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 June 30, 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 August 11, 1997 was
9,971,175.
The total number of sequentially numbered pages is 11.
Page 1 of 13
<PAGE>
NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED June 30, 1997
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-As of June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
-For the Three and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
-For the Six Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 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 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Page 2 of 13
<PAGE>
NSC Corporation
Consolidated Balance Sheets
(In Thousands, Except Share and Per-Share Data)
June 30, December 31,
1997 1996
-------- --------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 2,223 $ 3,975
Accounts receivable, net ....................... 24,281 26,859
Costs and estimated earnings on contracts
in process in excess of billings ............. 9,300 7,739
Inventories .................................... 1,075 878
Prepaid expenses and other current assets ...... 1,235 1,672
-------- --------
38,114 41,123
-------- --------
Property and equipment, net........................ 7,135 7,352
-------- --------
Other noncurrent assets:
Goodwill, net of accumulated amortization ...... 35,725 36,275
Other assets.................................... 475 475
-------- --------
Total Assets $ 81,449 $ 85,225
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 4,316 $ 3,448
Billings in excess of costs and estimated
earnings on contracts in process ............. 3,771 5,237
Accrued compensation and related costs ......... 2,520 3,898
Federal, state and local taxes ................. 31 887
Other accrued liabilities ...................... 539 1,089
Reserve for self insurance claims
and other contingencies....................... 4,322 5,410
-------- --------
15,499 19,969
-------- --------
Noncurrent liabilities:
Payable to affiliate ........................... 4,520 4,520
Deferred income taxes .......................... 3,324 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.. 100 100
Additional paid-in capital ..................... 56,079 56,079
Retained Earnings .............................. 1,927 1,467
-------- --------
58,106 57,646
-------- --------
Total Liabilities and Stockholders' Equity $ 81,449 $ 85,225
======== ========
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 13
<PAGE>
<TABLE>
<CAPTION>
NSC Coporation
Consolidated Statements of Income
(In thousands, Except Per-Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ................................................. $ 31,082 $ 32,147 $ 60,897 $ 67,970
Cost of services ........................................ 27,239 26,816 52,063 56,679
-------- -------- -------- --------
Gross Profit ......................................... 3,843 5,331 8,834 11,291
Selling, general and administrative expenses ............ 3,705 4,041 7,566 8,495
Other operating expenses ................................ (96) 80 (74) 289
Goodwill amortization ................................... 275 273 550 548
-------- -------- -------- --------
(41) 937 792 1,959
-------- -------- -------- --------
Other:
Interest expense ..................................... - 13 - 112
Other ................................................ (42) (53) (129) (112)
-------- -------- -------- --------
(42) (40) (129) -
-------- -------- -------- --------
Income before income taxes ........................... 1 977 921 1,959
Income taxes ............................................ 0 420 461 842
======== ======== ======== ========
Net Income ........................................... $ 1 $ 557 $ 460 $ 1,117
======== ======== ======== ========
Net income per share .................................... $ 0.00 $ 0.06 $ 0.05 $ 0.11
======== ======== ======== ========
Weighted-average number of common 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 13
<PAGE>
NSC Corporation
Consolidated Statements of Cash Flow
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income ........................................... $ 460 $ 1,117
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation .................................... 759 890
Goodwill amortization ........................... 550 548
Deferred income taxes ........................... 234 (1,011)
Loss (gain) on disposition
of property and equipment ..................... 2 (10)
Changes in current assets and liabilities,
net of effects of business acquisitions:
Accounts receivable .................................. 2,578 2,146
Costs and estimated earnings on contracts
in process in excess of billings .................... (1,561) (792)
Other current assets ................................. 240 680
Accounts payable ..................................... 868 409
Billings in excess of costs and estimated
earnings on contracts in process ................... (1,466) (92)
Reserve for self insurance claims and
other contingencies................................. (1,088) 709
Other ................................................ (2,784) (847)
-------- --------
Net cash (used in)provided by operating activities .. (1,208) 3,747
-------- --------
Cash flows from investing activities:
Purchases of property and equipment .................. (591) (1,086)
Proceeds from the sale of property and equipment ..... 47 25
Business acquisitions................................. - (718)
-------- --------
Net cash used in investing activities ...... (544) (1,779)
-------- --------
Cash flows from financing activities:
Payments on long-term debt ........................... - (5,850)
Payable to affiliate ................................. - 2,949
-------- --------
Net cash used in financing activities ...... - (2,901)
-------- --------
Net decrease in cash and cash equivalents .. (1,752) (933)
Cash and cash equivalents at beginning of periods ....... 3,975 4,094
======== ========
Cash and cash equivalents at end of periods ............. $ 2,223 $ 3,161
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 13
<PAGE>
Notes to Consolidated Financial Statements
For the Quarter Ended June 30, 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 and six
month periods ended June 30, 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 and six month periods ended June 30, 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.
