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 quarterly period ended March 31, 1999
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 or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
49 DANTON DRIVE, METHUEN, MA 01844
(Address of principal executive offices)
(978) 557-7300
(Registrant's telephone number, including area code)
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 as of May 12, 1999 was
9,971,175.
The total number of sequentially numbered pages is 12.
Page 1 of 12
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NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED March 31, 1999
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-As of March 31, 1999 and December 31, 1998 3
Consolidated Statements of Income
-For the Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flow
-For the Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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
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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)
March 31, December 31,
1999 1998
---------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,558 $ 3,634
Accounts receivable, net 23,562 22,146
Costs and estimated earnings on
contracts in process in excess of
billings 5,543 4,270
Inventories 1,043 1,058
Prepaid expenses and other current
assets 2,219 2,425
Deferred income taxes 1,119 758
---------- ---------
36,044 34,291
Property and equipment, net 3,278 3,296
Other non-current assets:
Assets held for sale 313 313
Investment in unconsolidated joint
venture 225 225
Goodwill, net of accumulated
amortization 33,800 34,075
========== =========
Total Assets $ 73,660 $ 72,200
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,989 $ 2,471
Billings in excess of costs and
estimated earnings on contracts in
process 4,658 4,369
Accrued compensation and related
costs 2,977 2,141
Federal, state and local taxes (1,079) (776)
Other accrued liabilities 436 569
Reserve for self-insurance claims
and other contingencies 4,614 5,013
Current portion of long-term
obligations 109 109
---------- ---------
15,704 13,896
Non-current liabilities:
Long-term obligations 262 288
Payable to affiliate 4,520 4,520
Deferred income taxes 2,101 1,894
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 1999 and 1998 100 100
Additional paid-in capital 56,079 56,079
Accumulated deficit (5,106) (4,577)
---------- ---------
51,073 51,602
---------- ---------
Total Liabilities and Stockholders'
Equity $ 73,660 $ 72,200
========== =========
Note: The balance sheet at December 31, 1998 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
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NSC Corporation
Consolidated Statements of Income
(In thousands, except per-share data)
(Unaudited)
Three months
ended
March 31,
------------------
1999 1998
-------- --------
Revenue $ 25,331 $ 20,808
Cost of services 21,585 16,917
-------- --------
Gross profit 3,746 3,891
Selling, general and administrative expenses (4,158) (3,448)
Other operating expenses (205) (153)
Goodwill amortization (275) (275)
-------- --------
Operating (loss) income (892) 15
Other income 27 32
-------- --------
(Loss) income before income taxes (865) 47
Income tax benefit (expense) 336 (24)
======== ========
Net (loss) income $ (529) 23
======== ========
Basic and diluted loss per share $ (0.05) $ 0.00
======== ========
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 12
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NSC Corporation
Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Three months ended
March 31,
--------------------
1999 1998
-------- --------
Cash flow from operating activities:
Net (loss) income $ (529) $ 23
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 283 226
Goodwill amortization 275 275
Deferred income taxes (154) -
Gain on disposition of property and
equipment (4) (8)
Changes in current assets and liabilities
Accounts receivable (1,416) 2,358
Costs and estimated earnings on
contracts in process in excess
of billings (1,273) (4,115)
Other current assets 221 152
Accounts payable 1,518 (1,818)
Billings in excess of costs and
estimated earnings on contracts
in process 289 994
Other current liabilities 399 (1,428)
Reserve for self insurance claims and
other contingencies (399) (1,278)
-------- --------
Net cash used in operating activities (790) (4,619)
Cash flow from investing activities:
Purchases of property and equipment (272) (136)
Proceeds from the sale of property
and equipment 12 78
Investment in joint venture - (150)
-------- --------
Net cash used in investing activities (260) (208)
Cash flow from financing activities:
Payments on long-term obligations (26) -
-------- --------
Net cash used in financing activities (26) -
-------- --------
Net decrease in cash and cash
equivalents (1,076) (4,827)
Cash and cash equivalents at beginning
of periods 3,634 8,781
-------- --------
Cash and cash equivalents at end of
periods $ 2,558 $ 3,954
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 12
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Notes to Consolidated Financial Statements
For the Quarter Ended March 31, 1999
(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, 1999 and 1998, 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, 1998 as amended by Form 10K/A. The
results of operations for the three-month period ended March 31, 1999 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 ("WMI").
