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U.S. Securities & Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period...............to............
Commission file number......000-24470
NESCO, Inc.
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(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1296420
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12331 East 60th Street, Tulsa, Oklahoma 74l46
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(Address of principal executive offices)
(918)-250-2227
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(Issurer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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________.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 2000:
Number of shares
Title of Class Outstanding
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Common Stock, $.01 Par Value 9,225,855
Transitional Small Business Issuer Format (Check one): Yes____ No__X__
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NESCO, INC.
TABLE OF CONTENTS
PART I
PAGE
Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheet
March 31, 2000 3
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
Management's Discussion and Analysis of the
Financial Condition and Results of Operation 8
PART II
Other Information:
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 11
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NESCO, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(In Thousands)
(Unaudited)
ASSETS
Current assets:
Cash $ 212
Accounts receivable:
Trade, net of allowance for doubtful accounts of $275 7,992
Costs and estimated earnings in excess of billings on
uncompleted contracts 6,228
Materials and supplies 2,448
Deferred taxes 170
Prepaid expenses 203
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Total current assets 17,253
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Property and equipment, at cost 8,310
Less accumulated depreciation (2,821)
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Property and equipment, net 5,489
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Lease contract receivables 2,157
Goodwill 2,280
Other assets 459
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Total assets $27,638
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 1,827
Accounts payable 2,363
Income tax payable 1,573
Accrued liabilities 688
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Total current liabilities 6,451
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Long-term notes payable 12,426
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Deferred income taxes 424
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$19,301
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Shareholders' equity:
Preferred stock: 1,000,000 shares authorized;
none issued
Common stock, par value $.01; authorized 20,000,000 shares;
issued 9,388,643 shares, including treasury shares 94
Additional paid-in capital 4,139
Retained Earnings 4,430
Common stock in Treasury, at cost, 162,788 shares (326)
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Total shareholders' equity 8,337
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Total liabilities and shareholders' equity $27,638
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The accompanying notes are an integral part of the financial statements.
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NESCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In thousands except per share amounts)
(Unaudited)
2000 1999
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Revenues $9,532 $7,532
Costs and Expenses 5,560 4,381
Selling, general and administrative expenses 1,751 1,587
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Income from operations 2,221 1,564
Other income 39 57
Interest expense (319) (104)
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Income before provision for income taxes 1,941 1,517
Provision for income taxes 735 577
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Net Income $1,206 $ 940
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Basic Net Income per share $ 0.13 $ 0.10
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Diluted Net Income per share $ 0.13 $ 0.10
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The accompanying notes are an integral part of the financial statements.
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NESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands)
(Unaudited)
2000 1999
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Operating activities
Net Income $ 1,206 $ 940
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 202 128
Change in:
Accounts receivable (629) 1,106
Costs and estimated earnings in excess of
billings on uncompleted contracts (3,836) (476)
Materials and supplies (186) (160)
Prepaid and other (132) (919)
Accounts payable 722 19
Accrued liabilities (105) 155
Income tax payable 797 (368)
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Net cash provided by (used in) operating activities (1,961) 425
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Investing activities
Business acquisitions - (250)
Purchases of property, plant and equipment (579) (273)
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Net cash used in investing activities (579) (523)
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Financing activities:
Proceeds from notes payable and long-term obligations 2,415 2,779
Principal payments on notes and long term obligations (292) (1,764)
Purchase of treasury stock - (408)
Summit ownership distribution - (635)
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Net cash provided by (used in) financing activities 2,123 (28)
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Decrease in cash (417) (126)
Cash, beginning of period 629 331
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Cash, end of period $ 212 $ 205
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The accompanying notes are an integral part of the financial statements.
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NESCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
In the opinion of management, the accompanying condensed financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Company as of March 31, 2000 and
the results of operations and cash flows for the three month periods ended March
31, 2000 and 1999. Results of operations and cash flows are not necessarily
indicative of the results which will be achieved for the full year.
2. EARNINGS PER SHARE
Basic and diluted EPS for the three months ended March 31, 2000 and 1999,
were computed as follows:
Three Months Ended March 31
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2000 1999
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Basic EPS Computation:
Net income $ 1,206 $ 940
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Weighted average shares outstanding 9,225,855 9,327,296
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Basic EPS $ .13 $ .10
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Diluted EPS Computation:
Net income $ 1,206 $ 940
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Weighted average shares outstanding 9,225,855 9,327,296
Incremental shares for assumed exercise
of securities:
Warrants 153,232 6,553
Options 130,906 33,582
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9,491,462 9,367,431
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Diluted EPS $ .13 $ .10
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In January 1999, the 282,000 shares of employee stock options were not included
in the computation of diluted EPS as their effect is anti-dilutive.
