-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MT7Z/3LBoHLqd0UEiPoQfnLlYpScGahoPKVeSwgnLnY0/+gFPnR5EX9c/Irqh6wK Gc4j1Q5aR+IGMFJF0gTW3g== 0000950128-98-000772.txt : 19980511 0000950128-98-000772.hdr.sgml : 19980511 ACCESSION NUMBER: 0000950128-98-000772 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19980508 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHM CORP CENTRAL INDEX KEY: 0000788964 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 341503050 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-09654 FILM NUMBER: 98614258 BUSINESS ADDRESS: STREET 1: 16406 US RTE 224 EAST CITY: FINDLAY STATE: OH ZIP: 45840 BUSINESS PHONE: 4194233529 MAIL ADDRESS: STREET 1: P.O. BOX 551 CITY: FINDLAY STATE: OH ZIP: 45839-0551 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRONMENTAL TREATMENT & TECHNOLOGIES CORP DATE OF NAME CHANGE: 19890209 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRONMENTAL TREATMENT & TECHNOLOGY CORP DATE OF NAME CHANGE: 19880816 10-Q/A 1 OHM CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 (MARK ONE) X AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF --- THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF --- THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-9654 OHM CORPORATION (Exact name of registrant as specified in its charter) OHIO 34-1503050 (State of Incorporation) (I.R.S. Employer Identification Number) 16406 U.S. ROUTE 224 EAST, FINDLAY, OH. 45840 (Address of principal executive offices) (Zip Code) (419) 423-3529 (Registrant's telephone number, including area code) Indicate by check 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 requirement for the past 90 days. Yes X No --- --- The number of shares of Common Stock, par value $0.10 per share, outstanding on October 31, 1997 was 27,367,417. 2 This report is an amendment to the OHM Corporation quarterly report on Form 10-Q for the quarter ended September 30, 1997. This report is being amended to modify (1) the Condensed Consolidated Financial Statements for the reclassification of deferred contract costs from long-term to current and the restatement of the investment in NSC to the equity method, (2) the disclosures in the Notes to the Condensed Consolidated Financial Statements and (3) Management's Discussion and Analysis of Financial Condition and Results of Operations for the Results of Operations. The following items to the Company's report on Form 10-Q are being filed herewith: Part I Item 1--Financial Statements Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations Part II Item 1--Legal Proceedings Item 6--Exhibits and Reports on Form 8-K 3 OHM CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
PART I FINANCIAL INFORMATION Page Number ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1997 (Unaudited) and December 31, 1996.......................................................................... 1 Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 1997 and 1996.............................................................. 2 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1997 and 1996.............................................................. 3 Notes to Condensed Consolidated Financial Statements (Unaudited)................................. 4 Independent Accountants' Review Report........................................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 10 PART II OTHER INFORMATION Item 1. Legal Proceedings................................................................................ 16 Item 6. Exhibits and Reports on Form 8-K................................................................. 16 Signatures ............................................................................................... 17
4 PART I -- FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS OHM CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Per Share Data)
September 30, December 31, 1997 1996 ------------- ------------ ASSETS (Unaudited) Current Assets: Cash and cash equivalents ................................................ $ 8,544 $ 14,002 Accounts receivable ...................................................... 76,281 85,461 Costs and estimated earnings on contracts in process in excess of billings 49,661 56,303 Materials and supply inventory, at cost .................................. 14,037 13,899 Prepaid expenses and other assets ........................................ 16,178 22,663 Deferred income taxes .................................................... 21,840 10,513 Refundable income taxes .................................................. 159 493 -------- -------- 186,700 203,334 -------- -------- Property and Equipment, net ................................................. 59,816 70,521 -------- -------- Other Noncurrent Assets: Investments in affiliated company ........................................ 7,569 23,185 Intangible assets relating to acquired businesses, net ................... 45,444 33,534 Deferred debt issuance and financing costs ............................... 1,219 1,412 Deferred income taxes .................................................... 6,086 3,563 Other assets ............................................................. 1,333 988 -------- -------- 61,651 62,682 -------- -------- Total Assets ........................................................... $308,167 $336,537 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable ......................................................... $ 66,750 $ 69,230 Billings on contracts in process in excess of costs and estimated earnings 1,289 897 Accrued compensation and related taxes ................................... 