SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________
FORM 10-K/A
(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, 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
(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 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 non-affiliates of the
registrant on March 19, 1999 was $4,660,397.
The number of shares of common stock outstanding on March 19, 1999 was
9,971,175.
<PAGE>
Although the Report of Independent Auditors of this Item 8 has been ammended
solely to include the signature of such independent auditors, the complete text
of Item 8 is included in this Form 10-K/a pursuant to Rule 12b-15 of the
Securities and Exchange Act of 1934. Accordingly, Item 8 is hereby amended and
restated as follows:
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, 1998, 1997 and 1996 are set forth on pages 4 through 7, the Notes to the
consolidated financial statements on page 8 through 16 and the Report of the
Independent Auditors on page 17.
<PAGE>
NSC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
December 31,
----------------------
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,634 $ 8,781
Accounts receivable, net......................... 22,146 20,590
Costs and estimated earnings on contracts
in process in excess of billings................ 4,270 1,969
Inventories...................................... 1,058 1,157
Prepaid expenses and other current assets........ 2,425 1,565
Deferred income taxes............................ 758 844
---------- ---------
34,291 34,906
Property and equipment, net........................ 3,296 2,755
Other noncurrent assets:
Assets held for sale ............................ 313 1,653
Investment in unconsolidated joint venture....... 225 -
Goodwill, net of accumulated amortization of
$9,084 and $7,984 in 1998 and 1997, respectively 34,075 35,175
---------- ---------
34,613 36,828
---------- ---------
Total assets $ 72,200 $ 74,489
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 2,471 $ 4,942
Billings in excess of costs and estimated
earnings on contracts in process................ 4,369 3,274
Accrued compensation and related costs........... 2,141 1,760
Federal, state and local taxes................... (776) 273
Other accrued liabilities........................ 569 1,428
Reserve for self insurance claims and other
contingencies................................... 5,013 6,403
Current portion of long-term obligations......... 109 -
---------- ---------
13,896 18,080
Noncurrent liabilities:
Long-term obligations............................ 288 -
Payable to affiliate............................. 4,520 4,520
Deferred income taxes............................ 1,894 733
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 shares issued and
outstanding in both 1998 and 1997............... 100 100
Additional paid-in capital....................... 56,079 56,079
Accumulated deficit.............................. (4,577) (5,023)
---------- ---------
51,602 51,156
---------- ---------
Total liabilities and stockholders' equity $ 72,200 $ 74,489
========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
Years Ended December 31,
-----------------------------------
1998 1997 1996
---------- --------- ----------
Revenue..................................... $ 99,711 $115,955 $129,043
Cost of services............................ 83,833 104,928 106,454
--------- --------- ---------
Gross profit............................... 15,878 11,027 22,589
Selling, general and administrative expenses (14,624) (15,733) (16,431)
Write down of assets held for sale.......... 158 (2,843) (830)
Other operating income (expense)............ 338 887 (700)
Goodwill amortization....................... (1,100) (1,100) (1,097)
--------- --------- ---------
Operating income (loss).................... 650 (7,762) 3,531
--------- --------- ---------
Equity in income of unconsolidated joint
venture.................................... 75 - -
Other:
Interest expense........................... (51) (23) (112)
Other income............................... 257 212 307
--------- --------- ---------
206 189 195
--------- --------- ---------
Income (loss) before income taxes.......... 931 (7,573) 3,726
Income tax expense (benefit)................ 485 (2,579) 1,865
--------- --------- ---------
Net income (loss).......................... $ 446 $ (4,994) $ 1,861
========= ========= =========
Basic and diluted earnings per share........ $ 0.04 $ (0.50) $ 0.19
========= ========= =========
Weighted-average number of common shares
outstanding................................ 9,971 9,971 9,971
======== ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per-share data)
Common Stock
---------------
Number Additional Total
of Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------- ------- --------- --------- ------------
Balance at January 1, 1996 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
------- ------- --------- --------- ------------
Net income................. - - - 446 446
------- ------- --------- --------- ------------
Balance at December 31, 1998 9,971 $ 100 $56,079 $(4,577) $ 51,602
======= ======= ========= ========= ============
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
------------------------------
1998 1997 1996
--------- -------- ---------
Cash flows from operating activities:
Net income (loss)............................. $ 446 $(4,994) $ 1,861
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation............................... 958 1,284 1,716
Goodwill amortization...................... 1,100 1,100 1,097
Deferred income taxes...................... 1,247 (2,866) (996)
(Gain) loss on disposition of property and
equipment................................. (9) 145 194
(Gain) loss on impairment of assets held for
sale...................................... (158) 2,843 830
Equity in income of unconsolidated joint
venture................................... (75) - -
Changes in assets and liabilities, net of
effects of acquired business:
Accounts receivable, net..................... (1,556) 6,269 266
Costs and estimated earnings on contracts
in process in excess of billings............ (2,301) 5,770 155
Other current assets......................... (761) (172) 235
Accounts payable............................. (2,471) 1,494 385
Billings in excess of costs and estimated
earnings on contracts in process............ 1,095 (1,963) 1,305
Other current liabilities.................... (2,917) (1,755) (296)
--------- -------- ---------
Net cash (used in) provided by operating
activities (5,402) 7,155 6,752
--------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment........... (1,156) (929) (2,024)
Proceeds from sale of property and equipment.. 1,561 76 268
Investment in joint venture................... (150) - (718)
--------- -------- ---------
Net cash used in investing activities 255 (853) (2,474)
--------- -------- ---------
Cash flows from financing activities:
Payments on long-term debt.................... - - (5,850)
Proceeds of loan from affiliate............... - - 2,949
Cash dividend paid............................ - (1,496) (1,496)
--------- -------- ---------
Net cash provided by (used in) financing
activities - (1,496) (4,397)
--------- -------- ---------
Net (decrease) increase in cash and cash
equivalents............................... (5,147) 4,806 (119)
Cash and cash equivalents at beginning of periods 8,781 3,975 4,094
--------- -------- ---------
Cash and cash equivalents at end of periods...... $ 3,634 $ 8,781 $ 3,975
========= ======== =========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NSC Corporation
Notes to Consolidated Financial Statements
December 31, 1998
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 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, NSC Industrial Services Corp., a wholly owned subsidiary of
the Company ("Industrial"), OHM, Waste Management Inc. ("WMI") and The Brand
Companies Inc., an affiliate of WMI ("Brand") 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.
On April 20, 1995 the Company entered into an Interim Management and Operating
Agreement with Rust International Inc, an affiliate of WMI ("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
the WMI affiliate 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, WMI is the owner of approximately fifty-four
percent of the Company's common stock.
The Company has entered into an Agreement and Plan of Merger dated as of
February 12, 1999, by and among NSC Holdings, Inc.("Holdings"), NSC Acquisition,
Inc. ("Merger Subsidiary"), the Company and WMI pursuant to which Merger
Subsidiary will be merged with and into the Company, with the Company continuing
as the surviving corporation. Neither Holdings nor Merger Subsidiary has any
prior affiliation with the Company or WMI. Pursuant to the Merger Agreement,
each share of the Company's 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 $1.12 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
$1,115,990, representing $1.12 per share times the number of Exchanged Shares.
All remaining shares of the Company's common stock owned by WMI and its
affiliates will be converted in the Merger into the right to receive $1.12 per
share in cash. In addition, the Merger Agreement contemplates that, immediately
prior to the effective time of the Merger, WMI will cause ODC to sell certain
machinery and equipment to ODMI. 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.
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
$21,952,000, $30,319,000, and $25,240,000 for 1998, 1997 and 1996,
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.
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 $223,000, $1,211,000, and
$2,007,000 for 1998, 1997, and 1996, respectively. No interest was paid,
under the credit facility, in 1998 and 1997; $112,000 was paid in 1996.
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 1998, 1997 and 1996 have been
computed by dividing net income (loss) 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.
New Accounting Pronouncements. 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.
Reclassifications. Certain reclassifications have been made to prior year
financial statements to conform to the current year presentation.
<PAGE>
Note 2 - Accounts Receivable
Accounts receivable are summarized as follows:
December 31,
-----------------
1998 1997
------- -------
(In thousands)
Accounts billed and due currently................ $19,586 $18,066
Retained......................................... 3,054 3,235
22,640 21,301
Allowance for uncollectible accounts............. (494) (711)
$22,146 $20,590
The retained receivables at December 31, 1998 are expected to be collected
within one year.
