UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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 ____________________.
Commission file number 018597
NSC CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 31-1295113
(State of incorporation) (IRS Employer Identification Number)
49 DANTON DRIVE, METHUEN, MA 01844
(Address of principal executive offices) (ZIP code)
(978) 557-7300
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of each class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the common stock held by nonaffiliates of the
registrant on March 17, 1998 was $8,320,290.
The number of shares of common stock outstanding on March 17, 1998 was
9,971,175.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference to the
definitive Proxy Statement for the 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission no later than 120 days
after December 31, 1997.
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NSC Corporation
1997 Annual Report on Form 10-K
Table of Contents
Part I
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Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Executive Officers of the Registrant 12
Part II
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Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 33
Part III
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Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management 33
Item 13. Certain Relationships and Related Transactions 33
Part IV
- --------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 34
Signatures 37
Page 2 of 54
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Part I
Item 1. Business
General
NSC Corporation (the "Company") is a leading provider of asbestos-abatement and
other specialty contracting services to a broad range of commercial, industrial
and institutional clients located throughout the United States. The Company
provides asbestos-abatement, lead paint abatement and indoor air quality
services through two of its wholly-owned subsidiaries, National Surface
Cleaning, Inc. ("NSCI") and National Service Cleaning Corp. ("NSCC");
asbestos-abatement and decontamination and decommissioning of government and
commercial nuclear facilities through its wholly-owned subsidiary NSC Energy
Services, Inc. ("NSCESI"); and demolition and dismantling services through its
wholly-owned subsidiary, Olshan Demolishing Management, Inc. ("ODMI").
For financial information concerning the Company's two principal service
segments, asbestos-abatement (which includes indoor air quality, decontamination
and decommissioning and lead paint-abatement) and demolition and dismantling,
see Note 13 of the Notes to the Consolidated Financial Statements included
elsewhere herein.
The predecessor of the Company was founded in 1976 and initially provided
various cleaning services to commercial, industrial and residential real estate
properties. From the early 1980s and until the 1995 inclusion of ODMI's
activities, substantially all of the Company's revenue was derived from
asbestos-abatement services. The Company and a predecessor company to NSCC were
acquired by OHM Corporation ("OHM") in June 1988. During 1989, NSCC was
incorporated in Connecticut to provide asbestos-abatement services to clients
which generally do not require the use of unionized labor. In June 1990, the
Company completed an initial public offering of its common stock.
On May 4, 1993 pursuant to a Purchase Agreement among the Company, NSC
Industrial Services Corp. ("Industrial"), OHM, The Brand Companies, Inc.
("Brand") and Waste Management, Inc. ("WMX"), the Company acquired the
asbestos-abatement division of Brand (the "Division") in exchange for
4,010,000 shares of the Company's common stock and all the common stock of
Industrial.
On April 20, 1995 the Company entered into Interim Management and Operating
Agreements with Rust International Inc. (hereinafter referred to as "Rust")
under which the Company, through ODMI, assumed the management of Olshan
Demolishing Company ("ODC"), a Rust subsidiary specializing in demolition and
dismantling, primarily in the industrial market.
As of December 31, 1997 and 1996, OHM and Rust (a successor company to Brand and
a WMX subsidiary) each owned approximately forty percent of the Company's common
stock.
Effective March 6, 1998, as a result of a transaction between OHM and
International Technology Corporation ("IT"), OHM distributed its shares of the
Company's common stock to its shareholders of record on February 24, 1998. As a
result of this transaction, WMX is the owner of approximately fifty-four percent
of the Company's common stock.
The market for asbestos-abatement services has seen dramatic changes over the
past several years. In the mid-to-late 1980s, the demand in the marketplace was
extremely high, with many owners of buildings and facilities undertaking
large-scale abatement projects as a risk reduction measure. This demand, coupled
with low barriers to entry, provided the conditions for the development of
several large, national asbestos-abatement contractors.
Demand for asbestos-abatement services is dependent on the fluctuation of the
national economy and the finite amount of asbestos remaining to be removed.
There can be no assurance that such demand will remain steady. The Company,
nevertheless, is positioned to maintain its share of this market through a
focused sales and marketing effort. Furthermore, through diversification into
the demolition, indoor air quality and decontamination and decommissioning of
nuclear facilities markets, the Company is positioning to provide a full suite
of specialty contracting services to the performance-sensitive customer. The
market will continue to demand quality performance, and the Company will strive
to meet these demands through a unified focus on safety, customer satisfaction,
financial performance and personnel development.
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Asbestos-Abatement and Demolition Operations
The Company provides asbestos-abatement and other specialty contracting services
through its network of 16 offices located throughout the United States, and
demolition and dismantling services through its Houston, Texas office. NSCI is
licensed to conduct asbestos-abatement services in 31 states and provides its
services with unionized labor, while NSCC is licensed to perform
asbestos-abatement services in 36 states and provides its services with
non-unionized labor. ODMI is licensed to conduct demolition and dismantling
services in 20 states, the District of Columbia, Canada and Puerto Rico.
Generally, ODMI provides its services with non-unionized labor; NSCC and ODMI
often utilize subcontractor and temporary labor.
An asbestos-abatement or demolition and dismantling program is focused on
meeting the needs of the facility owner or operator to properly manage the
financial, regulatory and safety-related risks associated with a demolition or
asbestos project. The Company's removal and demolition services require the
coordination of several processes: marketing, bidding and contracting, project
management, health and safety programs, and the actual asbestos removal or
dismantling and demolition. The Company's management maintains administrative
and operational control over all phases of a project, from estimating and
bidding through project completion.
The Bidding and Contract Process
While some of the Company's contracts are directly entered into with its clients
without a formal bidding process, the Company receives a significant portion of
its asbestos-abatement and demolition and dismantling contracts through a
bidding process. The majority of the Company's projects are contracted on a
fixed-price basis, while the remainder are contracted either on a time and
materials or a unit-price basis. The Company obtains work and performs services
under contract, often on the basis of plans, specifications or requirements
prepared by the client or the client's agent. Contracting opportunities are
identified by telemarketing and the local sales force and are entered into
following competitive bidding or direct negotiations with the customer or its
agent. Generally, these contracts encompass supplying project management, labor,
tools, equipment and materials. In most cases, a significant portion of the
total costs incurred by the Company's asbestos-abatement operations is
attributable to labor while a significant portion of the total costs of its
demolition and dismantling operations is attributable to equipment rental costs.
While large abatement contracts may last more than one year, the majority of the
Company's projects are completed within five months.
Project Management
Each project is coordinated and supervised by a project manager who selects the
requisite equipment, ensures contract compliance and supervises all personnel.
The Company employs a computerized job cost system which allows it to track
project profitability on an ongoing basis. The project manager reviews the
progress of the project on a regular basis with management. The project manager
continues to oversee the completion of the project, which includes any
subsequent change orders. The day-to-day documentation of air testing, lead
monitoring and final clean analysis is an important part of the process and is
generally provided by the client's consultants.
Health and Safety
The Company's written Safety Program, which is issued to all supervisory
personnel, contains specific outlines for all safety, health and regulatory
requirements associated with an asbestos-abatement project. In compliance with
the EPA's Asbestos Hazard Emergency Response Act ("AHERA") Model Accreditation
Plan ("MAP"), all asbestos-abatement supervisors and workers are required to
attend and satisfactorily pass a written examination both initially and during
annual refresher training. To meet the medical surveillance and respiratory
protection requirements of the occupational Safety and Health Administration
("OSHA") standards, all personnel entering an asbestos or lead atmosphere must
first undergo an initial, and then annual, medical examination, which includes a
complete medical and work history, pulmonary function testing and a chest
roentgenogram. If an employee will be exposed to lead, a blood sample is taken
to determine blood lead levels before exposure to that environment. Blood lead
levels are then monitored periodically throughout the period the employee is
working in this environment. In addition to wearing required protective
clothing, respirators and other personal protective equipment, all individuals
leaving a contaminated area are required to undergo stringent decontamination
procedures. During the asbestos-abatement process, the Company engages in daily
personal air monitoring; during the demolition and dismantling process, the
Company engages in lead, heavy metal and other contaminant testing. In either
process, the Company strives to comply with all regulatory and safety
requirements. Comprehensive documentation is an important part of the
asbestos-abatement and demolition and dismantling process. The Company maintains
all required documentation.
Page 4 of 54
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The Abatement Process
The Company's workers remove asbestos in accordance with the regulations of the
Environmental Protection Agency's ("EPA") National Emission Standards for
Hazardous Air Pollutants - Asbestos (NESHAPS) and OSHA with applicable state and
local regulations. Before any removal can begin, the work area must be sealed
off from the interior building environment as well as from the outdoor
environment. The containment of the work area requires the construction of
barriers on the walls and floors made of plastic sheeting sealed at the seams.
Air locks are built for entry of personnel and equipment, and a negative
pressure air filtration system is required to prevent the escape of any asbestos
fibers from the work area. The Company constructs a worker decontamination area
which is generally comprised of a contaminated area where workers leave their
contaminated clothing and equipment, an area where the workers shower after
leaving the sealed-off work area, and a clean area where workers prepare for the
work shift. Workers are fitted with respirators and disposable suits prior to
entering the work area.
Throughout the abatement process, air samples are taken to indicate the level of
airborne fibers both inside and outside the work area to protect the workers and
the building occupants. An environmental consultant, engineer or industrial
hygienist tests air samples from the work area both during and upon completion
of the project to monitor compliance with job specifications.
A thorough cleaning of the work area is conducted after removal, which includes
high-efficiency particulate air filter vacuuming and wet mopping of all
surfaces. All barriers erected during the asbestos-abatement project are
dismantled and disposed of in the same manner as asbestos waste. The Company
encapsulates the area from which asbestos was removed by applying a penetrating
encapsulant to seal off any possible remaining fibers.
The Demolition and Dismantling Process
The Company performs commercial demolition and industrial dismantling for public
and private customers throughout the United States. All work is done in
accordance with the specifications prepared by the owner and in accordance with
all OSHA, EPA, and state and federal governmental regulations. The Company is
also subject to the regulations of the Mine Safety and Health Act ("MSHA") when
it conducts demolition and dismantling projects at mining locations.
The Company performs a site specific safety survey of every project prior to
beginning work. An engineering survey of the equipment, structures, or buildings
to be dismantled or demolished is prepared outlining potential hazards and
methods used to alleviate the hazards. During the course of the project, daily
safety meetings are conducted to discuss that day's activities, potential
problems and measures to overcome the problems. Industrial dismantling involves
removing structures and equipment in manufacturing facilities. The Company's
workers, utilizing specially-designed equipment and attachments, carefully
dismantle the structures and equipment from the top down. All materials
dismantled are either recycled or disposed of in a licensed landfill. Commercial
demolition involves demolishing high-rise office buildings, hospitals, apartment
complexes, and other buildings. The Company's workers, utilizing specialized
equipment and occasionally explosives, demolish the buildings and remove the
debris off site. All materials generated from demolition activities are either
recycled or disposed of in a licensed landfill.
During dismantling and demolition operations, recyclable metals and reusable
equipment are generated. Typically, the Company takes title to these materials
and sells them to brokers and end users. Sales proceeds from the recyclable
metals and the reusable equipment are generally part of the Company's
compensation to perform the work. After equipment, structures, and buildings are
removed in accordance with the owner's specification, the Company demobilizes
its equipment and personnel from the area.
Page 5 of 54
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Markets and Customers
In 1997, the Company's primary markets for its asbestos-abatement, demolition
and dismantling and other specialty contracting services were the states of
California, Illinois, Kentucky, Massachusetts, Minnesota, Missouri, New York,
Pennsylvania, Texas and West Virginia, as well as the District of Columbia. The
Company's headquarters is located in Methuen, Massachusetts.
The Company believes that its primary clients, which include large industrial
processing and manufacturing corporations, insurance companies, real estate
development companies and owners and tenants of large commercial and
governmental facilities, tend to emphasize quality and safety along with price
considerations in making their decision. The Company typically contracts
directly with owners, operators or tenants of properties and works closely with
the environmental consultant of the client in performing removal services. No
single customer accounted for more than 10% of the Company's consolidated
revenue during 1997.
Following its acquisition by OHM in June 1988, the Company began performing
asbestos-abatement services for OHM, principally in connection with certain
large industrial decontamination and demolition projects performed by OHM.
Following the acquisition of the Division in May 1993, the Company began
providing asbestos-abatement services on a subcontract basis for Rust and its
affiliates in connection with certain large industrial decontamination and
demolition projects performed by Rust. The Company provides such services on a
competitive basis to both OHM and Rust. Revenue for these services to OHM and
Rust amounted to approximately $237,000 and $7,000, respectively, in 1997.
