UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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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 May 14, 1997 was 9,971,175.
Total Number of sequentially numbered pages is 11.
Page 1 of 12
<PAGE>
NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED March 31, 1997
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
-As of March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income (Unaudited)
-For the Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited)
-For the Three Months Ended March 31, 1997 and 1996 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)
March 31, December 31,
1997 1996
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 5,406 $ 3,975
Accounts receivable, net............................ 22,614 26,859
Costs and estimated earnings on contracts
in process in excess of billings.................. 8,417 7,739
Inventories......................................... 872 878
Prepaid expenses and other current assets........... 1,376 1,672
-------- --------
38,685 41,123
-------- --------
Property and equipment, net............................ 7,051 7,352
-------- --------
Other noncurrent assets:
Goodwill, net of accumulated amortization........... 36,000 36,275
Other Assets........................................ 475 475
-------- --------
Total Assets........................................ $ 82,211 $ 85,225
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 3,654 $ 3,448
Billings in excess of costs and estimated
earnings on contracts in process.................. 3,547 5,237
Accrued compensation and related costs.............. 2,884 3,898
Federal, state and local taxes...................... 724 887
Other accrued liabilities........................... 479 1,089
Reserve for self insurance claims
and other contingencies........................... 5,060 5,410
-------- --------
16,348 19,969
-------- --------
Noncurrent liabilities:
Payable to affiliate................................ 4,520 4,520
Deferred income taxes............................... 3,238 3,090
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 1997 and 1996.................................. 100 100
Additional paid-in capital.......................... 56,079 56,079
Retained Earnings................................... 1,926 1,467
-------- --------
58,105 57,646
-------- --------
Total Liabilities and Stockholders' Equity.......... $ 82,211 $ 85,225
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 12
<PAGE>
NSC Coporation
Consolidated Statements of Income
(In thousands, Except Per-Share Data)
(Unaudited)
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
Revenue................................................ $ 29,815 $ 35,823
Cost of services....................................... 24,824 29,863
-------- --------
Gross Profit........................................ 4,991 5,960
Selling, general and administrative expenses........... 3,861 4,454
Other operating expenses............................... 22 209
Goodwill amortization.................................. 275 275
-------- --------
Operating Income.................................... 833 1,022
-------- --------
Other:
Interest expense.................................... - 29
Other............................................... (87) 11
-------- --------
(87) 40
-------- --------
Income before income taxes 920 982
Income taxes........................................... 461 422
======== ========
Net Income.......................................... $ 459 $ 560
======== ========
Net income per share................................... $ 0.05 $ 0.06
======== ========
Weighted-average number of common shares outstanding... 9,971 9,971
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 12
<PAGE>
NSC Corporation
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income........................................... $ 459 $ 560
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation.................................... 410 467
Goodwill amortization........................... 275 275
Deferred income taxes........................... 148 -
Gain on disposition of property and equipment... (11) 9
Changes in current assets and liabilities,
net of effects of business acquisitions:
Accounts receivable.................................. 4,245 (477)
Costs and estimated earnings on contracts
in process in excess of billings................... (678) (586)
Other current assets................................. 302 375
Accounts payable..................................... 206 1,345
Billings in excess of costs and estimated
earnings on contracts in process................... (1,690) (372)
Accrued Compensation................................. (1,014) 2,485
Reserve for self insurance claims and other cont..... (350) (943)
Other................................................ (772) (2,166)
-------- --------
Net cash provided by operating activities.. 1,530 972
-------- --------
Cash flows from investing activities:
Purchases of property and equipment.................. (118) (340)
Proceeds from the sale of property and equipment..... 19 1
Business acquisitions................................ - (618)
-------- --------
Net cash used in investing activities...... (99) (957)
-------- --------
Cash flows from financing activities:
Net borrowings under short-term financing
arrangements....................................... - 1,000
Payments on long-term debt........................... - (5,850)
Payable to affiliate................................. - 1,083
-------- -------
Net cash used in financing activities...... - (3,767)
-------- -------
Net increase (decrease) in cash and cash
equivalents............................. 1,431 (3,752)
Cash and cash equivalents at beginning of periods....... 3,975 4,094
======== ========
Cash and cash equivalents at end of periods............. $ 5,406 $ 342
======== ========
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 March 31, 1997
(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 month
period 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 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, 1996. The results of operations for
the three month period ended March 31, 1997 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. Revenue and operating results of asbestos-abatement activities may
be affected by the timing of some contracts. Because of this change in demand,
the Company's quarterly revenues can fluctuate, especially if all or a
substantial part of the performance of such contracts occurs within one or two
quarters. The revenue 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 shares
outstanding during the respective periods.
Statement 128 in registration statements and Form 10-Qs filed during 1997. 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 primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of statement 128 on the calculation
of fully diluted earnings per share for these quarters is not expected to be
material.
