debts,
excluding items recorded as a part of the claims settlement costs, was $650,000
and $907,000 for the three months ended March 31, 1997 and 1996, respectively.
The provision was higher in 1996 primarily due to settlement of rate variances
for government cost plus contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SGA") expenses for the three months ended March 31, 1997
decreased 7% to $10,409,000 from $11,176,000 for the same period in 1996. SGA
expense as a percent of revenue was 10% and 9% for the three months ended March
31, 1997 and 1996, respectively.
OPERATING INCOME. Operating income for the three months ended March 31,
1997 decreased 11% to $3,442,000 from $3,854,000 for the same period in 1996 as
a result of factors discussed above.
OTHER (INCOME) EXPENSES. Other (income) expenses, excluding the
Company's equity in net earnings of affiliate, decreased $696,000 to $1,430,000
for the three months ended March 31, 1997 compared to $2,126,000 for the same
period in 1996 primarily as a result of decreased interest expense. Interest
expense decreased 30% to $1,333,000 for the three months ended March 31, 1997
from $1,908,000 for the same period in 1996. The decrease in interest expense
was a result of a decrease in the average borrowings outstanding under the
Company's revolving credit agreement during the first quarter of 1997 when
compared to the same period in 1996.
EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in
NSC's net earnings decreased $40,000 to $185,000 for the three months ended
March 31, 1997 from $225,000 for the same period in 1996.
NET INCOME. Net income for the three months ended March 31, 1997 was
$1,438,000 or $0.05 per share compared to $1,330,000 or $0.05 per share for the
same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
On May 31, 1995, the Company entered into a $150,000,000 revolving
credit agreement with a group of banks (the "Bank Group") to provide letters of
credit and cash borrowings. The agreement has a five year term and is scheduled
to expire on May 30, 2000. WMX has issued a guarantee of up to $62,000,000
outstanding under the credit agreement in favor of the Bank Group. Under the
terms of the agreement the entire credit facility can be used for either cash
borrowings or letters of credit. Cash borrowings bear interest at either the
prime rate plus a percentage up to 0.625% or, at the Company's option, the
Eurodollar market rate plus a percentage ranging from 0.325% to 1.625%. The
percentage over the prime rate or the Eurodollar market rate is based on the
aggregate amount borrowed under the facility, the presence of the guarantee, and
the Company's financial performance as measured by an interest coverage ratio
and a total funded debt ratio. The agreement provides the participating banks
with a security interest in the Company's equipment, inventories, accounts
receivable, general intangibles and in the Company's investment in the common
stock of NSC as well as the Company's other subsidiaries. The agreement also
imposes, among other covenants, a minimum tangible net worth covenant, a
restriction on all of the Company's retained earnings including the declaration
and payment of cash dividends and a restriction on the ratio of total funded
debt to earnings before income taxes, depreciation and amortization. There were
no amounts outstanding under the revolving credit facility at March 31, 1997 or
December 31, 1996. Aggregate letters of credit outstanding at March 31, 1997 and
December 31, 1996 were $15,168,000 and $12,223,000, respectively.
9
<PAGE> 13
Capital expenditures for the three months ended March 31, 1997 and
1996, were $5,550,000 and $4,542,000, respectively. The Company's capital
expenditures are primarily related to the installation of computer systems and
related equipment, the purchase of heavy construction equipment and the
fabrication of custom equipment by the Company for the execution of remediation
projects. Capital expenditures for fiscal year 1997 are expected to range
between $20,000,000 and $25,000,000. The Company's long-term capital expenditure
requirements are dependent upon the type and size of future remediation projects
awarded to the Company.
The Company believes that the government sector will continue to be its
primary source of revenue for the foreseeable future in light of its contract
backlog with federal government agencies. Revenue from government agencies
historically has required greater working capital, the major component of which
is accounts receivable, than revenue from industrial sector clients. In
addition, the Company is bidding on a number of large, long-term contract
opportunities which, if awarded to the Company, would also increase working
capital needs and capital expenditures. The Company believes it will be able to
finance its increased working capital needs and capital expenditures in the
short term through a combination of cash flows from operations, borrowing under
its revolving credit facility, proceeds from permitted asset sales, the
utilization of operating leases and other external sources. In addition, under
the terms of its acquisition of the hazardous and nuclear waste remediation
business of Rust International Inc. ("Rust"), Rust's parent company, WMX
Technologies, Inc., has provided the Company with a credit guarantee of up to
$62,000,000 of the Company's indebtedness outstanding until May 30, 2000. Such
credit guarantee has allowed the Company to expand its borrowing capacity and
lower its cost of capital under its credit facility entered into on May 31,
1995.