The Company divides the market for asbestos-abatement and demolition and
dismantling services into the following categories: (1) commercial/large
residential buildings; (2) industrial facilities; and (3) institutional, which
includes schools, government buildings, airports, hospitals and other buildings
not described by another category. The following table summarizes the Company's
gross revenues by category for the periods indicated:
Years Ended December 31, 1997
------------------------------------------------------
1997 1996 1995
--------------- -------------- ----------------
(In thousands,except percentages)
Commercial.......... $ 55,408 48% $ 56,299 44% $ 60,895 49%
Industrial.......... 43,835 38 53,929 42 41,524 33
Institutional....... 16,712 14 18,815 14 22,110 18
------ -- ------ -- ------ --
$ 115,955 100% $ 129,043 100% $ 124,529 100%
========= ==== ========= ==== ========= ====
The Company markets its services directly to companies that are in need of
asbestos-abatement and demolition and dismantling services, to general
contractors who oversee large renovation projects and to asbestos-abatement
consulting firms from which the Company receives asbestos project referrals
because of its reputation and experience.
Seasonality
The Company's business is subject to variations in revenue and net income for
interim periods and from year to year, and increased revenue may not always
result in a corresponding increase in net income. These conditions are due to a
number of characteristics shared by the Company to varying degrees with most
other members of the industry, including the following: 1) its businesses are
seasonal (typically less activity during the winter months) and are affected by
the scheduling of work at commercial properties, fiscal funding of projects by
government entities, outages at utilities and shutdowns at other industrial
facilities; 2) its performance on a given project is often dependent on the
performance of other contractors, who are working on the same job, over which
the Company has no control; and 3) costs ultimately incurred by the Company on a
job may be materially affected by such factors as technical problems, labor
shortages and disputes, time extensions, weather, delays caused by external
sources and fluctuations in the prices of materials. Revenue and operating
results of asbestos-abatement activities may also be 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 revenue and operating
results of the demolition and dismantling activities may be affected by
fluctuations in the price of scrap metals. Accordingly, quarterly results or
other interim results should not be considered indicative of results to be
expected for any other quarter or for the full fiscal year.
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Competition
The market for the Company's services is highly competitive. The Company's
ability to compete as a provider of asbestos-abatement and demolition and
dismantling services depends upon pricing its services competitively, having the
ability to respond promptly and with adequate amounts of resources, having a
reputation for quality and safety, being able to obtain appropriate bonding and
insurance, and hiring, training and retaining qualified personnel, particularly
in the areas of estimating and project management. While the Company is a
significant participant in the asbestos-abatement and demolition and dismantling
services market, it continues to experience competition from national, regional
and local firms, some of which have substantial resources and experience.
Insurance and Bonding
The Company has established an insurance program that has been tailored to meet
the mutual risk management needs of its clients and the Company. The primary
package includes commercial general liability, automobile liability and workers'
compensation policies. This plan is written with an A. M. Best Rated A+ XV
carrier. The Company has an umbrella policy which extends coverage to
$51,000,000 per occurrence and $52,000,000 in the general aggregate. Effective
November 1, 1996 the Company's liability per occurrence under the general
liability policy is $100,000, under the automobile liability policy is $350,000
and under the workers' compensation policy is $500,000.
Public asbestos-abatement, demolition and dismantling projects require that the
Company post surety bonds as guarantees of performance of the Company's
contractual obligations. Under the Federal Miller Act, bonds are required to
protect the interests of the general public, as public funding is utilized in
project financing. Additionally, surety bonds also guarantee that the Company
will pay all of its bills, including suppliers and subcontractors who are
working on projects for the Company. Similarly, many private projects also
require surety bonds to serve as protection and provide guarantees for private
owners.
The Company has existing surety relationships with The Insurance Company of
the State of Pennsylvania (American International Group) and United Pacific
Insurance Group (Reliance Insurance Group).
Employees
As of March 17, 1998 the Company had approximately 940 employees, of which
approximately 30 are employed as managers or executives, approximately 10
provide technical or engineering services, approximately 100 are employed in
sales, clerical and data processing activities and approximately 800 are
employed in other capacities, principally hourly labor. During 1997, the number
of hourly-rate employees ranged from 700 to 1100. As of March 17, 1998
approximately 350 of the Company's employees were represented by various unions
under numerous collective bargaining agreements. The Company is a party to a
number of collective bargaining agreements with several unions which represent
employees based upon geographic area or the nature of work performed by such
employees. Such collective bargaining agreements expire at various times. The
Company considers its relations with its employees to be satisfactory and has
not experienced any work stoppages or slowdowns.
Patents and Service Marks
The Company currently does not own any patents or service marks.
Page 7 of 54
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Government Regulation
The asbestos-abatement and demolition and dismantling processes are regulated by
the federal government through the EPA, OSHA and the Department of
Transportation ("DOT"). Additionally, the demolition and dismantling process is
regulated by MSHA when conducted at mining locations. EPA's NESHAPS regulations
establish standards for the control of asbestos fiber and airborne lead
emissions into the environment during removal and demolition projects. EPA's
AHERA mandates that public schools inspect for levels of asbestos contamination
and prepare a specific management plan for appropriate remedial action if
asbestos is found. OSHA regulations establish maximum airborne asbestos fiber,
airborne lead and heavy metal exposure levels applicable to asbestos and
demolition employees and set standards for employee protection during the
demolition, removal or encapsulation of asbestos, as well as storage,
transportation and final disposition of asbestos and demolition debris.
EPA regulations under the Clean Air Act's NESHAPS include requirements for
wetting of the asbestos-containing material, using exhaust ventilation and
filtration systems meeting certain specifications, and following procedures for
transporting and disposing of asbestos-containing material. Prior to commencing
most removal projects, contractors are required to provide the EPA with written
notification containing certain information, including the address of the
project, the anticipated starting and completion dates, methods to be used to
comply with the emission standards, the amount of asbestos-containing material
involved in the project and the location of the EPA-approved disposal site.
The Toxic Substances Control Act ("TSCA"), as amended by AHERA, and the
regulations promulgated pursuant thereto, require inspection of schools for
asbestos and public notice of the inspection results, which often leads to
demands for abatement. In addition, TSCA imposes asbestos exposure standards for
state and local government employees. The EPA has also adopted regulations under
AHERA which require schools to use accredited inspectors to inspect school
buildings for asbestos-containing materials. If asbestos-containing materials
are found and are damaged, the school must develop an asbestos management plan
which outlines its management practices for the materials. Response actions may
include encapsulation, enclosure, repair or removal of the asbestos-containing
materials by an accredited contractor. The AHERA regulations impose affirmative
obligations on the accredited contractor who performs the work on school
building projects. These obligations include proper worker, employee and
occupant protections. In addition, AHERA incorporated the NESHAPS standards for
packaging, transportation and disposal of asbestos waste. If the
asbestos-containing material is not damaged, continued inspection and monitoring
by the school is required.
OSHA regulations establish maximum airborne asbestos, airborne lead and heavy
metal exposure levels in the workplace for employees, including
asbestos-abatement and demolition and dismantling workers. Such regulations
require workplace air monitoring to ensure compliance with maximum exposure
levels and prescribe engineering controls and workplace practices intended to
reduce airborne asbestos, lead and heavy metal exposure in the workplace.
Included in the workplace practice provisions is the required use of appropriate
respirators, protective clothing and decontamination units for the
asbestos-abatement and demolition and dismantling worker exposed to certain
levels of asbestos or lead and heavy metals.
DOT regulations cover the management of the transportation of asbestos and
demolition debris and establish certain certification, labeling and packaging
requirements. In addition, under the Comprehensive Environmental Response,
Compensation and Liability Act, also known as the Superfund Act, companies which
arrange for the transportation and disposal of asbestos waste materials may be
exposed to liability relating to the disposal of such material at sites which
are or may be designated as national priority list sites.
Each of the states in which the Company currently operates has adopted laws and
regulations governing the conduct of asbestos-abatement contractors. Such laws
and regulations generally require 1) training and licensing of
asbestos-abatement contractors and their workers, 2) notice before the
commencement of any asbestos-abatement project and 3) standards of performance
for the asbestos removal process. In addition, some states authorize
municipalities to adopt more stringent standards.
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The Company believes that additional state and local authorities may adopt
similar laws and regulations and that existing laws and regulations may become
more restrictive. The regulations concerning asbestos-abatement are primarily
promulgated on the state and local level. Although subject to change, OSHA has
adapted the final regulations as law. Many of the regulations are complex and
frequently amended and, therefore, the Company is unable to predict what, if
any, impact such regulations will have on its results of operations or financial
condition. As a result of the extensive regulation, the Company and its
subsidiaries are, have been and may in the future be, subject to audits and
investigations by federal, state and local governmental agencies. Because of the
changing regulatory environment, there can be no assurance that violations by
the Company of federal, state or local laws and regulations applicable to
asbestos removal will not occur in the future or that changes in such laws and
regulations would not have an adverse effect on the Company's business. Failure
to comply with regulations could result in the imposition of civil and criminal
penalties, any of which could have a material adverse effect upon the Company's
business.
Licensing Requirements
Most states in which the Company operates require that the Company obtain
licenses to provide asbestos-abatement services, deleading services and
demolition/dismantling services. These licenses are generally subject to annual
renewal. The Company has been able to obtain the renewal of its licenses without
unusual difficulty or delay, and the Company believes that it is in compliance
with all current state licensing requirements in states where the Company
intends to conduct business. Furthermore, the Company is in compliance in those
states that have adopted regulations requiring state-specific training, testing
and licensing of employees engaging in asbestos-abatement, deleading or
demolition/dismantling activities.
Backlog
The majority of the Company's asbestos-abatement and demolition and dismantling
services are contracted on a fixed-price basis, while the remainder are
contracted either on a time and materials or a unit-price basis. The unearned
services portion of the Company's asbestos-abatement and demolition and
dismantling services contracts and unfilled orders was approximately
$33,902,000, $38,875,000 and $47,466,000 at December 31, 1997, 1996 and 1995
respectively. Up to $2,887,000 of the Company's backlog at December 31, 1997 may
not be earned during 1998. The remaining amount of the Company's backlog at
December 31, 1997 is expected to be completed in the current calendar year.
Page 9 of 54
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Item 2. Properties
The Company currently owns and leases property to support its operations. These
facilities provide space for sales and marketing functions and operations
management and support. The Company believes that its existing facilities are
adequate to meet current requirements and that suitable additional or substitute
space will be available as needed to accommodate any expansion of operations and
for additional offices. The following table summarizes the Company's properties:
-----------------------------------------------------------------------------
Square
Location Principal Use Acreage Footage Own/Lease
-----------------------------------------------------------------------------
Methuen, MA Corporate Headquarters 9 40,000 Own
Offices and Warehousing
-----------------------------------------------------------------------------
Lombard, IL Offices and Warehousing -- 30,000 Lease
-----------------------------------------------------------------------------
Houston, TX Offices and Warehousing -- 24,240 Lease
-----------------------------------------------------------------------------
Thorofare, NJ Offices and Warehousing -- 17,570 Lease
-----------------------------------------------------------------------------
Oakland, CA Offices and Warehousing -- 11,100 Lease
-----------------------------------------------------------------------------
San Antonio, FL Offices and Warehousing -- 10,800 Lease
-----------------------------------------------------------------------------
Arden Hills, MN Offices and Warehousing -- 9,654 Lease
-----------------------------------------------------------------------------
Cincinnati, OH Offices and Warehousing -- 7,400 Lease
-----------------------------------------------------------------------------
Orange, CA Offices and Warehousing -- 5,530 Lease
-----------------------------------------------------------------------------
Salisbury, NC Offices -- 5,400 Lease
-----------------------------------------------------------------------------
Winfield, WV Offices and Warehousing -- 5,000 Lease
-----------------------------------------------------------------------------
Salem, NH Offices and Warehousing -- 3,850 Lease
-----------------------------------------------------------------------------
Wausau, WI Offices and Warehousing -- 2,400 Lease
-----------------------------------------------------------------------------
Baton Rouge, LA Offices and Warehousing -- 1,250 Lease
-----------------------------------------------------------------------------
Orange, TX Offices -- * Lease
-----------------------------------------------------------------------------
Dallas, TX Offices -- * Lease
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* These facilities consist of less than 1,000 square feet.
