UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
------------------
Commission file number: 018597
NSC CORPORATION
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification Number)
DELAWARE 31-1295113
49 DANTON DRIVE, METHUEN, MA 01844
(508) 557-7300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
The number of shares of Common Stock outstanding on November 4, 1996 was
9,971,175.
Page 1 of 12
<PAGE>
NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED September 30, 1996
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
-As of September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income (Unaudited)
-For the Three and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (Unaudited)
-For the Three and Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Page 2 of 12
<PAGE>
NSC Corporation
Consolidated Balance Sheets
(In Thousands, Except Share and Per-Share Data)
September 30, December 31,
1996 1995
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 3,191 $ 4,094
Accounts receivable, net ....................... 27,444 27,125
Costs and estimated earnings on contracts
in process in excess of billings ............. 7,770 7,894
Inventories .................................... 938 1,041
Prepaid expenses and other current assets ...... 600 1,559
Refundable income taxes ........................ (33) 92
-------- --------
39,910 41,805
-------- --------
Property and equipment:
Land ........................................... 998 998
Buildings and improvements ..................... 5,840 5,588
Machinery and equipment ........................ 9,878 8,813
-------- --------
16,716 15,399
Less accumulated depreciation .................. (8,001) (6,915)
-------- --------
8,715 8,484
-------- --------
Other noncurrent assets:
Goodwill, net of accumulated amortization ...... 36,550 36,872
-------- --------
Total Assets $ 85,175 $ 87,161
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 3,086 $ 3,063
Billings in excess of costs and estimated
earnings on contracts in process ............. 4,857 3,932
Accrued compensation and related costs ......... 3,557 3,751
Federal, state and local taxes ................. 663 250
Other accrued liabilities ...................... 949 926
Contingent liabilities ......................... 5,353 6,694
Current portion of long-term debt .............. - 5,850
-------- --------
18,465 24,466
-------- --------
Noncurrent liabilities:
Payable to affiliate ........................... 4,520 1,571
Deferred income taxes .......................... 3,338 3,843
Stockholders' equity:
Preferred stock $.01 par value, 10,000,000 shares
authorized, none issued and outstanding ...... - -
Common stock $.01 par value, 20,000,000 shares
authorized, 9,971,175 issued and outstanding
in 1996 and 1995 ............................. 100 100
Additional paid-in capital ..................... 56,079 56,079
Retained Earnings .............................. 2,673 1,102
-------- --------
58,852 57,281
-------- --------
Total Liabilities and Stockholders' Equity $ 85,175 $ 87,161
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 12
<PAGE>
<TABLE>
<CAPTION>
NSC Coporation
Consolidated Statements of Income
(In thousands, Except Per-Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ................................................ $ 30,014 $ 29,452 $ 97,984 $ 90,962
Cost of services ........................................ 24,693 24,890 81,372 76,497
-------- -------- -------- --------
Gross Profit ......................................... 5,321 4,562 16,612 14,465
Selling, general and administrative expenses ............ 3,849 4,172 12,344 11,919
Other operating expenses ................................ 154 15 443 15
Goodwill amortization ................................... 276 267 824 800
-------- -------- -------- --------
Operating Income ..................................... 1,042 108 3,001 1,731
-------- -------- -------- --------
Other:
Interest expense ..................................... 0 301 112 480
Other ................................................ (83) (294) (195) (275)
-------- -------- -------- --------
(83) 7 (83) 205
-------- -------- -------- --------
Income Before Income Taxes ........................... 1,125 101 3,084 1,526
Income taxes ............................................ 671 99 1,513 812
======== ======== ======== ========
Net Income ........................................... $ 454 $ 2 $ 1,571 $ 714
======== ======== ======== ========
Net income per share .................................... $ 0.05 $ 0.00 $ 0.16 $ 0.07
======== ======== ======== ========
Weighted-average number of common and
common-equivalent shares outstanding .................... 9,971 9,971 9,971 9,971
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 12
<PAGE>
NSC Corporation
Consolidated Statements of Cash Flow
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net income ........................................... $ 1,571 $ 714
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation .................................... 1,302 1,396
Goodwill amortization ........................... 824 800
Deferred income taxes ........................... (505) (668)
Gain on disposition of property and equipment ... (16) (28)
Changes in current assets and liabilities,
net of effects of business acquisitions:
Accounts receivable .................................. (319) (5,636)
Costs and estimated earnings on contracts
in process in excess of billings .................... 124 (1,086)
Other current assets ................................. 1,280 570
Accounts payable ..................................... 23 1,355
Billings in excess of costs and estimated
