UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 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 November 12, 1998 was
9,971,175.
The total number of sequentially numbered pages is 12.
Page 1 of 12
<PAGE>
NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED September 30, 1998
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-As of September 30, 1998 and December 31, 1997 3
Consolidated Statements of Income
-For the Three and Nine Months Ended September 30,
1998 and 1997 4
Consolidated Statements of Cash Flow
-For the Nine Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2 of 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NSC Corporation
Consolidated Balance Sheets
(In thousands, except share and per-share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,659 $ 8,781
Accounts receivable, net 24,967 20,590
Costs and estimated earnings on contracts
in process in excess of billings 7,653 1,969
Inventories 1,328 1,157
Prepaid expenses and other current assets 2,027 1,565
---------- ---------
40,634 34,062
Property and equipment, net 2,414 2,755
Other non-current assets:
Assets held for sale 313 1,653
Goodwill, net of accumulated amortization 34,350 35,175
Other assets 150 -
---------- ---------
Total assets $ 77,861 $ 73,645
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,599 $ 4,942
Billings in excess of costs and estimated
earnings on contracts in process 9,178 3,274
Accrued compensation and related costs 2,413 1,760
Federal, state and local taxes (1,153) (571)
Other accrued liabilities 637 1,428
Reserve for self-insurance claims
and other contingencies 5,105 6,403
---------- ---------
19,779 17,236
Non-current liabilities:
Payable to affiliate 4,520 4,520
Deferred income taxes 1,732 733
Stockholders' equity:
Preferred stock $.01 par value, 10,000,000
shares authorized, none issued and outstanding - -
Common stock $.01 par value, 20,000,000 shares
authorized, 9,971,175 issued and outstanding
in 1998 and 1997 100 100
Additional paid-in capital 56,079 56,079
Accumulated deficit (4,349) (5,023)
---------- ---------
51,830 51,156
---------- ---------
Total liabilities and stockholders' equity $ 77,861 $ 73,645
========== =========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3 of 12
<PAGE>
NSC Corporation
Consolidated Statements of Income
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- ----------------
1998 1997 1998 1997
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenue $28,017 $30,643 $74,077 $91,540
Cost of services 23,755 30,156 61,954 82,219
-------- -------- ------- --------
Gross profit 4,262 487 12,123 9,321
Selling, general and administrative
expenses 3,540 4,147 10,356 11,713
Other operating income 163 568 144 642
Goodwill amortization 275 275 825 825
-------- -------- ------- --------
610 (3,367) 1,086 (2,575)
-------- -------- ------- --------
Other income 46 69 142 198
-------- -------- ------- --------
Income (loss) before income taxes 656 (3,298) 1,228 (2,377)
Income tax expense (benefit) 384 (1,179) 554 (718)
======== ======== ======= ========
Net income (loss) $ 272 $(2,119) $ 674 $(1,659)
======== ======== ======= ========
Net income (loss) per share $ 0.03 $ (0.21) $ 0.07 $ (0.17)
======== ======== ======= ========
Weighted-average number of common
shares outstanding 9,971 9,971 9,971 9,971
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 12
<PAGE>
NSC Corporation
Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1998 1997
-------- --------
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) $ 674 $(1,659)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 693 1,055
Goodwill amortization 825 825
Deferred income taxes 1,130 19
Gain on disposition of property and
equipment (6) (21)
Adjustment of impairment write down (158) -
Changes in current assets and liabilities:
Accounts receivable (4,377) 295
Costs and estimated earnings on contracts
in process in excess of billings (5,684) 1,745
Other current assets (618) 626
Accounts payable (1,343) 1,080
Billings in excess of costs and estimated
earnings on contracts in process 5,904 (307)
Other current liabilities (850) (2,124)
Reserve for self insurance claims and
other contingencies (1,298) (2,008)
-------- --------
Net cash used in operating activities (5,108) (474)
Cash flow from investing activities:
Purchases of property and equipment (408) (731)
Proceeds from the sale of property
and equipment 1,544 72
Other (150) -
-------- --------
Net cash provided by (used in)
investing activities 986 (659)
Cash flow from financing activities:
Net cash used in financing activities - -
-------- --------
Net decrease in cash and cash equivalents (4,122) (1,133)
Cash and cash equivalents at beginning of periods 8,781 3,975
======== ========
Cash and cash equivalents at end of periods $ 4,659 $ 2,842
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 12
<PAGE>
Notes to Consolidated Financial Statements
For the Quarter Ended September 30, 1998
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by NSC Corporation (the "Company") and reflect all adjustments,
consisting of only normal recurring adjustments, which are, in the
opinion of management, necessary for a fair presentation of financial
position at September 30, 1998 and results of operations for the three
and nine month periods ended September 30, 1998 and 1997, in accordance
with generally accepted accounting principles for interim financial
reporting and pursuant to Article 10 of Regulation S-X. Certain
information and footnote disclosures normally included in audited
financial statements have been condensed or omitted pursuant to such
rules and regulations. These interim consolidated financial statements
should be read in conjunction with the Company's Annual Report to
Stockholders on Form 10-K for the year ended December 31, 1997. The
results of operations for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the results for the
full year.