In 1997, the Company wrote down the carrying value of the Methuen property,
which no longer fits in its strategic plans and is currently held for sale. The
write down of the property amounted to $2,537,000 during 1997.
The Company's aggregate rental payments for leased office and warehouse space
approximated $815,000 in 1997.
Page 10 of 54
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Item 3. Legal Proceedings
The Company is subject to certain legal proceedings, including those relating to
regulatory compliance, in the ordinary course of its 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
Not applicable.
Page 11 of 54
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Executive Officers of the Registrant
The executive officers of the Company as of March 17, 1998 are listed below:
Victor J. Barnhart 55 Chairman and Chief Executive Officer
Darryl G. Schimeck 37 President and Chief Operating Officer
Efstathios A. Kouninis 36 Vice President of Finance, Corporate
Controller, Treasurer and Secretary
Victor J. Barnhart has been Chairman and Chief Executive Officer since December
5, 1996. Prior to joining the Company, Mr. Barnhart was the President of
Integrated Environmental Services - WMX Technologies since December 1995 and
President of Rust Industrial Services Inc. and Rust Remedial Services, Inc.,
subsidiaries of WMX Technologies, since November 1990.
Darryl G. Schimeck has been President and Chief Operating Officer since December
5, 1996 and served as President of National Surface Cleaning, Inc., a
wholly-owned subsidiary of the Company, since July 10, 1995 and Vice President,
Sales and Marketing, since February 1995. Prior to joining the Company, Mr.
Schimeck served as Senior Vice President of Growth Environmental Services, Inc.
from August 1994 through January 1995. Prior to that, Mr. Schimeck was President
of Rust Scaffold Rental and Erection, Inc. from July 1993 through July 1994.
From September 1992 to July 1993 he was Vice President - Northern Region for
Brand Scaffold Services, Inc.
Efstathios A. Kouninis has been Vice President of Finance, Corporate Controller,
Treasurer and Secretary since December 11, 1997, Corporate Controller, Treasurer
and Secretary since August 7, 1997, Corporate Controller since February 1996,
and Director of Tax and Internal Audit since September 1994. Prior to joining
the Company, Mr. Kouninis served in accounting positions of increasing
responsibility for Wheelabrator Technologies Inc.
since November 1991.
Page 12 of 54
<PAGE>
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Common Stock is admitted for trading on the National Association of
Securities Dealers Automatic Quotation System, National Market System
("NASDAQ"). As of March 17, 1998 there were approximately 679 holders of record
of the Common Stock. During December 1997 and 1996, the Company declared and
paid a cash dividend of $0.15 per share of common stock. Pursuant to the
Revolving Credit Facility, as amended, the Company must comply with certain
financial covenants for the declaration and payment of any cash dividends. 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 Common Stock does not have any
preemptive rights.
The table below sets forth, for the calendar quarters indicated, the reported
high and low closing sales prices of the Common Stock as reported by NASDAQ
based on published financial sources:
1997 1996
--------------- -----------------
Quarter Ended High Low High Low
- ----------------------------------------------------------------------------
December 31............. $2 7/8 $1 3/4 $ 2 1/2 $ 1 3/8
September 30............ 3 1 15/16 2 1 1/2
June 30................. 2 1/2 1 1/2 2 1/2 1 1/4
March 31................ 3 7/32 2 3/8 2 1/2 1 1/8
Page 13 of 54
<PAGE>
<TABLE>
Item 6. Selected Financial Data
(a) The Consolidated Five year Summary of Results of Operations for each of the
last five years ended December 31 is set forth below:
<CAPTION>
(In thousands, except per-share data)
Years Ended December 31, 1997 1996 1995 1994 1993 (1)
- -------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue................................... $115,955 $129,043 $124,529 $132,218 $110,254
Gross profit.............................. 11,027 22,589 19,447 21,716 20,901
Write-down of assets held for sale........ 2,843 830 - - -
Operating (loss)income.................... (7,785) 3,531 1,859 5,101 6,356
Net (loss)income ...................... $ (4,994) $ 1,861 $ 715 $ 2,566 $ 3,373
Basic and diluted earnings per share (2).. $ (0.50) $ 0.19 $ $0.07 $ 0.26 $ 0.40
Weighted average number of common shares
outstanding................................ 9,971 9,971 9,971 9,971 8,504
Cash dividends declared per common share (3) $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 1.20
</TABLE>
<TABLE>
(b) The consolidated five year summary of financial position as of December 31
is set forth below:
<CAPTION>
December 31, 1997 1996 1995 1994 1993
- -------------------------------------------- -------- -------- -------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total assets............................... $ 74,489 $85,560 $87,161 $88,287 $93,569
Assets held for sale....................... 1,653 475 - - -
Non current liabilities, including current
portion of long-term debt (4).............. 5,253 7,610 7,421 10,588 13,775
</TABLE>
Page 14 of 54
<PAGE>
(1) The statement of operations data for the year ended December 31, 1993
includes the results of operations from May 4, 1993 (date of acquisition)
of the Division.
(2) In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share amounts for 1997, 1996, 1995, 1994 and
1993 have been computed by dividing net (loss) income by the
weighted-average number of common shares outstanding during the respective
periods. Diluted earnings per share, after applying the treasury stock
method, approximates basic earnings per share and, accordingly, have not
been separately presented.
(3) In December 1997, 1996, 1995 and 1994, the Company declared and paid a
cash dividend of $0.15 per common share and $1.20 per common share in
December 1993.
(4) On May 4, 1993 all outstanding amounts due to OHM were repaid with term
loan borrowings under a senior revolving credit facility with banks. On
March 21, 1996 the amount due to the banks under the senior revolving
credit facility was repaid in full.
Page 15 of 54
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1997 vs. 1996
Revenue. The Company's consolidated revenue for the year ended December 31, 1997
decreased 10.1% to $115,955,000 from $129,043,000 for the same period in 1996.
This decrease was due to a $6,491,000 decrease in asbestos-abatement related
revenue and a $6,597,000 decrease in demolition related revenue. The decrease in
revenue was due to competitive pricing pressures in the bidding process
resulting in the Company's decreased success in securing new work. The 1997
results are not indicative of results to be expected for any upcoming year.
Gross Profit. Gross profit decreased to $11,027,000 in 1997 from $22,589,000 for
the same period in 1996. The decrease in the gross profit was the result of
lower revenue, losses on certain projects, the write down adjustment of scrap
process equipment and an increased provision for general liability loss related
to the unfavorable resolution of one significant claim. Gross profit as a
percentage of revenue decreased to 9.5% in 1997 from 17.5% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the year ended December 31, 1997 decreased
$675,000 or 4.1% to $15,756,000 from $16,431,000 for the same period in 1996.
The decrease in SG&A costs was the result of a decrease in salaries and legal
expenses, partially offset by increases in the bad debt reserves and consulting
services associated with the new software implementation. SG&A expenses as a
percentage of revenue for 1997 increased to 14% from 13% in 1996 due to lower
revenue.
Write Down of Assets Held for Sale. The Company wrote-down to market the value
of certain real property and equipment that no longer fit its strategic plans.
The write-down of the properties and equipment amounted to $2,843,000 and
$830,000 in 1997 and 1996, respectively.
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 1997,
the amount due from Rust was $887,000, compared to $700,000 due to Rust for
the same period in 1996.
Other (Income) Expenses. Other Income was $212,000 in 1997 compared to $195,000
in 1996. This difference is mainly due to the elimination of interest expense
associated with the Company's long-term debt, which was repaid in full on March
21, 1996, partially offset by losses on sales of certain assets.
Net (Loss) Income. Net income decreased 368% to a net loss of ($4,994,000) from
net income of $1,861,000 in 1996. The decrease in net income is attributable to
lower revenue, losses on certain projects, the write down adjustment of scrap
process equipment and the recognition of non-recurring charges. These charges
amounted to $3,204,000 after tax and were related to the designation for sale of
certain real estate, the sale of idle equipment and an increase in the reserves
for self-insurance claims and taxes. Net (loss) income as a percentage of
revenue decreased to (4.3%) from 1.4% in 1996.
1996 vs. 1995
Revenue. The Company's consolidated revenue for the year ended December 31, 1996
increased 3.6% to $129,043,000 from $124,529,000 for the same period in 1995.
This increase was due to the inclusion in 1996 of a full year of ODMI generated
revenue of $21,421,000 compared with $7,589,000 for the four months ended
December 31, 1995 and the $9,895,000 decline in asbestos-abatement revenue. The
decline in asbestos-abatement revenue in 1996 was primarily due to normal
fluctuations in the volume of abatement work available, as well as the Company's
increased selectivity in accepting profitable projects.
Gross Profit. Gross profit increased to $22,589,000 in 1996 from $19,447,000 for
the same period in 1995. The increase in the gross profit is primarily
attributable to a reduction of insurance claims and their respective settlement
reserves. Gross profit as a percentage of revenue increased to 17.5% in 1996
from 15.6% in 1995.
Page 16 of 54
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the year ended December 31, 1996 increased
$78,000 or less than 1% to $16,431,000 from $16,353,000 for the same period in
1995. SG&A expenses as a percentage of revenue for 1996 and 1995 remained
constant at 13%. In 1996 ODMI incurred a full year of SG&A expenses of
$1,814,000 compared with four months in 1995 of $714,000. The increase of ODMI
expenses for 1996 was offset by a general reduction in SG&A expenses resulting
from the Company's continued cost containment efforts.
Write Down of Assets Held for Sale. In the fourth quarter of 1996, the Company
wrote-down to market the value of certain real property that no longer fits its
strategic plans. The write-down of the property amounted to $830,000.
Other Operating Expenses. Other operating expenses in 1996 increased to $700,000
from $169,000 in 1995 due to a full year of ODMI activities in 1996. ODMI is
required to pay Rust an annual fee based on operating profit, if any, in
exchange for the right to operate ODC.
Other (Income) Expenses. In 1996 other income was $195,000, compared to $191,000
of expense in 1995. This difference in other (income) expense is due to a
reduction in interest expense associated with the Company's long-term debt,
which was repaid in full on March 21, 1996.
Net Income. Net income increased 160% to $1,861,000 in 1996 from $715,000 in
1995. Net income as a percentage of revenue increased to 1.4% in 1996 from 0.6%
in 1995. The increase in net income is attributable to higher revenue and the
reduction of interest expense and insurance settlement reserves.
Liquidity and Capital Resources
Working capital at December 31, 1997 was $16,826,000 compared to $21,154,000 at
December 31, 1996. The current ratio was 1.93/1 compared to 2.1/1 at December
31, 1996. Cash provided by operating activities was $7,155,000 compared to
$6,752,000 for 1996. The increase in cash provided by operations is primarily
due to increased accounts receivable collections, and lower operating activity.
During 1997, cash of $929,000 was used for purchases of property and equipment,
of which $306,000 was used towards the implementation of new software
technology. During 1998, the Company estimates that it will spend an additional
$200,000 to complete the implementation of this software package. The Company
believes that these expenditures will adequately address any year 2000 issues.
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 (see Note 6 of the notes
to the consolidated financial statements included elsewhere herein), 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 and 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. 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 December 31, 1997 of $6,403,000 and at December 31, 1996 of
$5,410,000.
Inflation
Historically, inflation has not had a significant impact upon the Company or its
cost of operations.
Page 17 of 54
<PAGE>
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary consolidated quarterly
financial data of the Company and its subsidiaries for the years ended December
31, 1997, 1996 and 1995 are set forth on pages 19 through 22.