earnings on contracts in process ................... 925 522
Other ................................................ (1,098) 2,003
-------- --------
Net cash provided by (used in)
operating activities ....................... 4,111 (58)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment .................. (1,442) (455)
Proceeds from the sale of property and equipment ..... 47 114
Decrease in other noncurrent assets .................. - 38
Business acquisitions (718) -
-------- --------
Net cash used in investing activities ...... (2,113) (303)
-------- --------
Cash flows from financing activities:
Payments on long-term debt ........................... (5,850) (2,443)
Payable to affiliate ................................. 2,949 -
-------- --------
Net cash used in financing activities ...... (2,901) (2,443)
-------- --------
Net decrease in cash and cash equivalents .. (903) (2,804)
Cash and cash equivalents at beginning of periods ....... 4,094 8,818
======== ========
Cash and cash equivalents at end of periods ............. $ 3,191 $ 6,014
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 12
<PAGE>
Notes to Consolidated Financial Statements
For the Quarter Ended September 30, 1996
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by NSC Corporation (the "Company") and reflect all adjustments, consisting of
only normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of financial results for the three and nine
month periods ended September 30, 1996 and 1995, 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 audited financial statements have been condensed or omitted
pursuant to such rules and regulations. These interim consolidated financial
statements should be read in conjunction with the Company's Annual Report to
Stockholders on Form 10-K for the year ended December 31, 1995. The results of
operations for the three and nine month periods ended September 30, 1996 and
1995 are not necessarily indicative of the results for the full year.
The accompanying interim consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. The Company is a Delaware
corporation and is owned approximately 40% by OHM Corporation and approximately
40% by Rust International Inc..
Seasonality. The revenues derived from the Company's asbestos abatement services
are affected by the timing of its clients' planned asbestos abatement work.
Because of this change in demand, the Company's quarterly revenues can
fluctuate. Revenues and operating results of asbestos-abatement activities may
also be further affected by the timing of large contracts, especially if all or
a substantial part of the performance of such contracts occurs within one or two
quarters. The revenues and operating results of the demolition and dismantling
activities may be affected by fluctuations in the price of scrap metals.
Accordingly, quarterly or other interim results should not be considered
indicative of results to be expected for any other quarter or for the full
fiscal year.
Net Income Per Share Information. The net income per share amounts have been
computed by dividing net income by the weighted-average number of common and
common-equivalent shares, if dilutive, outstanding during the respective
periods.
Reclassifications. Certain reclassifications have been made to prior year
financial statements to conform with the current year presentation.
Note 2 - Debt
On May 1, 1996 the Company amended its May 4, 1993, revolving credit facility.
Under this amendment the Company can borrow up to $25,000,000 on a revolving
basis for a term expiring April 30, 1999. The amended revolving credit facility
contains debt service coverage, leverage and interest covenants and allows for
payment of dividends subject to certain conditions (See Exhibit 10 of the
Quarterly Report on form 10-Q for the quarter ended March 31, 1996). As of
September 30, 1996 the Company had outstanding $8,000,000 in letters of credit.
Note 3 - Litigation and Contingencies
See item 1. Legal Proceedings
Page 6 of 12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
General. The following discussion should be read in conjunction with the
information set forth in the Consolidated Financial Statements and related notes
for the three and nine month periods ended September 30, 1996 and 1995 included
herein, and with the Company's Annual Report to Stockholders for the year ended
December 31, 1995.
The Company is a leading provider of asbestos-abatement and other specialty
contracting services to a broad range of commercial, industrial and
institutional clients, which are located throughout the United States. The
timing of revenues is dependent on the Company's backlog, contract awards and
the performance requirements of each contract. Generally, cost of services as a
percentage of net revenues fluctuates based on the amount and timing of revenues
earned, the mix of projects requiring union or non-union labor, pricing and
other factors.
Three Months Ended September 30, 1996
Versus
Three Months Ended September 30, 1995
Revenue. Revenue for the three months ended September 30, 1996 increased 2% to
$30,014,000 from $29,452,000 for the same period in 1995. The increase in
revenue is the net result of decreased asbestos-abatement related revenue and an
increase of $4,376,000 in revenue generated by Olshan Demolishing Management,
Inc. (ODMI)due to a full quarter of activity in 1996 compared to one month of
activity in 1995 for the three month period under discussion. The decrease in
asbestos-abatement related revenue is the result of normal quarter to quarter
fluctuation in the level of bid activity and the Company's success in being
awarded new work.