5,550 6,528 Federal, state and local taxes ........................................... 142 150 Other accrued liabilities ................................................ 22,427 21,477 Current portion of noncurrent liabilities ................................ 7,400 5,321 -------- -------- 103,558 103,603 -------- -------- Noncurrent Liabilities: Long-term debt ........................................................... 49,248 52,972 Deferred gain from sale leaseback of equipment ........................... 3,450 4,484 Capital leases ........................................................... 74 32 Pension agreement ........................................................ 860 874 -------- -------- 53,632 58,362 -------- -------- Commitments and Contingencies ............................................... -- -- Shareholders' Equity: Preferred stock, $10.00 par value, 2,000,000 shares authorized; None issued and outstanding ............................................ -- -- Common stock, $.10 par value, 50,000,000 shares authorized; Shares issued: 1997 - 27,302,115; 1996 - 26,992,140 ................... 2,730 2,699 Additional paid-in capital ............................................... 141,470 138,989 Retained earnings ........................................................ 6,777 32,884 -------- -------- 150,977 174,572 -------- -------- Total Liabilities and Shareholders' Equity.............................. $308,167 $336,537 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 5 OHM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share Data)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ---------------------------- 1997 1996 1997 1996 --------- --------- --------- -------- (Unaudited) (Unaudited) Revenue ....................................... $ 143,656 $ 158,272 $ 381,467 $ 406,412 Cost of services ........................... 122,747 137,634 328,833 353,184 --------- --------- --------- --------- Gross Profit .................................. 20,909 20,638 52,634 53,228 Claims settlement costs and other .......... -- -- 37,877 -- Selling, general and administrative expenses 11,972 13,124 33,872 36,243 --------- --------- --------- --------- Operating Income (Loss) ....................... 8,937 7,514 (19,115) 16,985 --------- --------- --------- --------- Other (Income) Expenses: Investment income .......................... (102) (97) (154) (112) Interest expense ........................... 1,226 1,780 3,779 5,658 Equity in net loss (earnings) of affiliate . 852 (183) 667 (632) Write-down of investment in NSC Corporation -- -- 14,949 -- Miscellaneous expense, net ................. 9 (54) 232 489 --------- --------- --------- --------- 1,985 1,446 19,473 5,403 --------- --------- --------- --------- Income (Loss) Before Income Taxes ............. 6,952 6,068 (38,588) 11,582 Income taxes (benefit) ..................... 2,890 2,072 (12,479) 3,877 --------- --------- --------- --------- Net Income (Loss) ............................. $ 4,062 $ 3,996 $ (26,109) $ 7,705 ========= ========= ========= ========= Net Income (Loss) Per Share ................... $ 0.15 $ 0.15 $ (0.96) $ 0.29 ========= ========= ========= ========= Weighted average number of common and equivalent shares outstanding .............. 27,301 26,862 27,151 26,787 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 6 OHM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Nine Months Ended September 30, ---------------------------- 1997 1996 ------- ------- (Unaudited) Cash flows from operating activities: Net (loss) income ............................................................. $ (26,109) $ 7,705 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............................................ 10,717 13,025 Amortization of other noncurrent assets .................................. 2,345 2,855 Deferred income taxes .................................................... (13,224) 3,177 Loss (gain) on sale of property and equipment ............................ (285) 381 Loss (Equity) in net earnings of affiliate ............................... 667 (632) Writedown of investment in affiliated company ............................ 14,949 -- Deferred translation adjustments and other ............................... 74 37 Changes in current assets and liabilities: Accounts receivable ...................................................... 13,330 9,088 Costs and estimated earnings on contracts in process in excess of billings 6,642 (4,792) Materials and supply inventory, at cost .................................. (138) (451) Prepaid expenses and other assets ........................................ 7,540 1,813 Refundable income taxes and other adjustments ............................ 334 66 Accounts payable ......................................................... (9,997) (4,432) Billings on contracts in process in excess of costs and estimated earnings 392 (1,022) Accrued compensation and related taxes ................................... (1,458) (755) Federal, state and local income taxes .................................... (8) (160) Other accrued liabilities ................................................ (1,056) (6,911) --------- --------- Net cash flows provided by operating activities ........................ 4,715 18,992 --------- --------- Cash flows from investing activities: Purchases of property and equipment ...................................... (14,547) (15,263) Proceeds from sale of property and equipment ............................. 