The Company, from time to time, evaluates potential acquisitions of
companies in the environmental remediation industry and industries related to
the core skills of the Company. Future acquisitions may involve the expenditure
of significant funds and management time. Depending upon the nature, size and
timing of future acquisitions, the Company may be required to raise additional
capital through financings, including public or private equity or debt offerings
or additional bank financings. There is no assurance that such additional
financing will be available to the Company on acceptable terms.
The Company's identified long-term capital needs consist of payments
due upon the maturity of the Company's Revolving Credit Facility in 2000 and
sinking fund payments which commenced in 1996 of 7.5% of the principal amount as
well as payments due upon maturity of its Convertible Debentures in 2006. The
Company has purchased and retired $10,736,000 of the outstanding Convertible
Debentures during 1995 and 1996, sufficient to meet its annual sinking fund
obligations through October 1, 1997, as well as a portion of the sinking fund
obligation due October 1, 1998. The Company believes that it will be able to
refinance the remaining indebtedness as necessary.
ENVIRONMENTAL MATTERS AND GOVERNMENT CONTRACTING
Although the Company believes that it generally benefits from increased
environmental regulations and from enforcement of those regulations, increased
regulation and enforcement also create significant risks for the Company. The
assessment, remediation, analysis, handling and management of hazardous
substances necessarily involve significant risks, including the possibility of
damages or injuries caused by the escape of hazardous materials into the
environment, and the possibility of fines, penalties or other regulatory action.
These risks include potentially large civil and criminal liabilities for
violations of environmental laws and regulations, and liabilities to customers
and to third parties for damages arising from performing services for clients,
which could have a material adverse effect on the Company.
The Company does not believe there are currently any material
environmental liabilities which should be recorded or disclosed in its financial
statements. The Company anticipates that its compliance with various laws and
regulations relating to the protection of the environment will not have a
material effect on its capital expenditures, future earnings or competitive
position.
Because of its dependence on government contracts, the Company also
faces the risks associated with such contracting, which could include civil and
criminal fines and penalties. As a result of its government contracting
business, the Company has been, is, and may in the future be subject to audits
and investigations by government agencies. The fines and penalties which could
result from noncompliance with the Company's government contracts or appropriate
standards and regulations, or the Company's suspension or debarment from future
government contracting, could have a material adverse effect on the Company's
business.
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical facts, included in
this Form 10-Q that address activities, events or
10
<PAGE> 14
developments that the Company expects, believes or anticipates will or may occur
in the future, including such matters as future capital expenditures, including
the amount and nature thereof, potential acquisitions by the Company, trends
affecting the Company's financial condition or results of operations, and the
Company's business and growth strategies are forward-looking statements. Such
statements are subject to a number of risks and uncertainties, including risks
and uncertainties identified in this Form 10-Q, and in "Business --
Environmental Contractor Risks," "Business -- Regulation," "--Results of
Operation," "--Environmental Matters and Government Contracting," and "Note 1 to
Consolidated Financial Statements" of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, which sections are incorporated herein by
reference, and other general economic and business conditions, the business
opportunities (or lack thereof) that may be presented to and pursued by the
Company, changes in laws or regulations affecting the Company's operations and
other factors, many of which are beyond the control of the Company. In addition,
these risks and uncertainties include, without limitation, (i) the potential for
fluctuations in funding of backlog, (ii) weather conditions affecting or
delaying the Company's ability to perform or complete the services required by
its contracts, (iii) the Company's ability to be awarded new contracts in its
target markets or its ability to expand existing contracts, (iv) other
industry-wide market factors, including the timing of client's planned
remediation activities, (v) interpretation or enforcement by federal, state or
local regulators of existing environmental regulations. Also, there is always
risk and uncertainty in pursuing and defending litigation, arbitration
proceedings and claims in the course of the Company's business. All of these
risks and uncertainties could cause actual results to differ materially from
those assumed in the forward-looking statement. These forward-looking statements
reflect management's analysis, judgment, belief or expectation only as of the
date of this Form 10-Q. The Company undertakes no obligations to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. In addition to the disclosure contained herein, readers
should carefully review risks and uncertainties contained in other documents the
Company files or has filed from time to time with the Securities and Exchange
Commission pursuant to the Securities and Exchange Act of 1934, including
without limitation the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
11
<PAGE> 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 to Consolidated Financial Statements for a discussion of legal
proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1997.
12
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OHM CORPORATION
Date: May 8, 1998 By /s/ ANTHONY J. DELUCA
---------------------------------
Anthony J. DeLuca
Chief Executive Officer
and President
(Duly Authorized Officer)
Date: May 8, 1998 By /s/ PHILIP O. STRAWBRIDGE
---------------------------------
Philip O. Strawbridge
Vice President and Chief Financial and
Administrative Officer
(Principal Financial Officer)
13
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