Page 18 of 54
<PAGE>
NSC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per-Share Data)
December 31,
----------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............... $8,781 $3,975
Accounts receivable, net................. 20,590 26,859
Costs and estimated earnings on contracts
in process in excess of billings....... 1,969 7,739
Inventories................................. 1,157 878
Prepaid expenses and other current assets 1,565 1,672
Deferred income taxes.................... 844 335
--------- ---------
34,906 41,458
Property and equipment, net............... 2,755 7,352
Other noncurrent assets:
Assets held for sale..................... 1,653 475
Goodwill, net of accumulated amortization of
$7,984 and $6,884 in 1997 and 1996,respectively 35,175 36,275
--------- ---------
36,828 36,750
--------- ---------
Total assets $ 74,489 $ 85,560
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... 4,942 3,448
Billings in excess of costs and estimated
earnings on contracts in process........ 3,274 5,237
Accrued compensation and related costs.... 1,760 3,898
Federal, state and local taxes............ 273 1,222
Other accrued liabilities................. 1,428 1,089
Reserve for self insurance claims and other
contingencies............................. 6,403 5,410
--------- ---------
18,080 20,304
Noncurrent liabilities:
Payable to affiliate...................... 4,520 4,520
Deferred income taxes..................... 733 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 shares issued and
outstanding in both 1997 and 1996......... 100 100
Additional paid-in capital................ 56,079 56,079
Retained earnings (accumulated deficit)... (5,023) 1,467
--------- ---------
51,156 57,646
--------- ---------
Total liabilities and stockholders' equity $ 74,489 $ 85,560
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 19 of 54
<PAGE>
<TABLE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per-Share Data)
<CAPTION>
Years Ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue...................................... $115,955 $129,043 $124,529
Cost of services............................ 104,928 106,454 105,082
-------- -------- --------
Gross profit............................. 11,027 22,589 19,447
Selling, general and administrative expenses 15,756 16,431 16,353
Write down of assets held for sale.......... 2,843 830 -
Other operating (income)expense............. (887) 700 169
Goodwill amortization....................... 1,100 1,097 1,066
-------- -------- --------
Operating (loss) income.................. (7,785) 3,531 1,859
-------- -------- --------
Other:
Interest expense.......................... - 112 587
Other income.............................. (212) (307) (396)
-------- -------- --------
(212) (195) 191
-------- -------- --------
(Loss) income before income taxes........ (7,573) 3,726 1,668
Income tax (benefit)expense................. (2,579) 1,865 953
-------- -------- --------
Net (loss) income $(4,994) $ 1,861 $ 715
======== ======== ========
Basic and diluted earnings per share........ $ (0.50) $ 0.19 $ 0.07
======== ======== ========
Weighted-average number of common shares
outstanding................................. 9,971 9,971 9,971
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 20 of 54
<PAGE>
<TABLE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Per-Share Data)
<CAPTION>
Common Stock
-------------------
Number Additional Total
of Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 9,971 $ 100 $ 56,079 $ 1,883 $ 58,062
-------- --------- --------- --------- ----------
Net income - - - 715 715
Cash dividend declared
($0.15 per share) - - - (1,496) (1,496)
-------- --------- --------- --------- ----------
Balance at December 31, 1995 $ 9,971 $ 100 $ 56,079 $ 1,102 $ 57,281
-------- --------- --------- --------- ----------
Net income - - - 1,861 1,861
Cash dividend declared
($0.15 per share) - - - (1,496) (1,496)
-------- --------- --------- --------- ----------
Balance at December 31, 1996 $ 9,971 $ 100 $ 56,079 $ 1,467 $ 57,646
-------- --------- --------- --------- ----------
Net loss - - - (4,994) (4,994)
Cash dividend declared
($0.15 per share) - - - (1,496) (1,496)
-------- --------- --------- --------- ----------
Balance at December 31, 1997 $ 9,971 $ 100 $ 56,079 $(5,023) $ 51,156
======== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 21 of 54
<PAGE>
<TABLE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
--------- -------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss)income................................. $ (4,994) $ 1,861 $ 715
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................. 1,284 1,716 1,830
Goodwill amortization......................... 1,100 1,097 1,066
Deferred income taxes......................... (2,866) (996) (1,034)
Loss (gain) on disposition of property and
equipment..................................... 145 194 (36)
Loss on impairement of assets held for sale... 2,843 830 -
Changes in assets and liabilities, net of effects
of acquired business:
Accounts receivable, net......................... 6,269 266 (984)
Costs and estimated earnings on contracts
in process in excess of billings................ 5,770 155 (2,283)
Other current assets............................. (172) 235 487
Accounts payable................................. 1,494 385 (176)
Billings in excess of costs and estimated
earnings on contracts in process................ (1,963) 1,305 (1,559)
Other current liabilities........................ (1,755) (296) 4,061
Other............................................ - - 38
--------- -------- ---------
Net cash provided by operating activities 7,155 6,752 2,125
--------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment.............. (929) (2,024) (759)
Proceeds from sale of property and equipment..... 76 268 144
Acquisition of other assets...................... - (718) -
--------- -------- ---------
Net cash used in investing activities (853) (2,474) (615)
--------- -------- ---------
Cash flows from financing activities:
Payments on long-term debt....................... - (5,850) (4,738)
Proceeds of loan from affiliate.................. - 2,949 -
Cash dividend paid............................... (1,496) (1,496) (1,496)
--------- -------- ---------
Net cash used in financing activities (1,496) (4,397) (6,234)
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 4,806 (119) (4,724)
Cash and cash equivalents at beginning of periods. 3,975 4,094 8,818
--------- -------- ---------
Cash and cash equivalents at end of periods...... $ 8,781 $ 3,975 $ 4,094
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 22 of 54
<PAGE>
NSC Corporation
Notes to Consolidated Financial Statements
December 31, 1997
Note 1 - Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation. The accompanying consolidated
financial statements include the accounts of NSC Corporation (the "Company")
and its wholly-owned subsidiaries, National Surface Cleaning, Inc. ("NSCI"),
National Service Cleaning Corp. ("NSCC"), NSC Energy Services, Inc.
("NSCESI"), NSC Specialty Coatings, Inc. ("NSCSCI") and since September 4,
1995 Olshan Demolishing Management, Inc. ("ODMI") - see Note 9 -
"Transactions with Affiliates". All intercompany transactions have been
eliminated in consolidation. The Company is a Delaware corporation and was a
seventy percent-owned subsidiary of OHM Corporation ("OHM") through May 3,
1993. On May 4, 1993, pursuant to a Purchase Agreement among the Company,
Industrial, OHM, The Brand Companies, Inc. ("Brand") and Waste Management,
Inc. ("WMX"), the Company acquired the asbestos-abatement division of Brand
(the "Division") in exchange for 4,010,000 shares of the Company's common
stock and all of the common stock of Industrial. As of December 31, 1997 and
1996, OHM and Rust International Inc. (a successor company to Brand and a WMX
subsidiary hereinafter referred to as "Rust") each owned approximately forty
percent of the Company's common stock.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates, and such
differences may or may not be material.
Revenue and Cost Recognition. The Company derives its revenues primarily from
providing asbestos-abatement, demolition and dismantling and other specialty
contracting services under fixed-price, time and materials and unit price
contracts. In addition, certain revenue is derived from the sale of scrap metals
and processing equipment removed from demolition sites. The Company recognizes
revenues and related income from its fixed- and unit-price contracts in process
using the percentage-of-completion method of accounting. The Company determines
the percentage-of-completion of its contracts by comparing costs incurred to
date to total estimated costs. Revenues from time and material-type contracts
are recorded based on costs incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Revenues are recognized for amounts under pending claims when
management believes it is probable the claim will result in additional contract
revenues and the amount can be reliably estimated. Contract costs include all
direct labor, material, per diem, subcontract and other direct and indirect
costs related to the contract performance. Selling, general and administrative
expenses are charged to expense as incurred. The asset, "costs and estimated
earnings on contracts in process in excess of billings," represents revenues
recognized in excess of amounts billed. The liability, "billings on contracts in
process in excess of costs and estimated earnings," represents billings in
excess of revenues recognized.
Direct Subcontract Costs. The Company incurs a substantial amount of direct
subcontract costs which are passed through to its clients. These costs result
from the use of subcontractors on projects for labor, transportation and
disposal of asbestos materials, analytical and restoration services, and other
removal-related services. The direct subcontract costs were $30,319,000,
$25,240,000, and $24,426,000 for 1997, 1996 and 1995, respectively, and are
included in Costs of Services in the Consolidated Statement of Operations for
each year.
Inventories. Inventories consist primarily of operating supplies and are
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
Property and Equipment. Property and equipment are stated at cost. Depreciation
is provided over the estimated useful lives (3 to 30 years) of the respective
assets using the straight-line method.
Goodwill. Goodwill is amortized, generally on a straight-line basis, over a
40-year life and is reviewed on an ongoing basis by the Company's management
based on several factors, including the Company's projection of undiscounted
operating cash flows. If an impairment of the carrying value were to be
indicated by this review, the Company would adjust the carrying value of
goodwill to its estimated fair value.
Page 23 of 54
<PAGE>
Long-Lived Assets. The adoption by the Company in 1996 of SFAS No. 121,
"Accounting for the impairment of Long-Lived Assets to be Disposed Of" did not
materially affect the Company's consolidated financial statements. In the event
that facts and circumstances indicate that any of the Company's long-lived
assets may be impaired, an evaluation of recoverability would be performed. If
after such evaluation it is determined that an asset is impaired, the carrying
value of the asset would be reduced to fair value. SFAS No. 121 requires that
assets held for sale or disposal are carried at the lower of carrying amount or
fair value less costs to sell, and prohibits depreciation from being recorded
during the periods in which the asset is being held for sale or disposal.
Income Taxes. The Company provides for income taxes based upon earnings reported
for financial statement purposes. Deferred tax assets and liabilities are
determined based on temporary differences between the financial reporting and
tax base of assets and liabilities.
Stock Compensation. Effective January 1, 1996 the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No.123 requires the recognition
of, or disclosure of, compensation expense for grants of stock options or other
equity instruments issued to employees based on the fair value at the date of
grant. As permitted by SFAS No. 123, the Company elected the disclosure
requirements instead of recognition of compensation expense and therefore will
continue to apply existing accounting rules.
Cash Equivalents and Cash Flow Information. The Company considers all highly
liquid investments having a maturity of three months or less when purchased to
be cash equivalents. Cash equivalents are stated at cost which approximates fair
market value. Cash paid for income taxes was $1,211,000, $2,007,000, and
$1,702,000 for 1997, 1996, and 1995, respectively. No interest was paid in 1997.
Cash paid for interest was $112,000, and $587,000 for 1996 and 1995,
respectively. The effects of the Company's cash and non-cash transactions with
ODMI are described in Note 9, "Transactions with Affiliates."
Earnings Per Share. In 1997, the Financial Accounting Standards Board issued
SFAS No. 128, " Earnings Per Share." SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share amounts for 1997, 1996 and 1995 have been
computed by dividing net (loss) income by the weighted-average number of common
shares outstanding during the respective periods. Diluted earnings per share,
after applying the treasury stock method, approximates basic earnings per share
and, accordingly, have not been separately presented.
Reclassifications. Certain reclassifications have been made to prior year
financial statements to conform with the current year presentation.
Note 2 - Accounts Receivable
Accounts receivable are summarized as follows:
December 31,
-------------------
1997 1996
-------- --------
(In thousands)
Accounts billed and due currently............ $ 18,066 $24,861
Retained..................................... 3,235 2,555
-------- --------
21,301 27,416
Allowance for uncollectible accounts......... (711) (557)
-------- --------
$20,590 $26,859
======== ========
The retained receivables at December 31, 1997 are expected to be collected
within one year.
Page 24 of 54
<PAGE>
Note 3 - Properties and Equipment
Properties and equipment were as follows:
December 31,
-----------------
1997 1996
------- -------
(In thousands)
Land ..................................... $ - $ 767
Buildings and improvements ............... 355 4,311
Machinery and equipment .................. 6,527 9,868
Projects in progress ..................... 641 558
------- -------
7,523 15,504
Accumulated depreciation.................. (4,768) (8,152)
------- -------
Properties and equipment, net ............ $2,755 $7,352
======= =======
In 1997, the Company wrote-down to market the carrying value of its Methuen, MA
property, which no longer fits in its strategic plans and is currently held for
sale. In 1996, the properties of Hammond, IN and Windsor, CT, which was
subsequently sold, were written down to market. The write-down of these
properties amounted to $2,712,000 in 1997 and $830,000 in 1996. Also, in 1997,
the Company wrote down equipment and recognized a loss of $131,000. Cash of
$306,000 and $769,000 was used towards the implementation of new software
technology in 1997 and 1996 respectively. The capitalized portion of software
expenditures is included in projects in progress on the Company's consolidated
balance sheet.
Note 4 - Costs and Estimated Earnings on Contracts in Process
The consolidated balance sheets include the following amounts:
December 31,
--------------------
1997 1996
--------- --------
(In thousands)
Costs incurred on contracts in process........ $104,928 $106,327
Estimated earnings............................ 13,603 18,427
-------- --------
118,531 124,754
Less billing to date.......................... 119,836 122,252
-------- --------
$ (1,305) $ 2,502
======== ========
Costs and estimated earnings on contracts in
process in excess of billings.............. $ 1,969 $ 7,739
Billings on contracts in process in excess of
costs and estimated earnings............... (3,274) (5,237)
-------- --------
$ (1,305) $ 2,502
======== ========
Costs and estimated earnings on contracts in process in excess of billings
included reserves for contract revenue adjustments of $363,000 and $152,000 at
December 31, 1997 and 1996, respectively. The Company recognizes revenue from
its fixed and unit price contracts in process using the percentage of completion
method of accounting, which requires the use of estimates. Such estimates are
subject to changes throughout the duration of the contract, as a result of
factors such as technical problems, disputes, weather, delays caused by external
sources and fluctuations in the prices of materials and scrap metals.