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3. SEGMENT INFORMATION
The Company's business segments have been grouped as follows:
Thousands of Dollars
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Inter-
Segment Pre-tax
Segment Sales Sales Income Assets
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2000
Fueling Installations $5,324 $1,308 $13,416
Environmental 3,615 1,269 10,383
Miscellaneous 593 160 45 2,286
Corporate Overhead (681) 1,552
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$9,532 $ 160 $1,941 $27,638
====================================
1999
Fueling Installations $4,486 $ $ 810 $ 7,594
Environmental 2,789 1,004 4,871
Miscellaneous 257 268 172 1,184
Corporate Overhead (469) 1,229
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$7,532 $ 268 $1,517 $14,878
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto and other financial information relating
to the Company.
Comparison of Results of Operations for the Three Months Ended March 31, 2000
and March 31, 1999.
Revenue for the three months ended March 31, 2000 increased 27% compared to
the same period in 1999 ($9,532,000 compared to $7,532,000). Revenues increased
due to growth from existing offices and new acquisitions. The addition of an
office in Arizona and the addition of employees to the South Carolina office
resulted from acquisitions in the second quarter of 1999. The fueling
installations segment increased 19% or $838,000 for the first quarter of 2000
compared to the same quarter in 1999 ($5,324,000 compared to $4,486,000). The
company began installation of turn-key fueling facilities under the NESCO
Acceptance Corporation program for providing design, permitting, installation,
and financing of such facilities. The first two units were completed in
December, 1999, and sold under long-term capital lease/purchase contracts.
Fueling facilities for other clients continue to be installed. Environmental
services revenues increased $826,000 or 30% for the first quarter of 2000
compared to the same quarter in 1999 ($3,615,000 compared to $2,789,000). The
acquisition of a company in South Carolina in May, 1999, added significant
environmental contracts and personnel. This addition and the growth in
environmental revenues from the Company's other offices accounted for the growth
in environmental revenues.
Cost and expenses increased 27% ($5,560,000 for the first three months of
2000 compared to $4,381,000 for the first three months of 1999). The increase in
cost of sales was the same as the increase in revenues. Direct labor also
increased 27% to $1,283,000 in the first quarter of 2000 compared to $1,010,000
for the first quarter of 1999. Costs of supplies and materials increased
$168,000 for the first quarter of 2000 compared to the same quarter in 1999
($1,819,000 compared to $1,651,000). The increase in the cost direct labor and
supplies and materials was due to the increased work performed by the Company.
Subcontractor expense was $1,280,000 for the first quarter of 2000 compared to
$928,000 in the first quarter of 1999. The 38% increase in the use of
subcontractors resulted from the greater amount of work performed and the
increased use of subcontractors for turn-key installation of fueling facilities.
Equipment rental expense increased $68,000 ($148,000 in the first quarter of
2000 compared to $81,000 in the first quarter of 1999) due to the increased
volume of work performed by the Company. Vehicle expense except depreciation
increased $63,000 ($139,000 compared to $77,000) in the first quarter of 2000
compared to the same quarter in 1999 due to the greater number of vehicles owned
by the Company. Depreciation expense increased $76,000 in the first quarter of
2000 compared to the same quarter in 1999 ($173,000 compared to $97,000). The
increase in depreciation resulted from the Company's program of replacement of
older units and the addition of a number of units through its acquisitions of
other companies.
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Selling, general and administrative expenses increased $164,000 for first
quarter of 2000 as compared to the first quarter of 1999 ($1,751,000 compared to
$1,587,000). The 10% increase was a result of the Company's growth through
acquisitions and increased business activities in its ongoing operations. This
increase was significantly less that the 27% increase in revenue due to
administrative cost savings as the acquired companies were integrated into the
Company's operation and to the realization of economies of scale as the
Company's operations grew larger. During the first quarter of 2000 there were
three division offices that did not exist during the first quarter of 1999.