The Company has entered into an Agreement and Plan of Merger, dated as of
February 12, 1999, as amended, by and among NSC Holdings, Inc. ("Holdings"), NSC
Acquisition, Inc. ("Merger Subsidiary"), the Company and WMI (the "Merger
Agreement") pursuant to which Merger Subsidiary will be merged with and into the
Company, with the Company continuing as the surviving corporation (the
"Merger"). Neither Holdings nor Merger Subsidiary has any prior affiliation with
the Company or WMI. Pursuant to the Merger Agreement, each share of Common Stock
issued and outstanding at the effective time of the Merger (other than shares
held by the Company and stockholders, if any, who properly exercise their
appraisal rights under Delaware law) will be converted into the right to receive
$1.25 per share in cash. Consummation of the Merger is subject to certain
conditions, including approval and adoption of the Merger Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock.
The Merger Agreement also contemplates that, immediately prior to the effective
time of the Merger, WMI will cause its affiliates to exchange 996,420 shares of
the Company's common stock (the "Exchanged Shares") for an interest bearing
subordinated promissory note issued by the Company in the principal amount of
$1,245,525, representing $1.25 per share times the number of Exchanged Shares.
All remaining shares of Common Stock owned by WMI and its affiliates will be
converted in the Merger into the right to receive $1.25 per share in cash. In
addition, the Merger Agreement contemplates that, immediately prior to the
effective time of the Merger, WMI will cause its affiliate, Olshan Demolishing
Company ("ODC"), to sell certain machinery and equipment to Olshan Demolishing
Management, Inc. ("ODMI"), a subsidiary of the Company. In consideration for
such assets, all of the Company's existing non-interest bearing indebtedness
(currently approximately $4.5 million) owed to an affiliate of WMI will be
converted into an interest bearing subordinated promissory note issued by the
Company in the principal amount of $2.4 million.
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.
The Financial Accounting Standards Board has issued Financial Accounting
Standards Board Statement No. 130 "Reporting Comprehensive Income" ("FAS 130")
and Statement No. 131 "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131") in 1997 and Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") in 1998. FAS 130 and
FAS 131 were adopted for the Company's 1998 financial statements. FAS 130 and
FAS 131 had no impact on the Company's financial condition or results of
operations. FAS 133 must be adopted for the Company's year 2000 financial
statements. The Company anticipates that FAS 133 will have no impact on the
Company's reported financial condition or results of operations.
Page 6 of 12
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Note 2 - Industry Segment Data The Company operates in two principal industries
- - asbestos-abatement services and 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 Quarters Ended March 31,
1999 1998
(In thousands)
Revenue
Asbestos-Abatement $ 18,508 $ 18,373
Intersegment-Demolition and Dismantling 624 -
Demolition and Dismantling 6,199 2,435
Total revenue $ 25,331 $ 20,808
(Loss) income before income taxes
Asbestos-Abatement $ (921) $ (98)
Demolition and Dismantling 56 145
(Loss) income before income taxes $ (865) $ 47
Page 7 of 12
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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 March 31, 1999
Versus
Three Months Ended March 31, 1998
Revenue. Revenue for the three months ended March 31, 1999 increased 22% to
$25,331,000 from $20,808,000 for the same period in 1998. The increase in
revenue was due to a $759,000 increase in asbestos-abatement related revenue and
a $3,764,000 increase in demolition related revenue. This increase was the
result of the Company's timing in securing new work. 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, 1999 decreased
4% to $3,746,000 from $3,891,000 for the same period in 1998. Gross profit as a
percentage of revenue decreased for the three months ended March 31, 1999 to 15%
from 19% for the same period in 1998. The decrease in the gross profit margin
percentage was primarily due to a significant loss on two major projects. This
was partially offset by the reduction of the contingent liability reserve as a
result of improved loss experience.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended March 31, 1999
increased 21% to $4,158,000 from $3,448,000 for the same period in 1998. The
increase in SG&A costs is due to increased legal and consulting costs associated
with the Merger, increased office expenses associated with the leasing expense
of the corporate and an operating unit's office space that was owned in 1998 and
an increased provision for bad debt of $182,000. The SG&A expenses, as a
percentage of revenue, for the three months ended March 31, 1999 were 16%
compared to 17% for the same period in 1998 due to higher revenue in the current
quarter.