Page 25 of 54
<PAGE>
Note 5 - Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1997 and
1996 are as follows:
December 31,
------------------
1997 1996
------- -------
(In thousands)
Deferred tax assets:
Accrued liabilities.......................... $ 2,847 $ 2,390
Allowance for uncollectible accounts ........ 285 223
Assets held for sale......................... 1,281 -
Book over tax depreciation................... 185 -
------- -------
Total deferred tax assets................. 4,598 2,613
Deferred tax liabilities:
Tax over book depreciation................... - 572
Goodwill..................................... 3,861 3,698
Contract revenue recognition................. - 458
Prepaid expenses and other assets............ 626 641
------- -------
Total deferred tax liabilities............ 4,487 5,369
------- -------
Net deferred tax assets (liabilities)..... $ 111 $(2,756)
======= =======
Significant components of the provision for income tax (benefit) expenses are as
follows:
Years Ended December 31,
-------------------------
1997 1996 1995
------- ------- -------
(In thousands)
Current:
Federal............................ $ (45) $ 2,269 $ 1,404
State.............................. 332 367 583
------- ------- -------
Total current taxes.............. 287 2,636 1,987
------- ------- -------
Deferred:
Federal............................ (2,221) (825) (664)
State.............................. (645) 54 (370)
------- ------- -------
Total deferred tax benefit....... (2,866) (771) (1,034)
------- ------- -------
Total income tax (benefit) provision.. $(2,579) $ 1,865 $ 953
======= ======= =======
The reasons for differences between income taxes attributable to continuing
operations and the amount computed by applying the federal statutory tax rate
(34% is the statutory tax rate for companies that have less than $10 million of
taxable income) to income from continuing operations before income taxes are:
Years Ended December 31,
----------------------------
Liability Method
----------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
Federal statutory rate................ $(34.0)% $ 34.0% $ 34.0%
Add (deduct):
State income taxes, net of federal tax benefit.. (2.7) 7.4 8.2
Goodwill amortization................. 2.3 4.8 10.9
Other................................. 0.3 3.9 4.0
-------- -------- --------
$(34.1)% $ 50.1% $ 57.1%
======== ======== ========
Page 26 of 54
<PAGE>
Note 6 - Long-Term Debt
On May 9, 1997, and December 22, 1997, the Company amended its May 4, 1993
revolving credit facility. Under this agreement, 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
convenants and allows for payment of dividends subject to certain conditions.
Amounts outstanding under the facility bear interest of 150 to 225 basis points
above the Eurodollar rate (the 90 day Eurodollar rate at December 31, 1997 was
5.8125%) and are secured by substantially all of the Company's assets. As of
December 31, 1997 the Company had outstanding $8,000,000 in letters of credit.
There were no borrowings outstanding under this facility as of December 31, 1997
and December 31, 1996.
Note 7 - Capital Stock
The Company's Certificate of Incorporation authorizes the Board of Directors to
issue up to 10,000,000 shares of preferred stock, $0.01 par value, without any
further vote or action by the stockholders. As of December 31, 1997 no preferred
stock has been issued.
Pursuant to an agreement among the Company, Rust and OHM dated May 4, 1993 each
of Rust and OHM has the right to demand registration, at their own expense, of
all or a portion of the common stock of the Company held by it. In the event
either Rust or OHM demands such registration, the other entity has the right to
participate. This agreement is subject to certain conditions and limitations,
including limitations as to the frequency of exercise and Rust's and OHM's right
to participate in other registrations of the Company.
Note 8 - Stock Option Plan
The Company has a stock option plan (the "1990 Plan") which provides for the
granting of options to acquire up to 860,000 shares of the Company's common
stock. The options are issuable to directors, officers and key employees at an
exercise price not less than the fair market value of the Company's common stock
on the date of grant. The stock options granted under the 1990 Plan are
exercisable in either cumulative ratable annual installments over a four year
period or altogether three years after the date of grant, and expire ten years
thereafter. Shares available for grants of additional stock options, under the
1990 Plan, were 48,750, 151,250, and 656,750 for the years ended December 31,
1997, 1996, and 1995 respectively.
The following tables summarize information about the Company stock options.
1990 Plan
-------------------------
Number Option Price
of Range Per
Options Share
--------- --------------
Outstanding at January 1, 1995......... 225,320 $4.00 - $8.50
Canceled............................ (178,070) 4.00 - 6.00
---------
Outstanding at December 31, 1995....... 47,250 4.00 - 8.50
Granted............................. 690,000 2.00 - 2.06
Canceled............................ (184,500) 2.00 - 8.50
---------
Outstanding at December 31, 1996....... 552,750 2.00 - 6.00
Granted............................. 102,500 2.00 - 2.63
---------
Outstanding at December 31, 1997....... 655,250 2.00 - 6.00
=========
Page 27 of 54
<PAGE>
Number of Number of
Shares Shares Remaining
Option Outstanding Exercisable at Contractual Option
Grant Date at 12/31/97 12/31/97 Life Price Range
--------------------------------------------------------------------------
March 1991 3,000 3,000 3.0 years $6.00
May 1991 10,000 10,000 3.2 years $6.00
November 1991 1,250 1,250 3.5 years $4.00
November 1992 1,000 1,000 4.5 years $5.75
May 1993 10,000 10,000 5.2 years $4.05
February 1996 207,500 51,785 8.1 years $2.00
December 1996 320,000 17,500 8.8 years $2.06
February 1997 17,500 0 9.1 years $2.63
August 1997 30,000 0 9.6 years $2.00
November 1997 55,000 0 9.8 years $2.38
Effective January 1, 1996 the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 requires the recognition of, or
disclosure of, compensation expenses for grants of stock options or other equity
instruments issued to employees based on the fair value at the date of grant.
Although SFAS No. 123 requires the presentation of pro forma information to
reflect the fair value method of accounting for employee stock option grants,
such information has not been presented because the pro forma effects are not
material. The initial impact on pro forma net income may not be representative
of compensation expense in future periods when the effect of amortization of
multiple awards would be reflected in the pro forma calculation. The fair value
of these options was estimated at the date of the grant using the
"Black-Scholes" method prescribed by SFAS No. 123. The following
weighted-average assumptions were used to determine the fair value for 1997:
market price of the Company's common stock of $2.00 and $2.06, a risk-free rate
of 5% and 6%, an expected dividend yield of 6% and a weighted-average expected
life of the option of 5 years.
Note 9 - Transactions with Affiliates
In April 1995, the Company entered into an Interim Management Agreement and
Operating Agreement (the "Agreements") with Rust under which the Company,
through ODMI, assumed the management of Olshan Demolishing Company ("ODC"), a
Rust subsidiary specializing in demolition and dismantling, primarily in the
industrial market. The term of the Operating Agreement extends through April
2005, although the occurrence of certain conditions or events could trigger
early termination. Pursuant to the provisions of the Operating Agreement, Rust
provided the Company with a non-interest bearing working capital loan, payable
upon termination of the Operating Agreement, with a possible maximum of
$4,520,000 by transferring to the Company current assets of $3,062,000 and
current liabilities of $1,491,000. In 1996, Rust paid an additional $2,949,000
to the Company, raising the outstanding balance of the working capital loan to
$4,520,000. The results of operations of ODMI are consolidated with the
Company's results of operations. ODMI is required to share with Rust any
operating profits or operating losses in exchange for the right to operate ODC.
For the year ended December 31, 1997, the amount due from Rust was $887,000,
compared to $700,000 due to Rust for the same period in 1996.
The Company has, from time to time, provided asbestos-abatement and related
services to OHM and its affiliates on a subcontract basis. Revenues recognized
from these affiliates for such services were $237,000, $40,000, and $212,000 for
1997, 1996, and 1995, respectively. Also, in 1996 OHM provided removal and
cleaning services of waste material to the Company on a subcontract basis. The
cost for such services was $121,000.
In addition, the Company has, from time to time, provided asbestos-abatement and
related services to Rust and certain of its affiliates on a subcontract basis.
Revenues recognized for such services were $7,000, $84,000, and $302,000 for the
years ended December 31, 1997, 1996, and 1995, respectively. Also, Rust and
certain of its affiliates provided scaffolding, disposal, demolition and other
related services to the Company on a subcontract basis. The cost for such
services provided by Rust and its affiliates was $770,000, $1,503,000 and
$1,719,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Rust rented demolition equipment to the Company for which it was charged
$418,000, $527,000 and $209,000 for the years ended December 31, 1997, 1996, and
1995, respectively.
Page 28 of 54
<PAGE>
Note 10 - Employee Benefit Plans
Effective October 1, 1992, the Company adopted the NSC Corporation Retirement
Savings Plan (the "Plan"). The plan allows eligible employees to make
contributions, up to a certain limit, to a trust on a tax-deferred basis under
section 401(k) of the Internal Revenue Code. The Company may, at its discretion,
make profit-sharing contributions to the Plan out of its profits for the plan
years. The Company made matching contributions of $97,000, $105,000 and $89,000
for 1997, 1996, and 1995, respectively.
The Company's subsidiary, NSCI, has certain union employees which are covered by
union-sponsored, collectively - bargained, multi-employer retirement plans.
Contributions to the plans were $1,983,000, $1,828,000, and $1,575,000 for 1997,
1996, and 1995, respectively.
Note 11 - Litigation, Commitments and Contingencies
The nature and scope of the Company's business bring it into regular contact
with the general public and 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.
The Company effectively self-insures its auto, commercial general liability and
workers'compensation risks up to $350,000, $100,000 and $500,000 per occurrence,
respectively. For claims that may exceed the self-insured amounts, the Company
has obtained commercial/excess umbrella and excess workers' compensation stop
loss coverage on a fully-insured basis. Factors affecting the ultimate
resolution of these claims against the Company, particularly those claims
related to personal injuries, are to some degree outside the control of the
Company and include, among other items, determination of the extent of an injury
or disability, the amount of ongoing medical expenses that are necessary to
treat the injury or disability, and the uncertainty associated with damages that
may be awarded in the event of a jury trial.
In connection with the claims described in the preceding paragraphs, the Company
has an accrual balance of $6,403,000 and $5,410,000 for 1997 and 1996,
respectively, which represents its estimate of loss associated with the
resolution of these claims. However, the ultimate outcome of these claims cannot
presently be determined.
The Company occupies office and warehouse space and utilizes equipment in
various locations under operating leases, the last of which expires in 2000.
Rental expense under operating leases for properties and equipment amounted to
$952,000, $956,000, and $908,000 for 1997, 1996 and 1995, respectively. The
lease agreements generally contain renewal provisions and escalation clauses.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1997 are: 1998, $451,000; 1999, $101,000; and 2000, $44,000.
The Company had $8,000,000 letters of credit outstanding at both December 31,
1997 and 1996. These letters of credit were issued in support of the Company's
insurance programs.
Note 12 - Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates their fair value.
Accounts receivable and accounts payable: The carrying amounts reported in the
balance sheet for accounts receivable and accounts payable approximate their
fair value.
Long-term debt: The fair value of the Company's long-term debt is estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
Page 29 of 54
<PAGE>
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1997 are as follows:
Carrying Fair
Amount Value
------------------------
(In thousands)
Cash and cash equivalents............. $8,781 $8,781
Accounts receivable................... 20,590 20,590
Accounts payable...................... (4,942) (4,942)
Long-term debt........................ (4,520) (2,631)
Note 13- Industry Segment Data
The Company operates in two principal industries - asbestos-abatement services
and beginning in September 1995, demolition and dismantling services. The
Company's asbestos-abatement divisions provide asbestos and lead removal,
insulation, restoration and indoor air quality primarily to private sector
clients at commercial and industrial properties, while the Company's demolition
and dismantling division provides industrial dismantling and commercial
demolition for public and private sector customers. Intersegment sales are
generally priced on a basis comparable to sales to unaffiliated companies.
