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, 1998
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 (IRS Employer
Incorporation or organization Identification Number)
DELAWARE 31-1295113
49 DANTON DRIVE, METHUEN, MA 01844
(978) 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 10, 1998 was
9,971,175.
The total number of sequentially numbered pages is 12.
Page 1 of 12
<PAGE>
NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED June 30, 1998
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-As of June 30, 1998 and December 31, 1997 (Audited) 3
Consolidated Statements of Income
-For the Three and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flow
-For the Six Months Ended June 30, 1998 and 1997 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 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2 of 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NSC Corporation
Consolidated Balance Sheets
(In thousands, except share and per-share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,651 $ 8,781
Accounts receivable, net 21,712 20,590
Costs and estimated earnings on contracts
in process in excess of billings 6,257 1,969
Inventories 1,211 1,157
Prepaid expenses and other current assets 3,001 1,565
Deferred income taxes 713 844
------------ -----------
38,545 34,906
Property and equipment, net 2,568 2,755
Other non-current assets:
Assets held for sale 313 1,653
Goodwill, net of accumulated amortization 34,625 35,175
Other assets 150 -
------------ -----------
Total assets $ 76,201 $ 74,489
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,094 $ 4,942
Billings in excess of costs and estimated
earnings on contracts in process 6,058 3,274
Accrued compensation and related costs 2,270 1,760
Federal, state and local taxes (405) 273
Other accrued liabilities 1,068 1,428
Reserve for self-insurance claims and
other contingencies 5,306 6,403
------------ -----------
18,391 18,080
Non-current liabilities:
Payable to affiliate 4,520 4,520
Deferred income taxes 1,732 733
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 1998 and 1997 100 100
Additional paid-in capital 56,079 56,079
Accumulated deficit (4,621) (5,023)
------------ -----------
51,558 51,156
------------ -----------
Total liabilities and stockholders' equity $ 76,201 $ 74,489
============ ===========
</TABLE>
Note: The balance sheet at December 31, 1997 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 12
<PAGE>
NSC Corporation
Consolidated Statements of Income
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1998 1997 1998 1997
-------- --------- ------- -------
<S> <C> <C> <C> <C>
Revenue $25,252 $31,082 $46,060 $60,897
Cost of services 21,282 27,239 38,199 52,063
-------- --------- ------- -------
Gross profit 3,970 3,843 7,861 8,834
Selling, general and administrative
expenses 3,368 3,705 6,816 7,566
Other operating (income) expense (134) (96) 19 (74)
Goodwill amortization 275 275 550 550
-------- --------- ------- -------
461 (41) 476 792
-------- --------- ------- -------
Other income 64 42 96 129
-------- --------- ------- -------
Income before income taxes 525 1 572 921
Income taxes 146 - 170 461
-------- --------- ------- -------
Net income $ 379 $ 1 $ 402 $ 460
======== ========= ======= =======
Net income per share $ 0.04 $ 0.00 $ 0.04 $ 0.05
======== ========= ======= =======
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 12
<PAGE>
NSC Corporation
Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1998 1997
---------- ----------
Cash flow from operating activities:
<S> <C> <C>
Net income $ 402 $ 460
Adjustments to reconcile net income to net
cash(used in) provided by operating activities:
Depreciation 459 759
Goodwill amortization 550 550
Deferred income taxes 1,130 234
(Gain) loss on disposition of property
and equipment (25) 2
Adjustment of impairment write down (158) -
Changes in current assets and liabilities:
Accounts receivable (1,122) 2,578
Costs and estimated earnings on contracts
in process in excess of billings (4,288) (1,561)
Other current assets (1,475) 240
Accounts payable (848) 868
Billings in excess of costs and estimated
earnings on contracts in process 2,784 (1,466)
Other current liabilities (527) (2,784)
Reserve for self insurance claims and other
contingencies (1,097) (1,088)
---------- ---------
Net cash used in operating activities (4,215) (1,208)
Cash flow from investing activities:
Purchases of property and equipment (306) (591)
Proceeds from the sale of property and
equipment 1,541 47
Other (150) -
---------- ---------
Net cash provided by (used in)
investing activities 1,085 (544)
Cash flow from financing activities:
Net cash used in financing activities - -
---------- ---------
Net decrease in cash and cash equivalents (3,130) (1,752)
Cash and cash equivalents at beginning of periods 8,781 3,975
---------- ---------
Cash and cash equivalents at end of periods $ 5,651 $ 2,223
========== =========
</TABLE>
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 June 30, 1998
(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 position at June 30, 1998 and
results for the three and six month periods ended June 30, 1998 and 1997, 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, 1997. The results of operations for the three and six month periods ended
June 30, 1998 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 54% by Waste Management, 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. Fluctuations in
the price of scrap metals may affect the revenue and operating results of the
demolition and dismantling activities. 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.