Note 3 - Costs and Estimated Earnings on Contracts in Process
The consolidated balance sheets include the following amounts:
December 31,
------------------
1998 1997
-------- --------
(In thousands)
Costs incurred on contracts in process............. $ 83,833 $104,928
Estimated earnings................................. 16,039 13,603
99,872 118,531
Less billing to date............................... 99,971 119,836
$ (99) $ (1,305)
Costs and estimated earnings on contracts in
process in excess of billings..................... $ 4,270 $ 1,969
Billings on contracts in process in excess of
costs and estimated earnings...................... (4,369) (3,274)
$ (99) $ (1,305)
Costs and estimated earnings on contracts in process in excess of billings
included $1,264,000 at December 31, 1998 attributable to contracts which have
not been yet finalized or to change orders in the process of being negotiated
and are net of reserves for contract revenue adjustments of $32,000 and
$363,000 at December 31, 1998 and 1997, 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>
Note 4 - Properties and Equipment
Properties and equipment were as follows:
December 31,
-----------------
1998 1997
------- -------
(In thousands)
Land ..................................... $ - $ -
Buildings and improvements ............... 300 355
Machinery and equipment .................. 8,302 6,527
Projects in progress ..................... 21 641
8,623 7,523
Accumulated depreciation.................. (5,327) (4,768)
Properties and equipment, net ............ $3,296 $2,755
In 1997, the Company wrote-down to market the carrying value of its Methuen,
MA headquarters property, which no longer fits in its strategic plans. In
1998, the Company sold this property realizing $158,000 more than its adjusted
carrying value. In 1996, properties in Hammond, IN and Windsor, CT were
written down to market. The write-down of properties held for sale amounted to
$2,712,000 and $830,000 in 1997 and 1996, respectively. The Windsor, CT
property was sold in 1997. Also, in 1997, the Company wrote down equipment
and recognized a loss of $131,000. Expenditures of $444,000 and $306,000 were
incurred towards the implementation of new software technology in 1998 and
1997, respectively.
Machinery and equipment at December 31, 1998 includes assets with an aggregate
carrying value of $506,773 (net of accumulated amortization of $59,754)
recorded under capital leases. Amortization of assets recorded under capital
leases is included in depreciation expense. Future minimum lease payments for
assets under capital leases at December 31, 1998 are as follows:
(In thousands)
1999.......................... $139
2000.......................... 139
2001.......................... 125
2002.......................... 50
2003.......................... 6
Total $459
Amounts representing interest 62
Present value of minimum lease payments $397
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, 1998
and 1997 are as follows:
December 31,
-----------------
1998 1997
------- -------
(In thousands)
Deferred tax assets:
Accrued liabilities........................... $ 2,180 $ 2,847
Allowance for uncollectible accounts.......... 198 285
Assets held for sale.......................... 320 1,281
Book over tax depreciation.................... 192 185
Total deferred tax assets.................. 2,890 4,598
<PAGE>
Deferred tax liabilities:
Goodwill...................................... 3,667 3,861
Contract revenue recognition.................. - -
Prepaid expenses and other assets............. 359 626
Total deferred tax liabilities............. 4,026 4,487
Net deferred tax (liabilities) assets...... $(1,136) $ 111
Significant components of the provision for income tax expenses (benefit) are as
follows:
Years Ended December 31,
------------------------
1998 1997 1996
------- -------- -------
(In thousands)
Current:
Federal................................. $ (927) $ (45) $ 2,269
State................................... 165 332 367
Total current taxes................... (762) 287 2,636
Deferred:
Federal................................. 966 (2,221) (825)
State................................... 281 (645) 54
Total deferred tax provision (benefit) 1,247 (2,866) (771)
Total income tax provision (benefit)....... $ 485 $(2,579) $ 1,865
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
------------------------
1998 1997 1996
------- -------- -------
(In thousands)
Federal statutory rate................ 34.0% (34.0)% 34.0%
Add (deduct):
State income taxes, net of federal tax
benefit............................. 11.7 (2.7) 7.4
Goodwill amortization................ 19.0 2.3 4.8
IRS audit contingency................ (14.9) - -
Other................................ 2.3 0.3 3.9
52.1% (34.1)% 50.1%
Note 6 - Credit Facility
On March 23, 1999, the Company amended its May 4, 1993 revolving credit
facility, reducing its available line from $25,000,000 to $6,000,000, and
extending its expiration from April 30 to June 30, 1999. The amended
revolving credit facility contains debt service coverage, leverage and
interest covenants 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, 1998 was 5.13%) and are secured by substantially all of the
Company's assets. There were no borrowings outstanding under this facility as
of December 31, 1998 and December 31, 1997. As of March 23, 1999, the Company
had outstanding $4,725,000 in letters of credit.
