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, 1997
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 0184
(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 12, 1997 was
9,971,175.
The total number of sequentially numbered pages is 12.
Page 1 of 13
<PAGE>
NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED September 30, 1997
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-As of September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
-For the Three and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
-For the Nine Months Ended September 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 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2 of 13
<PAGE>
NSC Corporation
Consolidated Balance Sheets
(In thousands, except share and per-share data)
September 30, December 31,
1997 1996
---------- ---------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 2,842 $ 3,975
Accounts receivable, net 26,564 26,859
Costs and estimated earnings on contracts
in process in excess of billings 5,994 7,739
Inventories 981 878
Prepaid expenses and other current assets 930 1,672
---------- ---------
37,311 41,123
Property and equipment:
Land 767 767
Buildings and improvements 4,269 4,311
Machinery and equipment 7,751 9,868
Projects in Process 646 558
---------- ---------
13,433 15,504
Less accumulated depreciation (6,456) (8,152)
---------- ---------
6,977 7,352
Other noncurrent assets:
Goodwill, net of accumulated amortization 35,450 36,275
Other Assets 488 475
---------- ---------
Total Assets 80,226 85,225
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,528 $ 3,448
Billings in excess of costs and estimated
earnings on contracts in process 4,930 5,237
Accrued compensation and related costs 2,334 3,898
Federal, state and local taxes (1,038) 887
Other accrued liabilities 890 1,089
Reserve for self insurance claims and other
contingencies 4,966 5,410
---------- ---------
16,610 19,969
Noncurrent liabilities:
Payable to affiliate 4,520 4,520
Deferred income taxes 3,109 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 (192) 1,467
---------- ---------
55,987 57,646
---------- ---------
Total Liabilities and Stockholders' Equity $ 80,226 $ 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>
NSC Corporation
Consolidated Statements of Income
(In thousands, except per-share data)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- -------
<S> <C> <C> <C> <C>
Revenue $30,643 $30,014 $91,540 $97,984
Cost of services 30,156 24,693 82,219 81,372
--------- --------- -------- -------
Gross profit 487 5,321 9,321 16,612
Selling, general and administrative
expenses 4,147 3,849 11,713 12,344
Other operating expenses (568) 154 (642) 443
Goodwill amortization 275 276 825 824
--------- --------- -------- -------
(3,367) 1,042 (2,575) 3,001
--------- --------- -------- -------
Other:
Interest expense - - - 112
Other (69) (83) (198) (195)
--------- --------- -------- -------
(69) (83) (198) (83)
--------- --------- -------- -------
Income before income taxes (3,298) 1,125 (2,377) 3,084
Income tax (benefit) expense (1,179) 671 (718) 1,513
--------- --------- -------- -------
Net (loss) income $ (2,119) $ 454 $(1,659) $1,571
========= ========= ======== =======
Net (loss) income per share $ (0.21) $ 0.05 $ (0.17) $ 0.16
========= ========= ======== =======
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)
Nine months ended
September 30,
-----------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Net (loss)income $(1,659) 1,571
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation 1,055 1,302
Goodwill amortization 825 824
Deferred income taxes 19 (505)
Gain on disposition of property and
equipment (21) (16)
Changes in current assets and liabilities,
net of effects of business acquisition:
Accounts receivable 295 (319)
Costs and estimated earnings on contracts
in process in excess of billings 1,745 124
Other current assets 626 1,280
Accounts payable 1,080 23
Billings in excess of costs and estimated
earnings on contracts in process (307) 925
Other current liabilities (3,688) 437
Reserve for self insurance claims and
other contingencies (444) (1,535)
---------- ----------
Net cash (used in) provided by
operating activities (474) 4,111
---------- ----------
Cash flow from investing activities:
Purchases of property and equipment (731) (1,442)
Proceeds from the sale of property and
equipment 72 47
Business acquisition - (718)
---------- ----------
Net cash used in investing activities (659) (2,113)
---------- ----------
Cash flow 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 (1,133) (903)
Cash and cash equivalents at beginning of
periods 3,975 4,094
---------- ----------
Cash and cash equivalents at end of periods $ 2,842 $ 3,191
========== ==========
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 September 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 nine
month periods ended September 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 nine month periods ended September 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 and the demand for process
equipment. 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 September 30, 1997
Versus
Three Months Ended September 30, 1996
Revenue. Revenue for the three months ended September 30, 1997 increased 2% to
$30,643,000 from $30,014,000 for the same period in 1996. The increase in
revenue was due to an increase in asbestos-abatement related revenue of
$2,061,000 offset by a decrease in demolition related revenue of $1,432,000.
Gross Profit. Gross profit as a percentage of revenue for the three months ended
September 30, 1997 decreased to 2% from 18% for the same period in 1996. The
decrease in the gross profit margin was the combined result of losses on certain
projects and the downward adjustment of the scrap value of process equipment
removed from certain demolition projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended September 30, 1997
increased 8% to $4,147,000 from $3,849,000 for the same period in 1996. The SG&A
expenses, as a percentage of revenue, for the three months ended September 30,
1997 were 14% compared to 13% for the same period in 1996. The increase in SG&A
costs is the result of the increase of certain receivable reserve balances.
Other Operating Expenses. Olshan Demolishing Management, Inc.(ODMI) is required
to share with Rust any operating profits or operating losses, in exchange for
the right to operate Olshan Demolishing Company (ODC). For the three month
period ended September 30, 1997 the amount due from Rust was $568,000 compared
to $154,000 due to Rust for the same period in 1996.