In accordance with the Private Securities Litigation Reform Act of 1995, the
Company notes that statements that look forward in time, which include
everything other than historical information, involve risks and uncertainties
that may affect the Company's actual results of operation. Factors which could
cause actual results to differ materially include the following (among other):
regulatory changes, technological advances, labor shortages and disputes,
technical problems, time extensions and/or delays in projects caused by external
sources, weather conditions, the condition of the U.S economy, and other factors
listed from time to time in the Company's filings with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date of this report.
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 June 30, 1998
Versus
Three Months Ended June 30, 1997
Revenue. Revenue for the three months ended June 30, 1998 decreased 19% to
$25,252,000 from $31,082,000 for the same period in 1997. The decrease in
revenue was due to a $4,912,000 decrease in asbestos-abatement related revenue
and a $918,000 decrease in demolition related revenue. This decrease was the
combined result of competitive pricing pressures in the bidding process
resulting in the Company's decreased success in being awarded new work and
normal fluctuations in demand. The second quarter results are not indicative of
results to be expected for any upcoming quarter.
Gross Profit. Gross profit for the three months ended June 30, 1998 increased 3%
to $3,970,000 from $3,843,000 for the same period in 1997. Gross profit as a
percentage of revenue increased for the three months ended June 30, 1998 to 16%
from 12% for the same period in 1997. The increase in the gross profit margin
percentage was primarily due to improved productivity and greater selectivity
when bidding and accepting new awards. The gross margin was partially improved
by a workers' compensation premium refund resulting from an improved safety
record.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended June 30, 1998
decreased 9% to $3,368,000 from $3,705,000 for the same period in 1997. The
decrease in SG&A costs is the result of a reduction in administrative personnel.
The SG&A expenses, as a percentage of revenue, for the three months ended June
30, 1998 were 13% compared to 12% for the same period in 1997 due to the
decrease of revenue.
Other Operating Income. Olshan Demolishing Management, Inc. (ODMI), a wholly
owned subsidiary of the Company, has entered into a management agreement with an
affiliate of Waste Management Inc. whereby ODMI manages the operations of Olshan
Demolishing Company (ODC). Pursuant to this arrangement, the Company and the
Waste affiliate share the profits and operating losses of ODMI. For the three
month period ended June 30, 1998, the amount due to the Waste affiliate was
$24,000 compared to $96,000 due from the Waste affiliate for the same period in
1997. Offsetting this amount is an adjustment of an earlier write-down
associated with the sale of certain real estate property.
Other Income. Other income for the three months ended June 30, 1998 was $64,000
compared to $42,000 for the same period in 1997 mainly as a result of increased
gains on sales of fixed assets in the current year. This was partially offset by
decreased interest income resulting from lower bank cash balances and a change
in the bank service fee arrangement.
Net Income. Net income for the three months ended June 30, 1998 increased to
$379,000 from $1,000 for the same period in 1997 due to increased gross profit,
decreased operating costs and the recognition of a tax benefit associated with
the refunds of taxes paid in prior years. As a percentage of revenue, net income
increased to 1.5% for the three months ended June 30, 1998 from 0% for the same
period in 1997.