Gross Profit. Gross profit as a percentage of revenues for the three months
ended September 30, 1996 increased to 18% from 15% for the same period in 1995
primarily due to the reduction of insurance claims and their respective
settlement reserves.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended September 30, 1996
decreased 8% to $3,849,000 from $4,172,000 for the same period in 1995. The SG&A
expenses, as a percentage of revenue, for the three months ended September 30,
1996 were 13% compared to 14% for the same period in 1995. The decrease in SG&A
costs is due to the net result of the inclusion of a full quarter of ODMI
activities and the Company's continued SG&A cost containment efforts.
Other Operating Expenses. The results of operations of ODMI since September 1995
are consolidated with the Company's results of operation. In exchange for the
right to operate Olshan Demolishing Company ("ODC"), the Company is required to
pay Rust an annual fee based on operating profit, if any, which amounts to
$154,000 for the three month period ended September 30, 1996 versus $15,000 for
the same period in 1995.
Other (Income) and Expenses. Other (income) and expenses for the three months
ended September 30, 1996 were ($83,000) compared to $7,000 for the same period
in 1995. The net decrease of $91,000 is primarily attributable to the
elimination of the interest expense associated with the Company's long-term debt
which was repaid in full on March 21, 1996.
Net Income. Net income for the three months ended September 30, 1996 increased
to $454,000 from $2,000 for the same period in 1995. Net income as a percentage
of revenues for the three month period ended September 30, 1996 increased to 2%
from 0% for the same period in 1995. The increase in Net Income for the three
month period ended September 30, 1996 is primarily due to the inclusion of
ODMI's activities and the reduction of SG&A costs, interest expense and
insurance claim settlement reserves.
Page 7 of 12
<PAGE>
Nine Months Ended September 30, 1996
Versus
Nine Months Ended September 30, 1995
Revenue. Revenue for the nine months ended September 30, 1996 increased 8% to
$97,984,000 from $90,962,000 for the same period in 1995. The increase in
revenues is the net result of decreased asbestos-abatement related revenue and
an increase of $15,090,000 revenue generated by ODMI for a full nine months of
activity. The decrease in asbestos-abatement related revenue is the result of
normal fluctuation of bid activity and the Company's success in being awarded
new work.
Gross Profit. Gross profit as a percentage of revenue for the nine months ended
September 30, 1996 and 1995 increased to 17% from 16% primarily due to the
reduction of insurance claims and their respective settlement reserves.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the nine months ended September 30, 1996
increased 4% to $12,344,000 from $11,919,000 for the same period in 1995. The
increase in SG&A is the net effect of a decrease in SG&A costs due to the
Company's continued cost containment efforts and the inclusion of ODMI's full
quarter activities. The SG&A expenses as a percentage of revenue for the nine
month period in 1996 and 1995 remained constant at 13%.
Other Operating Expenses. The results of operations of ODMI since September 1995
are consolidated with the Company's results of operation. In exchange for the
right to oerate Olshan Demolishing Company ("ODC"), the Company is required to
pay Rust an annual fee based on operating profit, if any, which amounts to
$443,000 for the nine month period ended September 30, 1996 versus $15,000 for
the same period in 1995.
Other (Income) and Expenses. Other (income) and expenses for the nine months
ended September 30, 1996 were ($83,000) compared to $205,000 for the same period
in 1995. The decrease is primarily attributable to the elimination of the
interest expense associated with the Company's long-term debt which was repaid
in full on March 21, 1996.
Net Income. Net income for the nine months ended September 30, 1996 increased
120% to $1,571,000 from $714,000 for the same period in 1995. Net income as a
percentage of revenue for the nine month period ended September 30, 1996
increased to 2% from 1% for the same period in 1995. The increase in Net Income
for the nine month period ended September 30, 1996 is primarily due to higher
revenue and the reduction of interest expense and insurance settlement reserves.
Liquidity and Capital Resources. Working capital at September 30, 1996 was
$21,445,000 compared to $17,339,000 at December 31, 1995. The current ratio was
2.2/1 at September 30, 1996 compared to 1.7/1 at December 31, 1995. Cash
provided by operating activities was $4,111,000 for the nine month period ended
September 30, 1996 compared to cash used in operating activities of $58,000 for
the same period in 1995. The increase in cash provided by operations is
primarily due to the increase in billings and an increase in accounts receivable
collections. During the first nine months of 1996, cash of $1,442,000 was used
for purchases of property and equipment, $618,000 was used for the acquisition
of the assets of Safe Air Inc., $100,000 was used for other acquisition
activities, and $5,850,000 was used for repayment of the Company's long-term
debt.