Officers, management and administrative salaries increased 24% for the first
quarter of 2000 compared with the same quarter in 1999 ($856,000 compared to
$690,000). The increase is attributable to the addition of new personnel at the
three offices and normal salary increases. Office rent expense also increased
due to the addition of the three offices. The office rent expense increased
$48,000 in the first quarter of 2000 compared to the same quarter in 1999
($84,000 compared to $36,000). Professional fees including legal and accounting
fees declined $55,000 in the first quarter of 2000 compared to the same quarter
in 1999 ($31,000 compared to $86,000) due primarily to two factors. First, legal
fees declined as the number of lawsuits for collection of accounts receivable
were reduced. Second, significant legal and accounting fees were incurred due to
the acquisition of two companies in the first quarter of 1999. Additionally, the
company was pursuing collection efforts on several accounts receivable. Bad debt
expense declined $63,000 in the first quarter of 2000 compared to the same
quarter in 1999. The reserve for bad debt was $275,000 at the end of the first
quarter. Additions to the reserve declined during the quarter as management
believed that the reserve was sufficient.
Employee insurance increased $55,000 for the first quarter of 2000 compared to
the same quarter in 1999 ($91,000 compared to $36,000). The increase resulted
from premium increases, the addition of personnel from the companies acquired by
the Company, and the addition of personnel at other division offices.
Interest expense increased $215,000 in the first quarter of 2000 compared
to the same quarter in 1999 ($319,000 compared to $104,000) due to increases in
the line of credit for operations and term loans for the acquisition of
companies and equipment. A portion of the increase resulted from an increase in
interest rates paid by the Company. The line of credit adjusts as the national
prime rate adjusts. The prime rate at the beginning of the first quarter of 1999
was 8.5%. By the end of the first quarter of 2000, the rate had increased to
9.0%.
Changes in Capital Resources and Liquidity
On February 15, 2000, the Company obtained an increase in its line of
credit loan from the Bank of Oklahoma. The line was increased from $7 million
to $9 million. All other terms and conditions remained unchanged.
The Company will seek an increase in its revolving line of credit and term
loans to finance its continued growth through acquisitions as well increased
business activities. The Company may seek additional equity capital to supply
any cash needed in excess of the funds supplied by increases in the Company's
debt. Presently, the Company is negotiating the acquisition of two
9
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companies and will require additional funds to complete the transactions. It is
anticipated that the funds required for these acquisitions will be financed
through advances under the Company's credit facility.
The Company continued to make periodic debt repayments during this period.
Forward Looking Statements
Certain statements included in this report which are not historical facts
are forward looking statements, including the information provided with respect
to the projected or future business opportunities, expansions and
diversification; contract completions, expected financing sources and related
matters. These forward looking statements are based on current expectations,
estimates, assumptions and beliefs of management; and words such as "expects,"
"anticipates," "intends," "believes," "estimates" and similar expressions are
intended to identify such forward looking statements. These forward looking
statements involve risks and uncertainties, including, but not limited to,
changes in governmental regulations, the Company's ability to effectively and
efficiently absorb its newly acquired businesses and assets and any additional
businesses and/or assets it may acquire in the near future, general economic
conditions and conditions affecting the industries which utilize the Company's
services and products, the availability of experienced personnel, raw materials
and equipment and the Company's ability to comply with its obligations under its
existing contracts and to obtain new contracts. Accordingly, actual results may
differ materially from those expressed in the forward looking statements.
10
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PART II
OTHER INFORMTION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.13 Copy of Fourth Amendment to Revolving Credit and Term Loan
Agreement dated February 15, 2000 and Promissory Note between
the Company and Bank of Oklahoma, N.A. (incorporated by
reference to Exhibit 10.13 on Form 10-KSB dated December 31,
1999)
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NESCO, Inc.
Date: May 9, 2000 BY /s/ LARRY G. JOHNSON
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LARRY G. JOHNSON, Vice President &
Secretary-Treasurer & Chief Financial
Officer (Authorized Officer and
Principal Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 212
<SECURITIES> 0
<RECEIVABLES> 8,267
<ALLOWANCES> 275
<INVENTORY> 2,448
<CURRENT-ASSETS> 17,253
<PP&E> 8,310
<DEPRECIATION> 2,821
<TOTAL-ASSETS> 27,638
<CURRENT-LIABILITIES> 6,951
<BONDS> 0
0
0
<COMMON> 94
<OTHER-SE> 8,243
<TOTAL-LIABILITY-AND-EQUITY> 27,638
<SALES> 445
<TOTAL-REVENUES> 9,532
<CGS> 235
<TOTAL-COSTS> 5,560
<OTHER-EXPENSES> (39)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 319
<INCOME-PRETAX> 1,941
<INCOME-TAX> 735
<INCOME-CONTINUING> 1,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,206
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
