UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 018597
NSC CORPORATION
State or other jurisdiction of (IRS Employer
Incorporation or organization Identification Number)
DELAWARE 31-1295113
49 DANTON DRIVE, METHUEN, MA 01844
(978) 557-7300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of Common Stock outstanding on May 4, 1998 was 9,971,175.
The total number of sequentially numbered pages is 11.
Page 1 of 11
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NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED March 31, 1998
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-As of March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income
-For the Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flow
-For the Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Page 2 of 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NSC Corporation
Consolidated Balance Sheets
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,954 $ 8,781
Accounts receivable, net 18,232 20,590
Costs and estimated earnings on contracts
in process in excess of billings 6,084 1,969
Inventories 1,215 1,157
Prepaid expenses and other current assets 1,355 1,565
Deferred income taxes 844 844
------------ -----------
31,684 34,906
Property and equipment, net 2,584 2,755
Other non-current assets:
Assets held for sale 1,665 1,653
Goodwill, net of accumulated amortization 34,900 35,175
Other assets 150 0
------------ -----------
Total Assets $ 70,983 $ 74,489
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,124 $ 4,942
Billings in excess of costs and estimated
earnings on contracts in process 4,268 3,274
Accrued compensation and related costs 2,088 1,760
Federal, state and local taxes (1,084) 273
Other accrued liabilities 1,030 1,428
Reserve for self-insurance claims and
other contingencies 5,125 6,403
------------ -----------
14,551 18,080
Non-current liabilities:
Payable to affiliate 4,520 4,520
Deferred income taxes 733 733
Stockholders' equity:
Preferred stock $.01 par value,
10,000,000 shares authorized,
none issued and outstanding - -
Common stock $.01 par value, 20,000,000
shares authorized, 9,971,175 issued and
outstanding in 1998 and 1997 100 100
Additional paid-in capital 56,079 56,079
Retained earnings (accumulated deficit) (5,000) (5,023)
------------ -----------
51,179 51,156
------------ -----------
Total Liabilities and Stockholders' Equity $ 70,983 $ 74,489
============ ===========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 11
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NSC Corporation
Consolidated Statements of Income
(In thousands, except per-share data)
(Unaudited)
Three months ended
March 31,
-----------------------
1998 1997
---------- -----------
Revenue $ 20,808 $ 29,815
Cost of services 16,917 24,824
---------- -----------
Gross profit 3,891 4,991
Selling, general and administrative expenses 3,448 3,861
Other operating expenses 153 22
Goodwill amortization 275 275
---------- -----------
Operating income 15 833
Other income 32 87
---------- -----------
Income before income taxes 47 920
Income taxes 24 461
========== ===========
Net income $ 23 $ 459
========== ===========
Basic and diluted earnings per share $ 0.00 $ 0.05
========== ===========
Weighted-average number of common shares outstanding 9,971 9,971
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 11
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NSC Corporation
Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Three months ended
March 31,
-----------------------
1998 1997
---------- ----------
Cash flow from operating activities:
Net income $ 23 $ 459
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation 226 410
Goodwill amortization 275 275
Deferred income taxes - 148
Gain on disposition of property and
equipment (8) (11)
Changes in current assets and liabilities:
Accounts receivable 2,358 4,245
Costs and estimated earnings on contracts
in process in excess of billings (4,115) (678)
Other current assets 152 302
Accounts payable (1,818) 206
Billings in excess of costs and estimated
earnings on contracts in process 994 (1,690)
Other current liabilities (1,428) (1,786)
Reserve for self insurance claims and other
contingencies (1,278) (350)
---------- ---------
Net cash (used in) provided by
operating activities (4,619) 1,530
Cash flow from investing activities:
Purchases of property and equipment (136) (118)
Proceeds from the sale of property and
equipment 78 19
Other (150) -
---------- ---------
Net cash used in investing activities (208) (99)
Cash flow from financing activities:
Net cash used in financing activities - -
---------- ---------
Net (decrease) increase in cash and (4,827) 1,431
cash equivalents
Cash and cash equivalents at beginning of
periods 8,781 3,975
---------- ---------
Cash and cash equivalents at end of periods $ 3,954 $ 5,406
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 11
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Notes to Consolidated Financial Statements
For the Quarter Ended March 31, 1998
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by NSC Corporation (the "Company") and reflect all adjustments, consisting of
only normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of financial results for the three month
periods ended March 31, 1998 and 1997, in accordance with generally accepted
accounting principles for interim financial reporting and pursuant to Article 10
of Regulation S-X. Certain information and footnote disclosures normally
included in audited financial statements have been condensed or omitted pursuant
to such rules and regulations. These interim consolidated financial statements
should be read in conjunction with the Company's Annual Report to Stockholders
on Form 10-K for the year ended December 31, 1997. The results of operations for
the three month period ended March 31, 1998 are not necessarily indicative of
the results for the full year.