Pursuant to the Olshan Business Operating Agreement, dated April 20, 1995 the
Company has received to date a $4,520,000, interest-free working capital loan.
The loan is payable according to the provisions contained in the agreement and
is expected to remain outstanding for the full ten year term of the agreement.
The Company believes that its cash flows from operations and funds available
under the existing senior revolving credit facilities, as amended on May 1,
1996, will be sufficient throughout the next twelve months to finance its
working capital needs and planned capital expenditures and to service possible
future indebtedness. While the Company's Board of Directors has not established
a policy concerning payment of regular dividends, it intends to review annually
the feasibility of declaring additional dividends depending upon the results of
operations, financial condition and cash needs of the Company.
The nature and scope of the Company's business bring it into regular contact
with the general public, a variety of businesses and government agencies. Such
activities inherently subject the Company to the hazards of litigation. While
the outcome of all claims is not clearly determinable at the present time,
management has recorded an estimate of any losses it expects to incur in
connection with the resolution of the claims. Management believes that the
resolution of these claims will not have a material effect on the financial
condition of the Company; however, such resolutions could materially affect the
results of operations or cash flows for either a quarterly or annual reporting
period (See Item 1. Legal Proceedings).
Page 8 of 12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The company is currently cooperating in a grand jury investigation
being conducted by the Department of Justice, Environmental Crimes Section,
relating to operational activities involving a subsidiary of the Company as a
subcontractor at the Weldon Springs Site Remedial Action Project. The Company
cannot speculate what effects, if any, the results of such investigation will
have on the Company. The Company is also subject to certain other legal
proceedings, including those relating to regulatory compliance, in the ordinary
course of business. Management believes that the resolution of these claims will
not have a material effect on the financial condition of the Company; however,
such resolutions could materially affect the result of operations or cash flows
for either a quarterly or annual reporting period.
Item 6. Exhibits and Reports on Form 8-K
(a.) EXHIBITS
Exhibit 11. Statement Re-Computation of Per-Share Earnings.
(b.) REPORTS ON FORM 8-K
i.) Form 8-K filed August 28, 1996 Reported the Resignation of the
Company President and the appointment of an interim President.
Page 9 of 12
<PAGE>
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.
NSC CORPORATION
Date: November 4, 1996 By _____/s/ J. DRENNAN LOWELL_____
J. Drennan Lowell
Vice President, Chief Financial Officer,
Treasurer and Secretary
Signing on behalf of the registrant
and as principalfinancial officer.
Page 10 of 12
EXHIBIT 11
Statement Re Computation of Per-Share Earnings
NSC CORPORATION
COMPUTATION OF PER-SHARE EARNINGS
(In Thousands, Except Per-Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Primary:
Average shares outstanding 9,971 9,971 9,971 9,971
======= ======= ======= =======
Total ................. 9,971 9,971 9,971 9,971
======= ======= ======= =======
Net income .................. $ 454 $ 2 $ 1,571 $ 714
======= ======= ======= =======
Per-Share amounts:
Net income ............... $ 0.05 $ 0.00 $ 0.16 $ 0.07
======= ======= ======= =======
Fully Diluted:
Average shares outstanding 9,971 9,971 9,971 9,971
======= ======= ======= =======
Total 9,971 9,971 9,971 9,971
======= ======= ======= =======
Net income $ 454 $ 2 $ 1,571 $ 714
======= ======= ======= =======
Per-Share amounts:
======= ======= ======= =======
Net income $ 0.05 $ 0.00 $ 0.16 $ 0.07
======= ======= ======= =======
Page 11 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,191
<SECURITIES> 0
<RECEIVABLES> 27,953
<ALLOWANCES> 509
<INVENTORY> 938
<CURRENT-ASSETS> 39,910
<PP&E> 16,716
<DEPRECIATION> 8,001
<TOTAL-ASSETS> 85,175
<CURRENT-LIABILITIES> 18,465
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 58,752
<TOTAL-LIABILITY-AND-EQUITY> 85,175
<SALES> 99,277
<TOTAL-REVENUES> 97,984
<CGS> 81,372
<TOTAL-COSTS> 94,983
<OTHER-EXPENSES> (195)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 3,084
<INCOME-TAX> 1,513
<INCOME-CONTINUING> 1,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,571
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
