SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
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[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 5.
Page 1 of 5
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NSC CORPORATION
INDEX TO AMENDED QUARTERLY REPORT
ON FORM 10-Q/A
FOR THE QUARTER ENDED March 31, 1999
PART I
FINANCIAL INFORMATION
Page
Number
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II
OTHER INFORMATION
Signatures 5
Page 2 of 5
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Although the Liquidity and Capital Resources of this Item 2 has been ammended,
the complete text of Item 2 is included in this Form 10-Q/A pursuant to Rule
12b-15 of the Securities and Exchange Act of 1934. Accordingly, Item 2 is hereby
amended and restated as follows:
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.
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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 profitable operations covenant under 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. The amended credit facility contains certain financial covenants,
including the following: i) a minimum debt service coverage ratio covenant of
1.5 (the ratio of EBITDA less capital expenditures and income taxes to
consolidated total interest expense plus scheduled payments on capital leases);
ii) a maximum leverage ratio covenant of 2.75 (the ratio of consolidated total
liabilities plus letters of credit outstanding to consolidated tangible net
worth); iii) a minimum interest coverage ratio covenant of 4.0(the ratio of
EBITA to consolidated interest expense); iv) a pricing ratio covenant used to
determine the fee for the unused portion of the credit facility and the
outstanding letters of credit (based on the the ratio of consolidated total
liabilities plus letters of credit outstanding to consolidated tangible net
worth); v) a profitable operations covenant, which provides that the Company
shall not have a net loss for any fiscal quarter; vi) a minimum consolidated
working capital covenant of $10,000,000 (consolidated current assets less
consolidated current liabilities) and vii) a minimum net worth covenant of
$28,800,000 (consolidated total assets less consolidated total liabilities).
BankBoston has not waived the default but 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.
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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 18, 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.
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