Other (Income) and Expenses. Other (income) and expenses for the three months
ended September 30, 1997 were ($69,000) compared to ($83,000) for the same
period in 1996.
Net Income. Net income (loss) for the three months ended September 30, 1997
decreased to $(2,119,000) from $454,000 for the same period in 1996. Net income
as a percentage of revenues for the three month period ended September 30, 1997
decreased to (7%) from 2% for the same period in 1996 primarily due to reduced
gross profit margins and increased SG&A expenses.
Page 7 of 13
<PAGE>
Nine Months Ended September 30, 1997
Versus
Nine Months Ended September 30, 1996
Revenue. Revenue for the nine months ended September 30, 1997 decreased 7% to
$91,540,000 from $97,984,000 for the same period in 1996. The decrease in
revenue is the combined result of a decrease in asbestos-abatement related
revenue of $2,786,000 and a decrease in demolition related revenue of
$3,658,000. The decrease in revenue was the result of the Company's decreased
success in securing new work.
Gross Profit. Gross profit as a percentage of revenue for the nine months ended
September 30, 1997 decreased to 10% from 17% for the same period in 1996. The
decrease in the gross profit margin was the combined result of losses on certain
projects, a decrease in the price of scrap metals, and the write down adjustment
of scrap process equipment 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 nine months ended September 30, 1997
decreased 5% to $11,713,000 from $12,344,000 for the same period in 1996.
The SG&A expenses as a percentage of revenue for the nine month period
ended September 30, 1997 were 13% 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 share with Rust any operating profits or operating losses, in exchange for
the right to operate Olshan Demolishing Company (ODC). For the nine month period
ended September 30, 1997 the amount due from Rust was $642,000 compared to
$443,000 due to Rust for the same period in 1996.
Other (Income) and Expenses. Other (income) and expenses for the nine months
ended September 30, 1997 were ($198,000) compared to ($83,000) 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 (loss)income. Net (loss)income for the nine months ended September 30, 1997
decreased 206% to ($1,659,000) from $1,571,000 for the same period in 1996. Net
income as a percentage of revenue for the nine month period ended September 30,
1997 decreased to (2%) from 2% for the same period in 1996. The decrease in net
income for the nine month period ended September 30, 1997 was primarily due to
the reduction in revenue and losses on certain asbestos-abatement and demolition
projects.
Page 8 of 13
<PAGE>
Liquidity and Capital Resources. Working capital at September 30, 1997 was
$20,701,000 compared to $21,154,000 at December 31, 1996. The current ratio was
2.2/1 at September 30, 1997 compared to 2.1/1 at December 31, 1996. Cash used in
operating activities was $474,000 for the nine month period ended September 30,
1997 compared to cash provided by operating activities of $4,111,000 for the
same period in 1996. The decrease in cash provided by operations was due to the
decrease in accrued liabilities and the reserve for self insurance claims.
During the first nine months of 1997, cash of $731,000 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 Company is currently reviewing its operations to identify ways to cut costs
and maximize productivity and profitability. The Company is considering re-
structuring certain operating units and centralizing its financial and admin-
istrative functions. Costs associated with this initiative are expected to
include, but not be limited to, lease buy-out, severance and relocation costs,
as well as write down of fixed assets no longer necessary in the business. These
costs are expected to be accrued in future periods. As the Company repositions
itself in the specialty contracting industry, business opportunities in areas
other than asbestos-abatement may receive more emphasis. Consequently, asbestos
removal revenues may decline in terms of actual dollars and as a relative
proportion of total revenues. The Company is currently re-evaluating the
carrying value of the goodwill associated with the asbestos-abatement business.
This re-evaluation effort could result in a write down of the goodwill in a
future period. These changes could have a material adverse impact on the results
of the Company's operations for the fourth quarter and for the year.
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
is 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 these claims at September 30, 1997
of $4,966,000 and at December 31, 1996 of $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.
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: November 12, 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
<TABLE>
EXHIBIT 11
Statement Re Computation of Per-Share Earnings
NSC Corporation
Computation of Per-Share Earnings
(In thousands, except per-share data)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 9,971 9,971 9,971 9,971
-------- -------- -------- --------
Total 9,971 9,971 9,971 9,971
======== ======== ======== ========
Net (loss)income (2,119) 454 (1,659) 1,571
======== ======== ======== ========
Per share amounts:
Net (loss)income (0.21) 0.05 (0.17) 0.16
======== ======== ======== ========
Fully Diluted:
Average shares outstanding 9,971 9,971 9,971 9,971
-------- -------- -------- --------
Total 9,971 9,971 9,971 9,971
======== ======== ======== ========
Net (loss)income (2,119) 454 (1,659) 1,571
======== ======== ======== ========
Per share amounts:
Net (loss)income (0.21) 0.05 (0.17) 0.16
======== ======== ======== ========
Page 12 of 13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,842
<SECURITIES> 0
<RECEIVABLES> 27,468
<ALLOWANCES> 904
<INVENTORY> 981
<CURRENT-ASSETS> 37,311
<PP&E> 13,433
<DEPRECIATION> 6,456
<TOTAL-ASSETS> 80,226
<CURRENT-LIABILITIES> 16,610
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 55,887
<TOTAL-LIABILITY-AND-EQUITY> 80,226
<SALES> 93,556
<TOTAL-REVENUES> 91,540
<CGS> 82,218
<TOTAL-COSTS> 94,114
<OTHER-EXPENSES> (198)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,377)
<INCOME-TAX> (718)
<INCOME-CONTINUING> (1,659)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,659)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