The accompanying interim consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The Company
is a Delaware corporation and is owned approximately 54% by Waste
Management, Inc.
Revenue and operating results of asbestos-abatement activities may be
affected by the timing of some contracts. Because of this change in
demand, the Company's quarterly revenues can fluctuate, especially if all
or a substantial part of the performance of such contracts occurs within
one or two quarters. Fluctuations in the price of scrap metals may affect
the revenue and operating results of the demolition and dismantling
activities. Accordingly, quarterly or other interim results should not
be considered indicative of results to be expected for any other quarter
or for the full fiscal year.
Page 6 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In accordance with the Private Securities Litigation Reform Act of 1995,
the Company notes that statements that look forward in time, which
include everything other than historical information, involve risks and
uncertainties that may affect the Company's actual results of operation.
Factors which could cause actual results to differ materially include the
following (among others): regulatory changes, technological advances,
labor shortages and disputes, technical problems, time extensions and/or
delays in projects caused by external sources, weather conditions, the
condition of the U.S economy, and other factors listed from time to time
in the Company's filings with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise
after the date of this report.
Results of Operations
Three Months Ended September 30, 1998
Versus
Three Months Ended September 30, 1997
Revenue. Revenue for the three months ended September 30, 1998 decreased
9% to $28,017,000 from $30,643,000 for the same period in 1997 due to a
decrease in demolition related revenue. The decrease in demolition
related revenue was the combined result of competitive pricing pressures
in the bidding process resulting in the Company's decreased success in
securing new work. The third quarter results are not indicative of
results to be expected for any upcoming quarter.
Gross Profit. Gross profit for the three months ended September 30, 1998
increased to $4,262,000 from $487,000 for the same period in 1997. Gross
profit as a percentage of revenue increased for the three months ended
September 30, 1998 to 15% from 2% for the same period in 1997. The gross
profit margin percentage increase is due to improved productivity and
greater selectivity when bidding and accepting new awards despite
downward margin adjustments on certain demolition projects. Furthermore,
the 1997 gross profit margin percentage was particularly low due to
losses incurred on certain projects and a downward adjustment to the
scrap value of process equipment removed from certain demolition projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended September 30,
1998 decreased 15% to $3,540,000 from $4,147,000 for the same period in
1997. The decrease in SG&A expenses is primarily the result of a
reduction in administrative personnel. The SG&A expenses, as a
percentage of revenue, for the three months ended September 30, 1998 were
13% compared to 14% for the same period in 1997.
Other Operating Income. Olshan Demolishing Management, Inc. (ODMI), a
wholly owned subsidiary of the Company, has entered into a management
agreement with an affiliate of Waste Management Inc. whereby ODMI manages
the operations of Olshan Demolishing Company (ODC). Pursuant to this
arrangement, the Company and the Waste affiliate share the profits and
operating losses of ODC. For the three month period ended September 30,
1998, the amount due from the Waste affiliate was $163,000 compared to
$568,000 for the same period in 1997.
Other Income. Other income consists primarily of interest income and
gains/losses on sales of fixed assets. For the three months ended
September 30, 1998 other income was $46,000 compared to $69,000 for the
same period in 1997. This decrease is primarily due to assets sold below
their carrying value in the current year versus in the same period in
1997.