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.
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 13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1997
Versus
Three Months Ended June 30, 1996
Revenue. Revenue for the three months ended June 30, 1997 decreased 3% to
$31,082,000 from $32,147,000 for the same period in 1996. The decrease in
revenue was the combined result of a decrease in asbestos-abatement related
revenue of $130,000 and a decrease in demolition related revenue of $935,000.
The decrease in asbestos-abatement and demolition related revenue was the result
of the Company's decreased success in securing new work. The demolition related
revenue was also affected by a decrease in the price of scrap metals.
Gross Profit. Gross profit as a percentage of revenue for the three months ended
June 30, 1997 decreased to 12% from 17% for the same period in 1996. The
decrease in the gross profit margin was the combined result of losses on
recently completed projects and a decrease in the price of scrap metals offset
by the reduction in the Company's insurance claims and their respective
reserves.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended June 30, 1997
decreased 8% to $3,705,000 from $4,041,000 for the same period in 1996. The SG&A
expenses, as a percentage of revenue, for the three months ended June 30, 1997
were 12% compared to 13% for the same period in 1996. The decrease in SG&A costs
is the result of the Company's continued cost containment efforts.
Other Operating Expenses. Olshan Demolishing Management, Inc.(ODMI) is required
to pay Rust an annual fee, based on operating profit, in exchange for the right
to operate Olshan Demolishing Company (ODC). In the event an operating loss is
recognized, Rust is required to share the loss with ODMI. For the three month
period ended June 30, 1997 the amount due to Rust was ($96,000) compared to
$80,000 for the same period in 1996. The ODMI operating loss was primarily due
to the losses on recently completed projects and the decrease in scrap metal
prices.
Other (Income) and Expenses. Other (income) and expenses for the three months
ended June 30, 1997 were ($42,000) compared to ($40,000) for the same period in
1996.
Net Income. Net income for the three months ended June 30, 1997 decreased to
$1,000 from $557,000 for the same period in 1996. Net income as a percentage of
revenues for the three month period ended June 30, 1997 decreased to 0% from 2%
for the same period in 1996 primarily due to reduced revenue and reduced gross
profit margins resulting from losses on recently completed projects.
Page 7 of 13
<PAGE>
Six Months Ended June 30, 1997
Versus
Six Months Ended June 30, 1996
Revenue. Revenue for the six months ended June 30, 1997 decreased 10% to
$60,897,000 from $67,970,000 for the same period in 1996. The decrease in
revenue is the combined result of a decrease in asbestos-abatement related
revenue of $4,847,000 and a decrease in demolition related revenue of
$2,226,000. The decrease in asbestos-abatement and demolition related revenue
was the result of the Company's success in securing new work. The Demolition
related revenue was also affected by the decrease in the price of scrap metals.