The accompanying interim consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. The Company is a Delaware
corporation and is owned approximately 54% by Waste Management, Inc.
Revenue and operating results of asbestos-abatement activities may be affected
by the timing of some contracts. Because of this change in demand, the Company's
quarterly revenues can fluctuate, especially if all or a substantial part of the
performance of such contracts occurs within one or two quarters. Fluctuations in
the price of scrap metals and the demand for process equipment may affect the
revenue and operating results of the demolition and dismantling activities.
Accordingly, quarterly or other interim results should not be considered
indicative of results to be expected for any other quarter or for the full
fiscal year.
In 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 the three months ended March 31, 1998 and 1997 have been
computed by dividing net 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, has not been separately presented.
Page 6 of 11
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 31, 1998
Versus
Three Months Ended March 31, 1997
Revenue. Revenue for the three months ended March 31, 1998 decreased 30% to
$20,808,000 from $29,815,000 for the same period in 1997. The decrease in
revenue was due to a $6,657,000 decrease in asbestos-abatement related revenue
and a $2,350,000 decrease in demolition related revenue. This decrease was the
combined result of competitive pricing pressures in the bidding process
resulting in the Company's decreased success in being awarded new work and
normal fluctuations in demand. The first quarter results are not indicative of
results to be expected for any upcoming quarter.
Gross Profit. Gross profit for the three months ended March 31, 1998 decreased
22% to $3,891,000 from $4,991,000 for the same period in 1997. Gross profit as a
percentage of revenue increased for the three months ended March 31, 1998 to 19%
from 17% for the same period in 1997. The increase in the gross profit margin
percentage was primarily due to improved productivity enhanced partially by the
settlement of a disputed contract for an amount in excess of its carrying value.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended March 31, 1998
decreased 11% to $3,448,000 from $3,861,000 for the same period in 1997. The
decrease in SG&A costs is the result of a reduction in administrative personnel.
The SG&A expenses, as a percentage of revenue, for the three months ended March
31, 1998 were 17% compared to 13% for the same period in 1997 due to the
decrease in revenue.
Other Operating Expenses. Olshan Demolishing Management, Inc. (ODMI) is required
to share with Rust any operating profits or operating losses, in exchange for
the right to operate Olshan Demolishing Company (ODC). For the three month
period ended March 31, 1998, the amount due to Rust was $153,000 compared to
$22,000 for the same period in 1997 due to the increase in ODMI's operating
profit.
Other (Income) Expense. Other income for the three months ended March 31, 1998
was $32,000 compared to $87,000 for the same period in 1997 due to lower bank
cash balances and a change in the bank service fee arrangement.
Net Income. Net income for the three months ended March 31, 1998 decreased to
$23,000 from $459,000 for the same period in 1997 due to reduced gross profit
and a slower reduction of overhead costs. As a percentage of gross revenue, net
income decreased to less than 1% for the three months ended March 31, 1998 from
2% for the same period in 1997.