Net Income (Loss). Net income for the three months ended September 30,
1998 increased to $272,000 from a net loss of $(2,119,000) for the same
period in 1997 due to increased gross profit, decreased operating and
overhead costs. As a percentage of revenue, net income increased to 1%
for the three months ended September 30, 1998 from (7%) for the same
period in 1997.
Page 7 of 12
<PAGE>
Nine Months Ended September 30, 1998
Versus
Nine Months Ended September 30, 1997
Revenue. Revenue for the nine months ended September 30, 1998 decreased
19% to $74,077,000 from $91,540,000 for the same period in 1997. The
decrease in revenue was due to a $11,559,000 decrease in
asbestos-abatement related revenue and a $5,904,000 decrease in
demolition related revenue. This decrease was the combined result of
competitive pricing pressures in the bidding process resulting in the
Company's decreased success in being awarded new work and normal
fluctuations in demand. Quarterly or other interim results should not be
considered indicative of results to be expected for any upcoming quarter
or for the full fiscal year.
Gross Profit. Gross profit for the nine months ended September 30, 1998
increased 30% to $12,123,000 from $9,321,000 for the same period in
1997. Gross profit as a percentage of revenue increased for the nine
months ended September 30, 1998 to 16% from 10% for the same period in
1997. The increased gross profit margin percentage for the current year
is mainly due to improved productivity and greater selectivity when
bidding and accepting new awards. Furthermore, the settlement of a
disputed contract for an amount in excess of its carrying value and
workers' compensation premium refunds resulting from an improved safety
record also contributed to the increased gross profit margin despite
downward margin adjustments on certain demolition projects. However, the
1997 gross profit margin percentage was particularly low due to losses
incurred on certain projects and a downward adjustment to the scrap value
of process equipment removed from certain demolition projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the nine months ended September 30,
1998 decreased 12% to $10,356,000 from $11,713,000 for the same period in
1997. The decrease in SG&A costs is mainly due to a reduction in
administrative personnel, reduced consulting services associated with the
Year 2000 project compliance and reduced legal costs. The SG&A expenses,
as a percentage of revenue, for the nine months ended September 30, 1998
were 14% compared to 13% for the same period in 1997 due to the decrease
of revenue.
Other Operating Income. For the nine month period ended September 30,
1998, the amount due to the Waste affiliate as a result of the operations
of ODMI was $14,000 compared to an amount due from the Waste affiliate of
$642,000 for the same period in 1997. The current year amount is offset
by an adjustment of impairment write-down associated with the sale of
certain real estate property.
Other Income. Other income for the nine months ended September 30, 1998
was $142,000 compared to $198,000 for the same period in 1997. This
decrease is mainly due to reduced interest income resulting from lower
bank cash balances and a change in the bank service fee arrangement.
This decrease is partially offset by increased gains on sales of fixed
assets in the current year.
Net Income (Loss). Net income for the nine months ended September 30,
1998 increased to $674,000 from a net loss of $(1,659,000) for the same
period in 1997 due to increased gross profit, a reduction of overhead
costs and the recognition of a tax benefit associated with the refunds of
taxes paid in prior years. As a percentage of revenue, net income
increased to 1% for the nine months ended September 30, 1998 from (2%)
for the same period in 1997.
Page 8 of 12
<PAGE>
Liquidity and Capital Resources. Working capital at September 30, 1998
was $20,855,000 compared to $16,826,000 at December 31, 1997. The current
ratio was 2.1/1 at September 30, 1998 compared to 2/1 at December 31,
1997. Cash used in operating activities was $5,108,000 for the nine
month period ended September 30, 1998 compared to $474,000 for the same
period in 1997. The increase in cash used in operations is due to the
timing of billings on work performed and the payment of a general
liability claim. During the first nine months of 1998, cash of $408,000
was used for purchases of property and equipment and proceeds of
$1,447,000 were received in conjunction with the sale of the Methuen
property. The Company continues to occupy the Methuen property pending
the relocation of the corporate office to a new site.
The Company believes that its cash flows from operations and funds
available under the existing senior revolving credit facilities, as
amended on December 22, 1997, will be sufficient throughout the next
twelve months to finance its working capital needs and planned capital
expenditures. While the Company's Board of Directors has not established
a policy concerning payment of regular dividends, it intends to review
annually the feasibility of declaring additional dividends depending upon
the results of operations, financial condition and cash needs of the
Company.