Gross Profit. Gross profit as a percentage of revenue for the six months ended
June 30, 1997 decreased to 15% from 17% for the same period in 1996. The
decrease in the gross profit margin was the combined result of losses on
recently completed projects and a decrease in the price of scrap metals offset
by the reduction in the Company's insurance claims and their respective
settlement reserves.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the six months ended June 30, 1997 decreased
11% to $7,566,000 from $8,495,000 for the same period in 1996 The SG&A expenses
as a percentage of revenue for the six month period ended June 30, 1997 were 12%
compared to 13% 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.(ODMI) is required
to pay Rust an annual fee, based on operating profit, in exchange for the right
to operate Olshan Demolishing Company (ODC). In the event an operating loss is
recognized, Rust is required to share the loss with ODMI. For the six month
period ended June 30, 1997 the amount due to Rust was ($74,000) compared to
$289,000 due to Rust for the same period in 1996. The operating loss resulting
in the amount due to ODMI was caused primarily due to the losses on recently
completed projects and the decrease in scrap metal prices.
Other (Income) and Expenses. Other (income) and expenses for the six months
ended June 30, 1997 were ($129,000) compared to $0 for the same period in 1996.
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 six months ended June 30, 1997 decreased 59% to
$460,000 from $1,117,000 for the same period in 1996. Net income as a percentage
of revenue for the six month period ended June 30, 1996 decreased to 1% from 2%
for the same period in 1996. The decrease in Net Income for the six month period
ended June 30, 1996 was primarily due to the reduction in revenue and gross
profit margins for both the asbestos-abatement and demolition projects.
Page 8 of 13
<PAGE>
Liquidity and Capital Resources. Working capital at June 30, 1997 was
$22,616,000 compared to $21,154,000 at December 31, 1996. The current ratio was
2.5/1 at June 30, 1997 compared to 2.1/1 at December 31, 1996. Cash used in
operating activities was $1,208,000 for the six month period ended June 30, 1997
compared to cash provided by operating activities of $3,747,000 for the same
period in 1996. The decrease in cash provided by operations was due to the
combined result of a decrease in accrued liabilities, a decrease in the reserve
for self insurance claims and an increase in billings in excess of costs and
estimated earnings on contracts in process. During the first six months of 1997,
cash of $591,000 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 June 30, 1997 of
$4,322,000 and at December 31, 1996 0f $5,410,000.
Page 9 of 13
<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.
(b.) REPORTS ON FORM 8-K
i.) Form 8-K filed July 18, 1997 Reported the Resignation of the
Company's Chief Financial Officer.
Page 10 of 13
<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: July , 1997 By _____/s/ Efstathios A. Kouninis_____
Efstathios A. Kouninis
Corporate Controller, Secretary and
Treasurer
Signing on behalf of the registrant
and as principal accounting officer.
Page 11 of 13
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 Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
Primary:
Average shares outstanding 9,971 9,971 9,971 9,971
======= ======= ======= =======
Total ................. 9,971 9,971 9,971 9,971
======= ======= ======= =======
Net income .................. $ 1 $ 557 $ 460 $ 1,117
======= ======= ======= =======
Per-Share amounts:
Net income ............... $ 0.00 $ 0.06 $ 0.05 $ 0.11
======= ======= ======= =======
Fully Diluted:
Average shares outstanding 10,058 9,971 10,058 9,971
======= ======= ======= =======
Total 10,058 9,971 10,058 9,971
======= ======= ======= =======
Net income $ 1 $ 557 $ 460 $ 1,117
======= ======= ======= =======
Per-Share amounts:
======= ======= ======= =======
Net income $ 0.00 $ 0.06 $ 0.05 $ 0.11
======= ======= ======= =======
Page 12 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,223
<SECURITIES> 0
<RECEIVABLES> 24,855
<ALLOWANCES> 574
<INVENTORY> 1,075
<CURRENT-ASSETS> 38,114
<PP&E> 15,706
<DEPRECIATION> 8,571
<TOTAL-ASSETS> 81,449
<CURRENT-LIABILITIES> 15,499
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 58,106
<TOTAL-LIABILITY-AND-EQUITY> 81,499
<SALES> 58,352
<TOTAL-REVENUES> 60,897
<CGS> 52,063
<TOTAL-COSTS> 60,105
<OTHER-EXPENSES> (129)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 921
<INCOME-TAX> 461
<INCOME-CONTINUING> 460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