For the Years Ended December 31,
1997 1996 1995
-------- -------- --------
(In thousands)
Revenue
Asbestos-Abatement................. $100,744 $107,622 $116,940
Demolition and Dismantling......... 15,211 21,421 7,589
-------- -------- --------
Total revenue................. $115,955 $129,043 $124,529
======== ======== ========
Operating profit
Asbestos-Abatement................. $ 370 $ 6,625 $ 6,932
Demolition and Dismantling......... (1,638) 1,101 827
-------- -------- --------
Total operating profit........ (1,268) 7,726 7,759
Corporate expenses.................... (6,517) (4,195) (5,731)
Interest expense...................... - (112) (587)
Other................................. 212 307 227
-------- -------- --------
(Loss) income before income taxes $(7,573) $ 3,726 $ 1,668
======== ======== ========
Depreciation
Asbestos-Abatement................. $ 1,016 $ 1,407 $ 1,571
Demolition and Dismantling......... 186 63 2
Corporate.......................... 82 246 257
-------- -------- --------
Total depreciation............ $ 1,284 $ 1,716 $ 1,830
======== ======== ========
Amortization
Asbestos-Abatement................. $ 34 $ 31 $ -
Demolition and Dismantling......... - - -
Corporate.......................... 1,066 1,066 1,066
-------- -------- --------
Total amortization............ $ 1,100 $ 1,097 $ 1,066
======== ======== ========
Page 30 of 54
<PAGE>
December 31,
---------------------------
1997 1996 1995
------- ------- -------
(In thousands)
Identifiable assets
Asbestos-Abatement................. $54,147 $66,919 $74,958
Demolition and Dismantling......... 5,676 8,681 7,370
------- ------- -------
59,823 75,600 82,328
Corporate assets................... 14,666 9,960 4,833
------- ------- -------
Total assets.................. $74,489 $85,560 $87,161
======= ======= =======
Capital expenditures
Asbestos-Abatement................. $ 456 $ 394 $ 485
Demolition and Dismantling......... 358 699 79
Corporate.......................... 115 931 195
------- ------- -------
Total capital expenditures.... $ 929 $ 2,024 $ 759
======= ======= =======
Note 14 - Quarterly Financial Data (Unaudited)
The following is an analysis of certain items in the consolidated statements of
operations by quarter for 1997 and 1996:
1997 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per-share data)
Revenue..................... $29,815 $31,082 $30,643 $24,415
Gross profit................ 4,991 3,843 487 1,706
Net income (loss)........... 459 1 (2,119) (3,335)
Basic and diluted earnings
per share................... $ 0.05 $ - $(0.21) $ (0.34)
======= ======= ======= =======
1996 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per-share data)
Revenue................... $35,823 $32,147 $30,014 $31,059
Gross profit.............. 5,960 5,331 5,321 5,977
Net income................ 560 557 454 290
Basic and diluted earnings
per share................. $ 0.06 $ 0.06 $ 0.04 $ 0.03
======= ======= ======= =======
The Company's results of operations for the fourth quarter of 1997 reflect
additional provisions for workers' compensation losses and the write-down to
market of the carrying value of its Methuen, MA property, as well as the write
down of certain equipment. These assets no longer fit in the Company's strategic
plans and are currently held for sale. In the fourth quarter of 1996, the
Company wrote-down the carrying values of its Hammond, IN and Windsor, CT
properties. The Windsor property was subsequently sold. The write-down of the
properties amounted to $2,843,000 in the fourth quarter of 1997 and $830,000 in
the fourth quarter of 1996. See Note 3 "Properties and Equipment."
Page 31 of 54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
NSC Corporation
We have audited the accompanying consolidated balance sheets of NSC Corporation
and subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NSC
Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
Page 32 of 54
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item, in addition to that set forth above in
Part I under the caption "Executive Officers of the Registrant," is set forth in
the section entitled "Information Concerning Directors and Nominees" contained
in the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission (the "Proxy Statement") in connection with the Company's
1998 Annual Meeting of Stockholders, and such information is incorporated herein
by reference.
Item 11. Executive Compensation
Remuneration of the directors and officers and information related thereto is
included in the section entitled "Executive Compensation and Other Information"
contained in the Proxy Statement, and said information is incorporated herein by
reference except for information contained under the captions "Board
Compensation Committee Report" and "Performance Graph."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of management and certain beneficial owners and information
related thereto is included in the section entitled "Voting Securities and
Principal Holders Thereof" contained in the Proxy Statement, and said
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Transactions with management and related parties and information related thereto
is included in the section entitled "Certain Relationships and Related
Transactions" contained in the Proxy Statement, and said information is
incorporated herein by reference.
Page 33 of 54
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1)The following consolidated financial statements of the Company and its
subsidiaries for the years ended December 31, 1997, 1996 and 1995 are
included at the pages indicated below:
Page
Consolidated Balance Sheets 19
-As of December 31, 1997 and 1996
Consolidated Statements of Operations 20
-For the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity 21
-For the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows 22
-For the Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 23
Report of Independent Auditors 32
(a)(2)The following consolidated financial statement schedule is included herein
at the page indicated below:
Page
Schedule II Valuation and Qualifying Accounts 39
-For the Years Ended December 31, 1997, 1996 and 1995
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable, and therefore have been omitted.
(a)(3) The following Exhibits are included in this Annual Report on Form 10-K:
Exhibit Exhibit
Number Description
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].
* 10(a) NSC Corporation 1990 Stock Option Plan, As Amended and Restated
[incorporated by reference to Exhibit 10(a) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991].
- -----------------------------------------
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
Page 34 of 54
<PAGE>
* 10(b) NSC Corporation Retirement Savings Plan and NSC Corporation
Retirement Savings Plan Trust Agreement [incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992].
* 10(c) Indemnification Agreement, dated as of May 1, 1990 by and between the
Registrant and William M. R. Mapel [incorporated by reference to
Exhibit 10(i) of the Registrant's Form S-1, Registration Statement No.
33-34702].
10(d) Purchase Agreement, dated as of December 23, 1992 and related
amendments made thereto, by and among OHM Corporation, NSC Corporation,
NSC Industrial Services Corp., The Brand Companies, Inc., Chemical
Waste Management, Inc. and Waste Management, Inc. [incorporated by
reference to Exhibit 10(ff) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992].
* 10(e) NSC Corporation 1993 Restricted Stock Plan [incorporated by
reference to Exhibit 10(gg) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992].
10(f) Revolving Credit Agreement, dated as of May 4, 1993 by and among NSC
Corporation, its Subsidiaries named therein, The First National Bank of
Boston and Fleet Bank of Massachusetts [incorporated by reference to
Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993].
10(g) Second Amendment to Revolving Credit Agreement, dated as of May 1, 1996
by and among NSC Corporation, its Subsidiaries named therein, The First
National Bank of Boston and Fleet National Bank, formerly known as
Fleet Bank of Massachusetts [incorporated by reference to Exhibit 10 to
the Registrant's Quarterly Report on From 10-Q for the quarter ended
March 31, 1996].
10(h) Third Amendment to Revolving Credit Agreement, dated as of May 9, 1997
by and among NSC Corporation, its Subsidiaries named therein, and
BankBoston, formerly known as The First National Bank of Boston and
Fleet National Bank.
10(i) Fourth Amendment to Revolving Credit Agreement, dated as of December
22, 1997 by and among NSC Corporation, its Subsidiaries named therein,
and BankBoston, formerly known as The First National Bank of Boston and
Fleet National Bank.
10(j) Registration Rights Agreement, dated as of May 4, 1993 by and between
NSC Corporation, OHM Corporation and The Brand Companies, Inc., as
succeeded by Rust International Inc. [incorporated by reference to
Exhibit 10(p) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993].
10(k) Olshan Interim Management and Operating Agreements dated January 1,
1995 and April 20, 1995 [incorporated by reference to Exhibit 10(a) to
the Registrant's Annual Report on Form 10-Q for the quarter ended June
30, 1995].
* 10(l) NSC Corporation's 1994 Management Incentive Compensation Plan
[incorporated by reference to Exhibit 10(q) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994].
* 10(m) Employment Agreement, dated March 12, 1997 by and between Victor
J. Barnhart and NSC Corporation [incorporated by reference to Exhibit
10(p) to the Registant's Annual Report on Form 10-K for the year ended
December 31, 1996].
* 10(n) Employment Security Agreement, dated October 2, 1996 by and between
Darryl G. Schimeck and NSC Corporation [incorporated by reference to
Exhibit 10(p) to the Registant's Annual Report on Form 10-K for the
year ended December 31, 1996].
- -----------------------------------------
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
Page 35 of 54
<PAGE>
* 10(o) Employment Security Agreement, dated October 2, 1996 by and between
Efstathios A. Kouninis and NSC Corporation.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney of certain directors of the Registrant.
27 Financial Data Schedule, Article 5
(b) The Company filed no current report on Form 8-K during the three month
period ended December 31, 1997.
Note: None of the Exhibits listed in the foregoing index are included with this
Annual Report on Form 10-K. A copy of these Exhibits may be obtained
without charge by writing to Efstathios A. Kouninis, Vice President of
Finance, Corporate Controller, Treasurer and Secretary, NSC Corporation,
49 Danton Drive, Methuen, Massachusetts 01844.
- -----------------------------------------
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
Page 36 of 54
<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, thereunto duly authorized.
NSC CORPORATION
By /s/ EFSTATHIOS A. KOUNINIS
Efstathios A. Kouninis, Vice President of Finance,
Corporate Controller, Treasurer and Secretary
March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date
* VICTOR J. BARNHART March 25, 1998
Victor J. Barnhart - Chairman and Chief Executive Officer
(Principal Executive Officer)
* DARRYL G. SCHIMECK March 25, 1998
Darryl G. Schimeck - President and Chief Operating Officer
/s/ EFSTATHIOS A. KOUNINIS March 25, 1998
Efstathios A. Kouninis, Vice President of Finance,
Corporate Controller, Treasurer and Secretary
(Principal Financial and Accounting Officer)
* EUGENE L. BARNETT March 25, 1998
Eugene L. Barnett - Director
* PAMELA K.M. BEALL March 25, 1998
Pamela K.M. Beall - Director
Page 37 of 54
<PAGE>
* ROBERT J. BLACKWELL March 25, 1998
Robert J. Blackwell - Director
* HERBERT A. GETZ March 25, 1998
Herbert A. Getz - Director
* WILLIAM P. HULLIGAN March 25, 1998
William P. Hulligan - Director
* WILLIAM M. R. MAPEL March 25, 1998
William M. R. Mapel - Director
* The undersigned, by signing his name hereto does sign and execute this
report pursuant to Powers of Attorney executed on behalf of the
above-named officers and directors and contemporaneously herewith filed
with the Securities and Exchange Commission.
/s/ EFSTATHIOS A. KOUNINIS March 25, 1998
Efstathios A. Kouninis - Attorney-in-Fact
Page 38 of 54
<PAGE>
<TABLE>
NSC CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
- ---------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Description of Period Expenses(2) Describe(1) Period
- ---------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Deducted from assets accounts:
<S> <C> <C> <C> <C>
Allowance for uncollectible accounts $ 557 $ 253 $ 99 $ 711
Reserve for contract revenue adjustments 152 311 100 363
- ---------------------------------------------------------------------------------------------
Year Ended December 31, 1996
Deducted from assets accounts:
Allowance for uncollectible accounts $ 549 $ 67 $ 59 $ 557
Reserve for contract revenue adjustments 442 111 401 152
- ---------------------------------------------------------------------------------------------
Year Ended December 31, 1995
Deducted from assets accounts:
Allowance for uncollectible accounts $ 782 $ - $ 233 $ 549
Reserve for contract revenue adjustments 530 401 489 442
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Uncollectible accounts written off and adjustments to unbilled revenues
on contracts in process.
(2) Reduction of revenues on contracts in process and amounts charged to
bad debt expense.
Page 39 of 54
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-K
ANNUAL REPORT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
December 31, 1997
--------------------
NSC CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
Exhibits
---------------------
Page 40 of 54
<PAGE>
EXHIBIT INDEX
The following Exhibits are included in this Annual Report on Form 10-K:
Exhibit Exhibit Exhibit
Number Description Page
10(h) Third Amendment to Revolving Credit Agreement, dated as of May 9, 42
1997 by and between NSC Corporation, its subsidiaries named
therein, BankBoston, formerly known as The First National Bank of
Boston, and Fleet National Bank.
10(i) Fourth Amendment to Revolving Credit Agreement, dated as of 45
December 22, 1997 by and between NSC Corporation, its subsidiaries
named therein, BankBoston, formerly known as The First National
Bank of Boston, and Fleet National Bank.
*10(o) Employment Security Agreement, dated October 2, 1996, by and 48
between Efstathios Kouninis and NSC Corporation.