The nature and scope of the Company's business bring it into regular
contact with the general public, a variety of businesses and government
agencies. Such activities inherently subject the Company to the hazards
of litigation, which are defended in the normal course of business.
Management has recorded an estimate of any losses it expects to incur in
connection with the resolution of any claims. While the outcome of all
claims is not clearly determinable at the present time, management has
recorded an estimate of any losses it expects to incur in connection with
the resolution of the claims at September 30, 1998 of $5,105,000 and at
December 31, 1997 of $6,403,000.
Year 2000. In 1996, the Company began upgrading its financial and
decision support systems to, in part, comply with Year 2000
requirements. This process is now complete and the Company believes that
such systems are Year 2000 compliant. In addition to $675,000 of capital
costs for new hardware and software incurred project-to-date, consulting
and training expenses of $130,000, $223,000 and $135,000 were incurred
with respect to system upgrades, including Year 2000 compliance, in 1998
1997 and 1996 respectively. The Company anticipates spending another
$30,000 for training and consulting services by year-end and believes
that these expenditures will adequately address any Year 2000 issues
associated with the Company's operations. The Company has been in
contact with its bank and several of its more significant customers and
vendors to determine the extent to which the Company's interface systems
are vulnerable to those third parties' failure to remedy their own Year
2000 issues. There is no guarantee that the systems of other companies
on which the Company's systems rely will be converted. Even assuming
that such conversions do not occur, the Company does not believe that any
such third party system failures will have a material adverse effect on
the Company given the nature of the Company's business which is not
computer dependent in any material aspect.
Page 9 of 12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about September4, 1998 the Company became aware of certain issues
relating to state licensing for its employees at an asbestos abatement
project in South Carolina. The Company has brought the matter to the
attention of the South Carolina Department of Health and Environmental
Control. The Company is cooperating with such agency. No civil or
criminal charges have been filed against the Company in this matter.
In addition to the above matter, 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
On October 19, 1998, the Company received a letter (the "NASDAQ Letter")
from the NASDAQ National Market expressing a concern regarding the
continued listing of the Company's common stock for trading on the NASDAQ
National Market. According to the NASDAQ Letter, the Company's common
stock did not maintain a market value of public float greater than or
equal to $5,000,000 for a specified period in accordance with applicable
rules. The NASDAQ Letter also indicated that if the Company is unable to
demonstrate compliance with the foregoing requirement on or before
January 19, 1999, the Company's common stock will be delisted at the
opening of business on January 21, 1999. The Company has contacted the
NASDAQ National Market to discuss this matter and was advised that it may
appeal the findings reflected in the NASDAQ Letter by means of certain
formal procedures available to the Company. At the present time, the
Company has not determined whether to pursue an appeal. If the Company
does not pursue such an appeal or if such an appeal is pursued but is
unsuccessful, the Company's common stock may be delisted from the NASDAQ
National Market potentially as early as January 21, 1999. In such an
event, it is likely that the marketability of the Company's common stock
would be materially and adversely affected.
The Investment Banking Firm of BT Alex. Brown continues its review of
strategic alternatives for the Company.
Item 6. Exhibits and Reports on Form 8-K
(b.) Forms 8-K
No reports were filed on Form 8-K during the quarter ended September 30,
1998.
Page 10 of 12
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
NSC CORPORATION
Date: November 13, 1998 By /s/ Efstathios A. Kouninis
Efstathios A. Kouninis
Vice President of Finance, Corporate Controller,
Secretary and Treasurer
Signing on behalf of the registrant and as
principal financial and accounting officer.
Page 11 of 12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> <blank>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4659
<SECURITIES> 0
<RECEIVABLES> 25,508
<ALLOWANCES> 541
<INVENTORY> 1328
<CURRENT-ASSETS> 40,634
<PP&E> 7513
<DEPRECIATION> 5099
<TOTAL-ASSETS> 77,861
<CURRENT-LIABILITIES> 19,779
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 51,730
<TOTAL-LIABILITY-AND-EQUITY> 77,861
<SALES> 26,299
<TOTAL-REVENUES> 28,017
<CGS> 23,755
<TOTAL-COSTS> 27,407
<OTHER-EXPENSES> (46)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 656
<INCOME-TAX> 384
<INCOME-CONTINUING> 272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