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, 1998 no
preferred stock has been issued.
Pursuant to an agreement among the Company, an affiliate of WMI and OHM dated
May 4, 1993, the WMI affiliate has the right to demand registration of all or
a portion of its shares of the Common Stock of the Company. This agreement is
subject to certain conditions and limitations, including limitations as to the
frequency of exercise and the WMI affiliate'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 201,750, 48,750, and 151,250 for the years ended December
31, 1998, 1997, and 1996 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, 1996............ 47,250 $4.00 - $8.50
Granted................................ 690,000 2.00 - 2.06
Canceled............................... (184,500) 4.00 - 8.50
Outstanding at December 31, 1996.......... 552,750 4.00 - 6.00
Granted................................ 102,500 2.00 - 2.63
Outstanding at December 31, 1997.......... 655,250 2.00 - 6.00
Canceled............................... (153,000) 2.00 - 6.00
Outstanding at December 31, 1998.......... 502,250 2.00 - 6.00
Number of Number of
Shares Shares
Outstanding at Exercisable at Remaining
Option December 31, December 31, Contractual Option
Grant Date 1998 1998 Life Price Range
--------------------------------------------------------------------------
March 1991 2,000 2,000 2.0 years $6.00
May 1991 10,000 10,000 2.2 years $6.00
November 1991 250 250 2.5 years $4.00
May 1993 10,000 10,000 4.2 years $4.50
February 1996 57,500 32,500 6.1 years $2.00
December 1996 320,000 35,000 6.8 years $2.06
February 1997 17,500 4,375 7.1 years $2.63
August 1997 30,000 7,500 7.6 years $2.00
November 1997 55,000 13,750 7.8 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:
market price of the Company's common stock of $1.00, 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 "Agreement") with an affiliate of WMI under which the
Company, through ODMI, assumed the management of ODC, an affiliate of WMI
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, an
affiliate of WMI 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, the WMI
affiliate 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 the WMI affiliate any operating profits or
operating losses in exchange for the right to operate ODC. For the year ended
December 31, 1998, the amount due from the WMI affiliate was $338,000,
compared to $887,000 for the same period in 1997. In 1996, $700,000 was due
to the WMI affiliate.
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 and $40,000
for 1997, and 1996, 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 WMI and certain of its affiliates on a subcontract
basis. Revenues recognized for such services were $22,000, $7,000, and $84,000
for the years ended December 31, 1998, 1997, and 1996, respectively. Also,
WMI 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 was $770,000 and $1,503,000 for the years ended December 31,
1997 and 1996, respectively. A WMI affiliate rented demolition equipment to
the Company for which it was charged $302,000, $418,000 and $527,000 for the
years ended December 31, 1998, 1997, and 1996, respectively.
Note 10 - Employee Benefit Plans
Effective October 1, 1992, the Company adopted the NSC Corporation Retirement
Savings Plan (the "Plan"). The Plan allows employees with one year and 1,000
hours of service, from their date of hire, 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 $81,000, $97,000 and $105,000 for 1998, 1997,
and 1996, 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 $1,113,000, $1,983,000, and $1,828,000 for
1998, 1997, and 1996, 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 $100,000, $100,000 and $250,000 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 $5,013,000 and $6,403,000 at December 31,
1998 and 1997, 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 2003.
Rental expense under operating leases for properties and equipment amounted to
$1,039,000, $952,000, and $956,000 for 1998, 1997 and 1996, respectively. The
lease agreements generally contain renewal provisions and escalation clauses.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1998 are: 1999, $855,000; 2000, $643,000; 2001, $294,000; 2002,
$165,000; and 2003 $39,000.
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.