Page 7 of 11
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Liquidity and Capital Resources. Working capital at March 31, 1998 was
$17,133,000 compared to $16,826,000 at December 31, 1997. The current ratio was
2.2/1 at March 31, 1998 compared to 2/1 at December 31, 1997. Cash used in
operating activities was $4,619,000 for the three-month period ended March 31,
1998 compared to cash provided by operating activities of $1,530,000 for the
same period in 1997. The decrease in cash provided by operations was due to
billing timing issues and the payment of a general liability claim. During the
first three months of 1998, cash of $136,000 was used for purchases of property
and equipment.
The Company believes that its cash flows from operations and funds available
under the existing senior revolving credit facilities, as amended on December
22, 1997, will be sufficient throughout the next twelve months to finance its
working capital needs and planned capital expenditures. While the Company's
Board of Directors has not established a policy concerning payment of regular
dividends, it intends to review annually the feasibility of declaring additional
dividends depending upon the results of operations, financial condition and cash
needs of the Company.
The nature and scope of the Company's business bring it into regular contact
with the general public, a variety of businesses and government agencies. Such
activities inherently subject the Company to the hazards of litigation, which
are defended in the normal course of business. Management has recorded an
estimate of any losses it expects to incur in connection with the resolution of
any claims. While the outcome of all claims is not clearly determinable at the
present time, management has recorded an estimate of any losses it expects to
incur in connection with the resolution of the claims at March 31, 1998 of
$5,125,000 and at December 31, 1997 of $6,403,000.
Page 8 of 11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to certain legal proceedings, including those relating to
regulatory compliance, in the ordinary course of business. Management believes
that such proceedings are either adequately covered by insurance or if
uninsured, will not, in the aggregate, have a material adverse effect upon the
Company.
Item 5. Other Information
NSC Corporation announced that effective May 4, 1998, Victor J. Barnhart has
announced his retirement and will resign as the Company's Chairman and Chief
Executive Officer.
The Board of Directors of NSC Corporation has elevated Darryl G. Schimeck to
Chairman, Chief executive Officer and President. Mr. Schimeck has been President
and Chief Operating Officer of the Company, and has also served as President of
National Surface Cleaning, Inc., a wholly owned subsidiary of NSC Corporation.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
3(i)(a) Amended and Restated certificate of Incorporation of the Registrant
dated April 24, 1990 [incorporated by reference to Exhibit 3(a) to the
Registrant's Form S-1, Registration Statement No. 33-34702].
3(ii)(a) By-laws of the Registrant [incorporated by reference to Exhibit 3(b)
to the Registrant's Form S-1, Registration Statement No. 33-34702].
4 Specimen Common Stock Certificate [incorporated by reference to Exhibit
4 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990].
(b) Forms 8-K
The Company filed a Form 8-K dated March 6, 1998 in response to OHM
Corporation's special pro rata distribution ("Special Distribution") to its
shareholders of all the shares of Common Stock of the Company that were held
by OHM. Waste Management's ownership increased from 40% to 54% as a result of
the Special Distribution.
Page 9 of 11
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
NSC CORPORATION
Date: May 14, 1998 By /s/ Efstathios A. Kouninis
Efstathios A. Kouninis
Vice President of Finance, Corporate Controller,
Secretary and Treasurer
Signing on behalf of the registrant
and as principal financial and
accounting officer.
Page 10 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3954
<SECURITIES> 0
<RECEIVABLES> 18,909
<ALLOWANCES> 677
<INVENTORY> 1215
<CURRENT-ASSETS> 31,684
<PP&E> 7378
<DEPRECIATION> 4794
<TOTAL-ASSETS> 70983
<CURRENT-LIABILITIES> 14551
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 51079
<TOTAL-LIABILITY-AND-EQUITY> 70983
<SALES> 20,485
<TOTAL-REVENUES> 20,808
<CGS> 16,917
<TOTAL-COSTS> 20,793
<OTHER-EXPENSES> (32)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 47
<INCOME-TAX> 24
<INCOME-CONTINUING> 23
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