Page 7 of 12
<PAGE>
Six Months Ended June 30, 1998
Versus
Six Months Ended June 30, 1997
Revenue. Revenue for the six months ended June 30, 1998 decreased 24% to
$46,060,000 from $60,897,000 for the same period in 1997. The decrease in
revenue was due to a $11,569,000 decrease in asbestos-abatement related revenue
and a $3,268,000 decrease in demolition related revenue. This decrease was the
combined result of competitive pricing pressures in the bidding process
resulting in the Company's decreased success in being awarded new work and
normal fluctuations in demand. Quarterly or other interim results should not be
considered indicative of results to be expected for any upcoming quarter or for
the full fiscal year.
Gross Profit. Gross profit for the six months ended June 30, 1998 decreased 11%
to $7,861,000 from $8,834,000 for the same period in 1997. Gross profit as a
percentage of revenue increased for the six months ended June 30, 1998 to 17%
from 15% for the same period in 1997. The increase in the gross profit margin
percentage was primarily due to improved productivity and greater selectivity
when bidding and accepting new awards. The gross margin percentage was further
enhanced by the settlement of a disputed contract for an amount in excess of its
carrying value and a workers' compensation premium refund resulting from an
improved safety record.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the six months ended June 30, 1998 decreased
10% to $6,816,000 from $7,566,000 for the same period in 1997. The decrease in
SG&A costs is mainly due to a reduction in administrative personnel and reduced
consulting services associated with Year 2000 compliance. The SG&A expenses, as
a percentage of revenue, for the six months ended June 30, 1998 were 15%
compared to 12% for the same period in 1997 due to the decrease of revenue.
Other Operating Expenses. For the six month period ended June 30, 1998, the
amount due to the Waste affiliate as a result of the operations of ODMI was
$177,000 compared to $74,000 due from the Waste affiliate for the same period in
1997. This amount is partially offset by an adjustment of a write-down
associated with the sale of certain real estate property.
Other (Income) Expense. Other income for the six months ended June 30, 1998 was
$96,000 compared to $129,000 for the same period in 1997. This decrease is due
to decreased interest income resulting from lower bank cash balances and a
change in the bank service fee arrangement partially offset by increased gains
on sales of fixed assets in the current year.
Net Income. Net income for the six months ended June 30, 1998 decreased to
$402,000 from $460,000 for the same period in 1997 due to reduced gross profit
and a slower reduction of overhead costs. Net income was partially improved by
the recognition of a tax benefit associated with the refunds of taxes paid in
prior years. As a percentage of revenue, net income remained at approximately 1%
for the six months ended June 30, 1998 and June 30, 1997.
Page 8 of 12
<PAGE>
Liquidity and Capital Resources. Working capital at June 30, 1998 was
$20,154,000 compared to $16,826,000 at December 31, 1997. The current ratio was
2.1/1 at June 30, 1998 compared to 2/1 at December 31, 1997. Cash used in
operating activities was $4,215,000 for the six month period ended June 30, 1998
compared to cash used in operating activities of $1,208,000 for the same period
in 1997. The increase in cash used in operations was due to billing timing
issues, increased operating activity and the payment of a general liability
claim. During the first six months of 1998, cash of $306,000 was used for
purchases of property and equipment and proceeds of $1,447,000 were received in
conjunction with the sale of the Methuen property. The Company continues to
occupy the Methuen property pending the relocation of the corporate office to a
new site.
The Company believes that its cash flows from operations and funds available
under the existing senior revolving credit facilities, as amended on December
22, 1997, 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
any 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, 1998 of
$5,306,000 and at December 31, 1997 of $6,403,000.