21 Subsidiaries of the Registrant. 51
23 Consent of Independent Auditors. 52
24 Powers of Attorney of certain directors of the Registrant. 53
27 Financial Data Schedule, Article 5 54
(b) The Company filed no Current Report on Form 8-K during the
three-month period ended December 31, 1997.
- --------------------------------------------
* Indicates a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 14(c) of Form 10-K.
Page 41 of 54
<PAGE>
EXHIBIT 10 (h)
NSC CORPORATION
THIRD AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Third Amendment") is
made and entered into as of the 9th day of May, 1997, by and among NSC
CORPORATION, a Delaware corporation (the "Parent"), its Subsidiaries listed on
the signature pages hereto (the "Subsidiaries", the Parent and such Subsidiaries
collectively referred to herein as the "Borrowers" and individually as a
"Borrower"), each of which Borrowers having its principal place of business at
49 Danton Drive, Methuen, Massachusetts, 01844, BANKBOSTON, N.A. ("BKB",
formerly known as The First National Bank of Boston), a national banking
association having its principal place of business at 100 Federal Street,
Boston, Massachusetts 02110, FLEET NATIONAL BANK ("Fleet"), a national banking
association formerly known as Fleet Bank of Massachusetts, N.A. with its
principal place of business at One Federal Street, Boston, Massachusetts 02111
(the "Banks"), and BKB, as Agent for the Banks (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent entered into a Revolving Credit
Agreement dated as of May 4, 1993 and amended as of December 2, 1993 and May 1,
1996 (the "Credit Agreement") pursuant to which the Banks extended credit to the
Borrowers on the terms set forth therein:
WHEREAS, the Banks, the Borrowers, and the Agent have agreed to amend the Credit
Agreement as hereinafter set forth:
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
I. AMENDMENT TO THE CREDIT AGREEMENT
A. Amendment to ss.1.1 of the Credit Agreement.
The following definition is hereby added to ss.1.1 of the Credit Agreement:
"Applicable Commitment Fee. The Applicable Commitment Fee set forth in the
following table:
- -----------------------------------------------------------
Pricing Ratio Applicable Commitment Fee
- -----------------------------------------------------------
less than 2.00:1 0.250% per annum
- -----------------------------------------------------------
greater than or equal to
2.00:1 but less than 2.50:1 0.375% per annum
- -----------------------------------------------------------
greater than or equal to
2.50:1 but less than 3.00:1 0.375% per annum
- -----------------------------------------------------------
greater than or equal to 3.00:1 0.500% per annum
- -----------------------------------------------------------
The effective date of a change in the Applicable Commitment Fee shall be the
first day after receipt by the Banks of financial statements delivered pursuant
to ss.7.4(a) or (b) hereof which indicate a change in the Pricing Ratio and in
the Applicable Commitment Fee in accordance with the above table.
Notwithstanding the foregoing, until receipt by the Banks of financial
statements delivered pursuant to ss.7.4(a) or (b) hereof for the fiscal quarter
ended June 30, 1997, the Applicable Commitment Fee shall be 0.25% per annum. If
at the time of calculation of the Commitment Fee the most recent financial
statements required to be delivered pursuant to ss.7.4(a) or (b) hereof have not
been delivered, the Applicable Commitment Fee shall be 0.500% per annum, subject
to adjustment upon actual receipt of such financial statements."
Page 42 of 54
<PAGE>
B. Amendment to ss.5.3(a) of the Credit Agreement.
Section 5.3(a) of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof:
ss.5.3(a) Commitment Fee. The Borrowers agree to pay to the Agent a fee (the
"Commitment Fee") in an amount equal to the Applicable Commitment Fee on the
unused portion of the Total Commitment during each fiscal quarter or portion
thereof from the date of this Third Amendment to the Maturity Date (or to the
date of termination in full of the Total Commitment, if earlier). The commitment
Fee shall be payable in arrears on the first day of each fiscal quarter for the
immediately preceding fiscal quarter, with a final payment on the Maturity Date
(or to the date of termination in full of the Total Commitment, if earlier). For
purposes of computing the Commitment Fee, the Maximum Drawing Amount of all L/Cs
shall be considered usage with respect to the Commitment. The Commitment Fee
shall be shared among the Banks pro rata in accordance with their Commitment
Percentages.
C. References to FNBB.
All references to the term "FNBB" or to "The First National Bank of Boston"
appearing in the Credit Agreement and any of the other Loan Documents shall be
deemed to be references to BKB.
II. PROVISIONS RELATING TO THIS THIRD AMENDMENT
A. Definitions.
Capitalized terms used herein without definition have the meanings ascribed to
them in the Credit Agreement.
B. Ratification, etc.
Except as expressly amended or waived hereby, the Credit Agreement, the other
Loan Documents and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. This Third Amendment and the Credit Agreement shall hereafter be
read and construed together as a single document, and all references in the
Credit Agreement or any related agreement or instrument to the Credit Agreement
shall refer to the Credit Agreement as amended by this Third Amendment.
C. GOVERNING LAW.
THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A SEALED
INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
D. Counterparts.
This Third Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which counterparts taken
together shall be deemed to constitute one and the same instrument. Complete
sets of counterparts shall be lodged with the Banks.
E. Effectiveness.
This Third Amendment shall become effective upon the execution and delivery
thereof by the respective parties hereto.
Page 43 of 54
<PAGE>
F. Entire Agreement.
THE CREDIT AGREEMENT AND THE SECURITY DOCUMENTS AS AMENDED BY THIS THIRD
AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the undersigned have duly executed this Third amendment
under seal as of the date first set forth above.
THE BORROWERS:
NSC CORPORATION
By: J. Drennan Lowell
Title: Vice President
NATIONAL SERVICE CLEANING CORP.
By: Efstathios A. Kouninis
Title: Vice President
NATIONAL SURFACE CLEANING CORP.
By: Greg Weimers
Title: Vice President
OLSHAN DEMOLISHING MANAGEMENT, INC.
By: Efstathios A. Kouninis
Title: Vice President
NSC SPECIALTY COATINGS, INC.
By: Efstathios A. Kouninis
Title: Vice President
NSC ENERGY SERVICES, INC.
By: Efstathios A. Kouninis
Title: Vice President
THE BANKS:
BANKBOSTON, N.A.
(formerly known as The First National
Bank of Boston)
By:
Title:
FLEET NATIONAL BANK
By:
Title:
Page 44 of 54
<PAGE>
EXHIBIT 10 (i)
NSC CORPORATION
FOURTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Fourth Amendment") is
made and entered into as of the 22nd day of December, 1997, by and among NSC
CORPORATION, a Delaware corporation (the "Parent"), its Subsidiaries listed on
the signature pages hereto (the "Subsidiaries", the Parent and such Subsidiaries
collectively referred to herein as the "Borrowers" and individually as a
"Borrower"), each of which Borrowers having its principal place of business at
49 Danton Drive, Methuen, Massachusetts, 01844, BANKBOSTON, N.A. ("BKB",
formerly known as The First National Bank of Boston), a national banking
association having its principal place of business at 100 Federal Street,
Boston, Massachusetts 02110, FLEET NATIONAL BANK ("Fleet"), a national banking
association formerly known as Fleet Bank of Massachusetts, N.A. with its
principal place of business at One Federal Street, Boston, Massachusetts 02111
(the "Banks"), and BKB, as Agent for the Banks (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent entered into a Revolving Credit
Agreement dated as of May 4, 1993 and amended as of December 2, 1993, May 1,
1996 and May 9, 1997 (the "Credit Agreement") pursuant to which the Banks
extended credit to the Borrowers on the terms set forth therein:
WHEREAS, the Banks, the Borrowers, and the Agent have agreed to amend the Credit
Agreement as hereinafter set forth:
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
I. AMENDMENT TO THE CREDIT AGREEMENT
A. Amendment to ss.8.6 of the Credit Agreement.
Section 8.6 of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof:
"ss.8.6 Restricted Distributions and Redemptions. None of the Borrowers will
declare and pay any Distributions other than (a) Distributions payable solely in
common stock of the Borrowers, (b) Distributions by the Subsidiaries to the
Parent, and (c) annual Distributions by the Parent to its shareholders, provided
that after giving effect to such Distribution described in clause (c), the ratio
of (i) EBITDA, as at the end of each fiscal quarter immediately prior to such
Distribution commencing with the fiscal quarter ending March 31, 1998, (x)on a
cumulative quarterly basis for the fiscal quarter ending March 31, 1998 through
the fiscal quarter ending September 30, 1998, and (y) thereafter, for the four
fiscal quarters ending on such date, to (ii)Consolidated Total Debt Service for
such period shall not be less than 1.10:1, and provided further that no Default
of Event of Default shall exist or be created by the making of any Distribution
pursuant to this ss.8.6. In addition, the Borrowers shall not redeem, convert,
retire or otherwise acquire shares of any class of capital stock of the
Borrowers in aggregate amount in excess of $500,000 in any year. The Borrowers
shall not effect or permit any change in or amendment to any document or
instrument pertaining to the terms of the Borrower's capital stock."
B. Amendment to ss.9.1 of the Credit Agreement.
Section 9.1 of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof:
"ss.9.1 Debt Service Coverage Ratio. As at the end of each fiscal quarter
commencing with the fiscal quarter ending March 31, 1998, (i) on a cumulative
quarterly basis for the fiscal quarter ending March 31, 1998 through the fiscal
quarter ending September 30, 1998, and (ii) thereafter, for the four fiscal
quarters ending on such date, the ratio of (a)EBITDA for such period less
Capital Expenditure and income tax expenses for such period to (b) Consolidated
Total Debt Service for such period shall not be less than 1.50:1."
Page 45 of 54
<PAGE>
C. Amendment to ss.9.3 fo the Credit Agreement.
Section 9.3 of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof:
"ss.9.3 Interest Coverage Ratio. As at the end of each fiscal quarter commencing
with the fiscal quarter ending March 31, 1998, (i) on a cumulative quarterly
basis for the fiscal quarter ending March 31, 1998 through the fiscal quarter
ending September 30, 1998, and (ii) thereafter, for the four fiscal quarters
ending on such date, the ratio of (a)EBITDA for such period to (b) Consolidated
Total Interest Expense for such period shall not be less than 4:1."
D. Amendment to ss.9.4 of the Credit Agreement.
Section 9.4 of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof:
"ss.9.4 Profitable Operations. The Borrowers will not permit Consolidated Net
Income to be less than $0 (a) in three of the four fiscal quarters of any fiscal
year, or (b) for any fiscal year; provided, however, the Borrowers may incur a
Consolidated Net Deficit of no more that $27,000,000 for the fiscal year ending
December 31, 1997 of which amount $25,000,000 shall be related to special
charges."
E. Amendment to ss.9.6 of the Credit Agreement.
Section 9.6 of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof:
'ss.9.6 Consolidated Net Worth. As at the end of any fiscal quarter commencing
with the fiscal quarter ending December 31, 1997, Consolidated Net Worth shall
not be less than $28,800,000.'
II. PROVISIONS RELATING TO THIS FOURTH AMENDMENT
A. Definitions.
Capitalized terms used herein without definition have the meanings ascribed to
them in the Credit Agreement.
B. Ratification, etc.
Except as expressly amended or waived hereby, the Credit Agreement, the other
Loan Documents and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. This Fourth Amendment and the Credit Agreement shall hereafter be
read and construed together as a single document, and all references in the
Credit Agreement or any related agreement or instrument to the Credit Agreement
shall refer to the Credit Agreement as amended by this Fourth Amendment.
C. GOVERNING LAW.
THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A
SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
D. Counterparts.
This Fourth Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which counterparts taken
together shall be deemed to constitute one and the same instrument. Complete
sets of counterparts shall be lodged with the Banks.
Page 46 of 54
<PAGE>
E. Effectiveness.
This Fourth Amendment shall become effective upon the satisfaction of each of
the following:
This Fourth Amendment shall have been executed and delivered by the respective
parties hereto; and The Agent shall have received an amendment fee of $25,000 to
be shared pro rata among the Banks in accordance with their respective
Commitment Percentages.
F. Entire Agreement.
THE CREDIT AGREEMENT AND THE SECURITY DOCUMENTS AS AMENDED BY THIS FOURTH
AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the undersigned have duly executed this Fourth amendment
under seal as of the date first set forth above.
THE BORROWERS:
NSC CORPORATION
By: Efstathios A. Kouninis
Title: Vice President of Finance
NATIONAL SERVICE CLEANING CORP.
By: Efstathios A. Kouninis
Title: Vice President
NATIONAL SURFACE CLEANING INC.