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998, and 1997, respectively are as follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Value Value
---------------------------------------
(In thousands)
Cash and cash equivalents.......... $ 3,634 $ 3,634 $ 8,781 $ 8,781
Accounts receivable................ 22,146 22,146 20,590 20,590
Accounts payable................... (2,471) (2,471) (4,942) (4,942)
Long-term debt..................... (4,520) (2,815) (4,520) (2,631)
<PAGE>
Note 13- 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 Years Ended December 31,
1998 1997 1996
------- ------- --------
(In thousands)
Revenue
Asbestos-Abatement....................... $87,514 $ 98,801 $105,381
Intersegment - Demolition and Dismantling 1,210 1,943 2,241
Demolition and Dismantling............... 10,522 15,183 21,251
Intersegment - Asbestos-Abatement........ 465 28 170
Total revenue....................... $99,711 $115,955 $129,043
Operating profit
Asbestos-Abatement....................... $ 5,704 $ 370 $ 6,625
Demolition and Dismantling............... (338) (1,638) 1,101
Total operating profit (loss)....... 5,366 (1,268) 7,726
Corporate expenses.......................... (4,641) (6,494) (4,195)
Interest expense............................ (51) (23) (112)
Other....................................... 257 212 307
Income (loss) before income taxes... $ 931 $ (7,573) $ 3,726
Depreciation
Asbestos-Abatement....................... $ 523 $ 1,016 $ 1,407
Demolition and Dismantling............... 221 186 63
Corporate................................ 214 82 246
Total depreciation.................. $ 958 $ 1,284 $ 1,716
Amortization
Asbestos-Abatement....................... $ 1,100 $ 1,100 $ 1,097
Demolition and Dismantling............... - - -
Corporate................................ - - -
Total amortization.................. $ 1,100 $ 1,100 $ 1,097
December 31,
------------------------------
1998 1997 1996
------- -------- -------
(In thousands)
Identifiable assets
Asbestos-Abatement....................... $56,733 $ 54,147 $ 66,919
Demolition and Dismantling............... 4,895 5,676 8,681
61,628 59,823 75,600
Corporate assets......................... 10,572 14,666 9,960
Total assets........................ $72,200 $ 74,489 $ 85,560
Capital expenditures
Asbestos-Abatement....................... $ 1,280 $ 456 $ 394
Demolition and Dismantling............... 22 358 699
Corporate................................ 251 115 931
Total capital expenditures.......... $ 1,553 $ 929 $ 2,024
<PAGE>
Note 14 - Quarterly Financial Data (Unaudited)
The following is an analysis of certain items in the consolidated statements
of operations by quarter for 1998 and 1997:
1998 First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per-share data)
Revenue............................. $ 20,808 $ 25,252 $ 28,017 $ 25,634
Gross profit........................ 3,891 3,970 4,262 3,755
Net income (loss)................... 23 379 272 (228)
Basic and diluted earnings per share $ - $ 0.04 $ 0.03 $ (0.02)
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)
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. The write-down of the properties amounted to
$2,843,000 in the fourth quarter of 1997. A $158,000 adjustment of the
Methuen property impairment was recorded in the second quarter of 1998. See
Note 4 "Properties and Equipment". The loss in the fourth quarter of 1998 is
attributable to losses on certain asbestos-abatement projects.
<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, 1998 and 1997 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, 1998.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NSC Corporation
and subsidiaries at December 31, 1998 and 1997, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, 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 12, 1999,
except for Note 6,
as to which the date is
March 23, 1999
<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
April 28, 1999
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
* DARRYL G. SCHIMECK April 28, 1999
Darryl G. Schimeck - Chairman, President and Chief
Executive Officer (Principal Executive Officer)
/s/ EFSTATHIOS A. KOUNINIS April 28, 1999
Efstathios A. Kouninis, Vice President of Finance,
Corporate Controller, Treasurer and Secretary
(Principal Financial and Accounting Officer)
* EUGENE L. BARNETT April 28, 1999
Eugene L. Barnett - Director
* HERBERT A. GETZ April 28, 1999
Herbert A. Getz - Director
* WILLIAM P. HULLIGAN April 28, 1999
William P. Hulligan - Director
* WILLIAM M. R. MAPEL April 28, 1999
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 April 28, 1999
Efstathios A. Kouninis - Attorney-in-Fact