Year 2000. In 1996, the Company began upgrading its financial and decision
support systems to comply with Year 2000 requirements. This process is now
complete and the Company believes that such systems are Year 2000 compliant. In
addition to $675,000 of capital costs incurred project-to-date, consulting and
training expenses of $105,000, $223,000 and $135,000 were incurred with respect
to Year 2000 compliance in 1998, 1997 and 1996 respectively. The Company
anticipates spending another $75,000 for training and consulting services by
year-end and believes that these expenditures will adequately address any Year
2000 issues associated with the Company's operations. The Company has been in
contact with its bank and several of its more signifcant customers to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to remedy their own Year 2000 issues. There is no
guarantee that the systems of other companies on which the Company's systems
rely will be converted. Even assuming that such conversions do not occur, the
Company does not believe that any such third party system failures will have a
material adverse effect on the Company given the nature of the Company's
business which is not computer dependent in any material aspect.
Page 9 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 4. Submission of Matters to a Vote of Security Holders
The Board of Directors recommended the five individuals set forth below be
elected Directors at the Company's 1998 Annual Meeting of Stockholders held on
May 14, 1998, to serve a term of one year expiring at the Annual Meeting in
1999. Messrs. Barnett, Getz, Hulligan and Mapel had been previously elected as
Directors by the shareholders and were re-elected at the 1998 meeting. Mr.
Schimeck was elected replacing Victor J. Barnhart who resigned as Chief
Executive Officer of the Company on May 6, 1998.
Affirmative Withheld
Eugene L. Barnett 9,590,993 380,182
Herbert A. Getz 9,590,993 380,182
William P. Hulligan 9,590,993 380,182
William M. R. Mapel 9,590,993 380,182
Darryl G. Schimeck 5,380,670 4,590,505
Item 5. Other Information
NSC Corporation announced that effective May 4, 1998, Victor J. Barnhart has
announced his retirement and will resign as the Company's Chairman and Chief
Executive Officer.
The Board of Directors of NSC Corporation has elevated Darryl G. Schimeck to
Chairman, Chief executive Officer and President. Mr. Schimeck has been President
and Chief Operating Officer of the Company, and has also served as President of
National Surface Cleaning, Inc., a wholly owned subsidiary of NSC Corporation.
The Investment Banking Firm of BT Alex. Brown continues its review of strategic
alternatives for the Company.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
3(i)(a) Amended and Restated certificate of Incorporation of the Registrant
dated April 24, 1990 [incorporated by reference to Exhibit 3(a) to the
Registrant's Form S-1, Registration Statement No. 33-34702].
3(ii)(a) By-laws of the Registrant [incorporated by reference to Exhibit 3(b)
to the Registrant's Form S-1, Registration Statement No. 33-34702].
4 Specimen Common Stock Certificate [incorporated by reference to Exhibit
4 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990].
(b.) Forms 8-K
No reports were filed on Form 8-K during the quarter ended June 30, 1998.
Page 10 of 12
<PAGE>
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 there unto duly authorized.
NSC CORPORATION
Date: August 10, 1998 By /s/ Efstathios A. Kouninis
Efstathios A. Kouninis
Vice President of Finance, Corporate Controller,
Secretary and Treasurer
Signing on behalf of the registrant and as
principal financial and accounting officer.
Page 11 of 12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> <blank>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5651
<SECURITIES> 0
<RECEIVABLES> 22,439
<ALLOWANCES> 727
<INVENTORY> 1211
<CURRENT-ASSETS> 38,545
<PP&E> 7505
<DEPRECIATION> 4937
<TOTAL-ASSETS> 76,201
<CURRENT-LIABILITIES> 18,391
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 51,458
<TOTAL-LIABILITY-AND-EQUITY> 76,201
<SALES> 25,312
<TOTAL-REVENUES> 25,252
<CGS> 21,282
<TOTAL-COSTS> 24,791
<OTHER-EXPENSES> (64)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 525
<INCOME-TAX> 146
<INCOME-CONTINUING> 379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