By: Ron Biebel
Title: Vice President
OLSHAN DEMOLISHING MANAGEMENT, INC.
By: Efstathios A. Kouninis
Title: Vice President
NSC SPECIALTY COATINGS, INC.
By: Efstathios A. Kouninis
Title: Vice President
NSC ENERGY SERVICES, INC.
By: Efstathios A. Kouninis
Title: Vice President
THE BANKS:
BANKBOSTON, N.A.
(formerly known as The First National
Bank of Boston)
By:
Title:
FLEET NATIONAL BANK
By:
Title:
Page 47 of 54
<PAGE>
EXHIBIT 10(o)
NSC CORPORATION
EMPLOYMENT AGREEMENT
EFSTATHIOS A. KOUNINIS
PERSONAL AND CONFIDENTIAL
Mr. Efstathios A. Kouninis
c/o NSC Corporation
49 Danton Drive
Methuen, MA 01844
Re: Employment Security Agreement
Dear Stathis:
In light of the recent developments at NSC Corporation ("NSC"), NSC wishes to
offer you this Employment Security Agreement in appreciation of your past
dedicated service and to provide you with peace of mind.
In consideration of the payments and other security listed below, you agree to
continue your employment with NSC and provide your full cooperation and
assistance to NSC.
1. Term. The Term of the Agreement shall be for a period commencing
on the date hereof and ending on October 8, 1998.
2. Base Salary. Your current base salary will not be reduced during
the Term and will be subject to normal increases which are in the discretion
of management.
3. Execution Bonus. Upon the execution and delivery of this agreement by
you, NSC shall pay to you, in one single lump sum, a one-time execution bonus in
the amount of Fifteen Thousand ($15,000.00) Dollars.
4. Completion Bonuses. In addition to, and not in lieu of, any other
incentive compensation which NSC may make available to you from time to time
during the Term, (i) if you remain employed with NSC through October 8, 1997,
NSC agrees to pay you a one-time completion bonus in the amount of Seven
Thousand Five Hundred ($7,500.00) Dollars and (ii) if you remain employed with
NSC through the end of the Term, NSC agrees to pay to you a one-time completion
bonus in the amount of Seven Thousand Five Hundred ($7,500.00) Dollars. In the
event that, prior to the aforementioned dates, you voluntarily terminate your
employment with NSC, or NSC terminates your employment for Cause, you shall have
no entitlement to such completion bonuses and NSC shall have no further
obligation with respect thereto.
5. Stock Options. Any otherwise exercisable stock options will remain in
effect, in accordance with the terms of the stock option plan under which they
were issued, during any period of employment with NSC and any subsequent period
during which you may be receiving severance pay. However, in the event of a
transaction involving NSC which under the terms of the stock option plan would
cause the options to terminate, NSC will use its reasonable efforts to cause the
exercisability of the options to be accelerated.
6. (a) Termination Without Cause. If you are terminated by NSC without
Cause prior to the end of the Term, NSC will pay you (i) an amount equal to the
greater of (a) the amount of the base salary remaining to be paid during the
Term, or (b) one year of continued base salary (payable in the same manner as
regular salary), measured by your base salary in effect on the date of your
termination and (ii) the Completion Bonus payment(s) (as provided for in
paragraph 4) for the balance of the Term. NSC will also provide you with one
year's continued coverage under NSC's medical and dental plans at the rate
applicable to active employees. (The aforementioned period of continued salary
and benefits is hereinafter referred to as the "Severance Period.")
Notwithstanding the foregoing, your payments under this paragraph 6(a) can, at
your election, be paid in a single lump sum.
Page 48 of 54
<PAGE>
(b) Severance. If you are terminated by NSC without Cause after the
expiration of the Term of this Agreement, you shall be entitled to receive
severance pay for a period of six (6) months at the rate of your annual base
salary then in effect, payable in the same manner as your regular salary,
together with six (6) months continued coverage under NSC's medical and dental
plans at the rate applicable to active employees.
(c) Cause. For purposes of this Agreement, Cause shall mean any act of
dishonesty or theft, willful misconduct, act of gross negligence, or the willful
and continued failure or your refusal to perform assigned duties (other than
caused by a disability, which for purposes of this Agreement shall mean your
total and permanent incapacity to perform the duties you were performing
immediately prior to the onset of such disability).
7. Survivor's Benefit. In the event of your death before the end of the
Term, or during the course of any applicable Severance Period, your spouse, if
any, shall receive the full (or, if your death occurs during any applicable
Severance Period, the remainder of the) period of continued base salary and
medical and dental coverage set forth in paragraph 5 above. Further, your
spouse, if any, shall receive the Completion Bonus due with respect to the year
of your death under paragraph 4 above.
8. Affirmation. As further consideration for the payments and other
security set forth above, by signing this Agreement you agree to abide by the
covenants and agreements set forth in Exhibit A attached hereto.
9. Assignment. You may not assign your rights or obligations hereunder.
The rights and obligations of NSC hereunder shall inure to the benefit of and
shall be binding upon its respective successors and assigns. NSC shall use its
reasonable efforts to ensure that any purchaser of the business of NSC offers
the same or substantially equivalent plans as the medical, dental, and vehicle
allowance plans currently offered by NSC.
10. General Provisions.
(a) This Agreement shall be subject to and governed by the laws of the
Commonwealth of Massachusetts without regard to its choice of law principles.
(b) Failure to insist upon strict compliance with any provision(s) hereof
shall not be deemed a waiver of such provision(s) or any other provision hereof.
If all or any part of this Agreement is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any portion of this Agreement not declared to be unlawful or
invalid. Any paragraph or a part of a paragraph so declared to be unlawful or
invalid shall, if possible, be construed in a manner which will give effect to
the terms of such paragraph or part of a paragraph to the fullest extent
possible while remaining lawful and valid.
(c) This Agreement shall not be altered, amended, or modified except by
written instrument executed by NSC and you. A waiver of any term, covenant,
agreement, or condition contained in this Agreement shall not be deemed a waiver
of any other term, covenant, agreement, or condition any waiver of any default
in any such term, covenant, agreement, or condition shall not be deemed a waiver
of any later default thereof or of any other term, covenant, agreement, or
condition.
(d) For purposes of this Agreement and each of the Exhibits attached
hereto, The term "NSC" shall mean and include NSC Corporation and each of its
subsidiaries, including, but not limited to, National Surface Cleaning, Inc.,
National Service Cleaning Corp., Olshan Demolishing Management, Inc., NSC Energy
Services, Inc. and NSC Specialty Coatings, Inc.
(e) NSC's obligation to pay amounts hereunder are subject to its
withholding obligations under applicable federal, state, and local laws.
NSC CORPORATION
By: ________________________
ACCEPTANCE
Agreed to and accepted
this ____ day of ____________, 1996.
By: ______________________
Efstathios A. Kouninis
Page 49 of 54
<PAGE>
EXHIBIT A
(A) I agree that while I am employed by NSC, I will not, directly or
indirectly, compete with the business conducted by NSC.
(B) I agree that for a period of six (6) months after the termination of
employment, whether voluntary or involuntary, and regardless of the reason for
or manner of termination, I will not, alone or with others, directly or
indirectly (as owner, stockholder, partner, lender, other investor director,
officer, employee, consultant or otherwise):
(1) Solicit, perform or engage in any business of the same or
similar nature to the business of NSC, or which is competitive with the business
of NSC, anywhere within the Restricted Area as hereinafter defined; and
(2) Sell, attempt to sell, provide or attempt to provide any
products or services (in competition with those products or services which I
sold or provided on behalf of NSC) to, or solicit, perform, engage in, divert or
accept any business of the same or similar nature to the business of NSC from,
any person, firm or entity:
(a) residing, maintaining a principal place of business or
located within the Restricted Area;
(b) who was a customer of NSC within the Restricted Area
during the last twenty-four (24) months of my
employment; or
(c) to whom I sold, attempted to sell, provided or attempted
to provide such products or services during the last
twenty-four (24) months of my employment with NSC.
(3) Induce or attempt to induce any customer of NSC to reduce such
customer's business with NSC or divert such customer's business from NSC, by
direct advertising, solicitation or otherwise.
(4) Disclose the names of any customers or potential customers of
NSC to any other person, firm, corporation or other entity.
I agree that I will comply with the most restrictive of the provisions
specified in subsections (1), (2)(a) through (c), (3) and (4) above which is
allowed by applicable state law. The parties agree that if enforcement of this
Agreement is sought, the enforcing court should select the most restrictive
provisions appropriate under applicable state law.
(C) I agree that while I am employed by NSC and for a period of six (6)
months after termination of my employment for any reason, voluntary or
involuntary, with or without Cause, I will not directly or indirectly hire, or
attempt to hire any employee of NSC nor will I encourage or induce any employee
of NSC to terminate employment with NSC.
(D) "Restricted Area" shall mean and include each and every state or
territory in which NSC has conducted or solicited any business within the
twenty-four (24) months immediately preceding the termination of my employment
and up to and including the date of the termination of my employment. "Customer"
shall mean any person, firm or other entity, or any parent, subsidiary or
affiliate thereof, with which NSC has had a contract, engaged in any business
with or for which NSC has performed any services within the twenty-four (24)
months immediately preceding the termination of my employment and up to and
including the date of the termination of my employment. "Potential Customer"
shall mean any person firm or other entity, or any parent, subsidiary or
affiliate thereof, from which NSC has solicited or attempted to solicit any
business, or to which NSC has submitted any bid or written or oral proposal,
within the twenty-four (24) months immediately preceding the termination of my
employment and up to and including the date of the termination of my employment.
I acknowledge that during the term of my employment, I will be making use
of, acquiring, or adding to NSC's Classified Information. In order to protect
the Classified Information, I will not, during the term of my employment with
NSC or thereafter, in any way utilize any of the Classified Information except
in connection with my employment by NSC. I will not copy, reproduce, or remove
from NSC's premises the original or any copies of the Classified Information and
I will not disclose any of the Classified Information to anyone.
Page 50 of 54
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State of Other
Name of Subsidiary Jurisdiction of Incorporation
- ----------------------------------- --------------------------------
National Surface Cleaning, Inc. New Hampshire
National Service Cleaning Corp. Connecticut
Olshan Demolishing Management, Inc. Delaware
NSC Energy Services, Inc. Delaware
NSC Specialty Coatings, Inc. Delaware
Page 51 of 54
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-35986) pertaining to the 1990 Stock Option Plan of NSC Corporation
and in the related Prospectus of our report dated February 6, 1998, with respect
to the consolidated financial statements and schedule of NSC Corporation
included in the Annual Report (Form 10-K) for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 1998
Page 52 of 54
<PAGE>
EXHIBIT 24
DIRECTORS AND OFFICERS OF NSC CORPORATION
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned directors and officers of NSC Corporation, a Delaware
corporation (the Company"), do hereby make, constitute and appoint Victor J.
Barnhart, Efstathios A. Kouninis and Robert Gilker, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, to execute and file, under the Securities Exchange Act of 1934, as
amended, the Company's Annual Report on Form 10-K, for the year ended December
31, 1997 and all amendments or exhibits thereto, and any or all applications or
other documents to be filed with the Securities and Exchange Commission
pertaining to such Annual Report, with full power and authority to do and
perform any and all acts and things whatsoever necessary, appropriate or
desirable to be done in the premises, or in the name, place and stead of the
said directors and officers, hereby ratifying and approving the acts of said
attorneys and any of them and any substitute.
This power of attorney may be executed in counterpart.
IN WITNESS WHEREOF, the undersigned have subscribed these presents as of the
25th day of March 1998.
/s/ VICTOR J. BARNHART /s/ EUGENE L. BARNETT
Victor J. Barnhart, Chairman of the Board Eugene L. Barnett, Director
and Chief Executive Officer (Principal
Executive Officer) /s/ PAMELA K. M. BEALL
Pamela K. M. Beall, Director
/s/ DARRYL G. SCHIMECK
Darryl G. Schimeck, President and Chief /s/ ROBERT J. BLACKWELL
Operating Officer Robert J. Blackwell, Director
/s/ EFSTATHIOS A. KOUNINIS /s/ HERBERT A. GETZ
Efstathios A. Kouninis, Vice President of Herbert A. Getz, Director
Finance, Corporate Controller, Treasurer and
Secretary (Principal Accounting Officer) /s/ WILLIAM P. HULLIGAN
William P. Hulligan, Director
/s/ WILLIAM M. R. MAPEL
William M. R. Mapel, Director
Page 53 of 54
<PAGE>
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