Reclassifications. Certain reclassifications have been made to prior quarter
financial statements to conform with the current quarter presentation.
Page 6 of 12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1997
Versus
Three Months Ended March 31, 1996
Revenue. Revenue for the three months ended March 31, 1997 decreased 17% to
$29,815,000 from $35,823,000 for the same period in 1996. The decrease in
revenue is the combined result of a decrease in asbestos-abatement related
revenue of $4,717,000 and a decrease in demolition related revenue of
$1,291,000. The decrease in asbestos-abatement and demolition 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 revenue for the three months ended
March 31, 1997 and 1996 remained constant at 17%. The asbestos-abatement related
gross profit margin increased to 18% for the three months ended March 31, 1997
from 17% for the same period in 1996 primarily due to a reduction of the
Company's insurance claims and their respective settlement reserves. The
increase in the asbestos-abatement gross profit margin was offset by a decrease
in the demolition related gross profit margin primarily due to a decrease in the
price of scrap metals.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended March 31, 1997
decreased 13% to $3,861,000 from $4,454,000 for the same period in 1996. The
SG&A expenses, as a percentage of revenue, for the three months ended March 31,
1997 were 13% compared to 12% for the same period in 1996. The decrease in SG&A
costs was the result of the Company's continued cost containment efforts.
Other Operating Expenses. Olshan Demolishing Management Inc. is required to pay
Rust an annual fee, based on operating profit, in exchange for the right to
operate Olshan Demolishing Company (ODC). Rust's fee for the three month period
ended March 31, 1997 was $22,000 versus $209,000 for the same period in 1996
primarily due to the decrease in ODMI's operating profit.
Other (Income) and Expenses. Other (income) and expenses for the three months
ended March 31, 1997 were ($87,000) compared to $40,000 for the same period in
1996. The net decrease of $127,000 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 March 31, 1997 decreased to
$459,000 from $560,000 for the same period in 1996 primarily due to the decrease
in revenue. Net income as a percentage of revenue for the three month period
ended March 31, 1997 and 1996 remained constant at 2% due to the Company's cost
containment efforts and the decrease in insurance claims and their respective
settlement reserves.
Page 7 of 12
<PAGE>
Liquidity and Capital Resources. Working capital at March 31, 1997 was
$22,337,000 compared to $21,154,000 at December 31, 1996. The current ratio was
2.4/1 at March 31, 1997 compared to 2.1/1 at December 31, 1996. Cash provided by
operating activities was $1,530,000 for the three month period ended March 31,
1997 compared to $972,000 for the same period in 1996. The increase in cash
provided by operations is primarily due to the increase in accounts receivable
collections. During the first three months of 1997, cash of $118,000 was used
for purchases of property and equipment.
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. 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, which
are defended in the normal course of business. Management has recorded an
estimate of any losses it expects to incur in connection with the resolution of
the claims. 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 at March 31, 1997 of
$5,060,000 and at December 31, 1996 of $5,410,000.
Page 8 of 12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to certain legal proceedings, including those relating to
regulatory compliance, in the ordinary course of business. Management believes
that such proceedings are either adequately covered by insurance or if
uninsured, will not, in the aggregate, have a material adverse effect upon the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a.) EXHIBITS
Exhibit 11. Statement Re Computation of Per-Share Earnings.
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:
May 14, 1997 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
March 31,
------------------
1997 1996
------- -------
Primary:
Average shares outstanding............... 9,971 9,971
Net effect of dilutive equity
securities outstanding based on
the treasury stock method.............. - -
======= =======
Total ................................ 9,971 9,971
======= =======
Net income ................................. $ 459 $ 560
======= =======
Per-Share amounts:
Net income .............................. $ 0.05 $ 0.06
======= =======
Fully Diluted:
Average shares outstanding............... 9,971 9,971
Net effect of dilutive equity
securities outstanding based on
the treasury stock method.............. 98 -
======= =======
Total................................. 10,069 9,971
======= =======
Net income.................................. $ 459 $ 560
======= =======
Per-Share amounts:
======= =======
Net income............................... $ 0.05 $ 0.06
======= =======
Page 11 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,406
<SECURITIES> 0
<RECEIVABLES> 23,169
<ALLOWANCES> 555
<INVENTORY> 872
<CURRENT-ASSETS> 38,685
<PP&E> 15,535
<DEPRECIATION> 8,484
<TOTAL-ASSETS> 82,211
<CURRENT-LIABILITIES> 16,348
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 58,005
<TOTAL-LIABILITY-AND-EQUITY> 82,211
<SALES> 27,738
<TOTAL-REVENUES> 29,815
<CGS> 24,824
<TOTAL-COSTS> 28,982
<OTHER-EXPENSES> (87)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 920
<INCOME-TAX> 461
<INCOME-CONTINUING> 459
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