Other Operating Expenses. ODMI manages the business of ODC, an affiliate of WMI,
and is required to share with the WMI affiliate any operating profits or losses.
For the three month period ended March 31, 1999, the amount due to WMI was
$205,000 compared to $153,000 for the same period in 1998 due to the increase in
ODMI's operating profit.
Other Income. Other income for the three months ended March 31, 1999 was $27,000
compared to $32,000 for the same period in 1998 mainly due to decreased gains on
sales of assets.
Net (Loss) Income. Net loss was $529,000 for the three months ended March 31,
1999 compared to a net income of $23,000 for the same period in 1998 due to
reduced gross profit despite the reduction of insurance reserves and increased
overhead costs mainly associated with the Merger. As a percentage of gross
revenue, net (loss) income decreased to (2%) for the three months ended March
31, 1999 from .1% for the same period in 1998.
Page 8 of 12
<PAGE>
Liquidity and Capital Resources. Working capital at March 31, 1999 was
$20,340,000 compared to $20,395,000 at December 31, 1998. The current ratio was
2.3/1 at March 31, 1999 compared to 2.5/1 at December 31, 1998. Cash used in
operating activities was $790,000 for the three-month period ended March 31,
1999 compared to $4,619,000 for the same period in 1998. The decrease in cash
used in operations is mainly due to the timing of customer billings and vendor
payments. In the first quarter of 1998, the Company paid a significant general
liability claim. During the first three months of 1999, cash of $272,000 was
used for purchases of property and equipment.
The Company is in default of its revolving credit facility dated May 4, 1993, as
amended from time to time, because of the net operating loss recorded in the
first quarter ended March 31, 1999. BankBoston has indicated that it will take
no action to terminate the credit facility at the present time, however,
BankBoston has reserved the right to take any action it deems necessary to
protect its interests specified under the facility. The Company believes that
its cash flows from operations will be sufficient through the date of the
consummation of the Merger to finance its working capital needs. In the event
that the Merger is not consummated, the Company will endeavor to obtain
financing for its capital expenditure needs and may, among its alternatives,
seek a new debt facility. WMI has indicated a willingness to assist the Company
in this regard by guaranteeing some or all of the Company's outstanding debt
obligations.
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. 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, including, but not exclusively, workers' compensation and general
loss claims, at March 31, 1999 of $4,614,000 and at December 31, 1998 of
$5,013,000.
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 $820,000 of capital costs for new hardware and software incurred
project-to-date, $622,000 was incurred for consulting and training expenses with
respect to system upgrades, including Year 2000 compliance. The Company 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
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about September 4, 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.
The Company is subject to certain legal proceedings, including those relating to
regulatory compliance, in the ordinary course of business. Management believes
that such proceedings are either adequately covered by insurance or if
uninsured, will not, in the aggregate, have a material adverse effect upon the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
2 Agreement and Plan of Merger, dated as of February 12, 1999 by
and among NSC Holdings, Inc., NSC Acquisition, INC., Waste
Management, Inc, and NSC Corporation [incorporated by reference to
Exhibit 2.1 to the Registrant's Form 8-K filed February 16,1999].
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].
27 Financial Data Schedule
(b) Forms 8-K
The Company filed a Form 8-K dated February 16, 1999 disclosing (i) the
Agreement and Plan of Merger, dated as of February 12, 1999 by and among NSC
Holdings, Inc., NSC Acquisition, Inc., Waste Management, Inc. and NSC
Corporation, (ii) the Voting Agreement, dated as of February 12, 1999 by and
between NSC Holdings, Inc. and Waste Management, Inc., and (iii) the Press
Release, dated February 16, 1999, issued by the Registrant to announce the items
identified in (i) and (ii) hereof.
On May 11, 1999, the Registrant filed a Form 8-K disclosing an amendment to the
above described merger agreement.
Page 10 of 12
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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 thereunto duly authorized.
NSC CORPORATION
Date: May 12, 1999 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
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<CASH> 2558
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