585 2,222 Proceeds from sale and leaseback of equipment ............................ 17,900 -- Purchase of stock of business less cash acquired ......................... (7,092) -- Decrease in receivable from affiliated company ........................... -- 15,000 Increase in other noncurrent assets ...................................... (2,755) (1,057) --------- --------- Net cash (used in) provided by investing activities .................... (5,909) 902 --------- --------- Cash flows from financing activities: Payments on long-term debt and capital leases ............................ (6,690) (5,379) Proceeds from borrowing under revolving credit agreement and term loan ... 151,864 154,000 Payments on revolving credit agreement and term loan ..................... (151,864) (174,700) Payments on pension agreement ............................................ (86) (95) Common stock issued for 401(k) funding and stock options ................. 2,512 1,901 --------- --------- Net cash used in financing activities .................................. (4,264) (24,273) --------- --------- Net decrease in cash and cash equivalents .............................. (5,458) (4,379) Cash and cash equivalents at beginning of period .............................. 14,002 11,205 --------- --------- Cash and cash equivalents at end of period .................................... $ 8,544 $ 6,826 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 7 OHM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by OHM Corporation (the "Company") and reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of financial results for the three and nine months ended September 30, 1997 and 1996, 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 financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations for the three and nine months ended September 30, 1997 and 1996 are not necessarily indicative of the results for the full year. The 1997 financial statements have been restated to continue to apply the equity method of accounting for its investment in NSC. The Company previously had concluded in the second quarter of 1997 that it no longer had the ability to exercise significant influence over the operating and financial policies of NSC after the Company announced its intention to sell its investment in NSC. As a result, the Company wrote down its investment in NSC to its fair value (see "Note 7 Special Charges"), discontinued reporting its share of NSC's profits and losses in the Company's results of operations in accordance with the equity method of accounting, and because of the change in circumstances started accounting for its investment in NSC under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. Based on discussions with the SEC staff, the Company concluded that it should continue to apply the equity method of accounting for its investment in NSC. The effect of this restatement was to decrease net income for the three and nine months ended September 30, 1997, by $852,000 or $0.03 per share. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. The impact on the calculation of earnings per share for the three and nine months ended September 30, 1997 and 1996 is not expected to be material. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The Company's 40% owned asbestos abatement affiliate, NSC Corporation ("NSC"), has been accounted for using the equity method. See "Note 7 - Special Charges" regarding the Company's plans to divest its ownership of NSC and the related reduction of its carrying value. All material intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements at September 30, 1997, and for the three and nine months then ended, have been reviewed by Ernst & Young LLP, the Company's independent accountants, and their report is included herein. NOTE 2 - SUPPLEMENTARY CASH FLOW INFORMATION Cash paid for interest was $3,520,000 and $5,253,000 and cash paid for income taxes was $39,000 and $389,000 for the nine months ended September 30, 1997 and 1996, respectively. NOTE 3 - ACQUISITION Effective June 1, 1997, the Company acquired all of the outstanding stock of Beneco Enterprises, Inc., a Utah corporation ("Beneco"), for an aggregate purchase price of $14,700,000. The purchase price was paid as follows: (i) $9,700,000 (excluding the $2,608,000 of cash acquired as part of Beneco - net cash paid $7,092,000) in cash and (ii) unsecured promissory notes in the aggregate of $5,000,000, bearing interest at 7.25%, due and payable June 17, 1998. The Company has agreed to make an additional payment in the year 2000 contingent upon the achievement of certain operating results and other contractual conditions. Beneco is a provider of project, program and construction management services to the Department of Defense and other government agencies throughout the United States. The acquisition of Beneco has been accounted for using the purchase method and, accordingly, the acquired assets and assumed liabilities, including goodwill, have been recorded at their estimated fair values as of June 1, 1997. The Company's consolidated financial statements for the three and nine month periods ended September 30, 1997 include the results of Beneco since June 1, 1997. The following table sets forth the unaudited combined pro forma results of operations of the Company for the nine months ended September 30, 1997 and 1996, giving effect to the acquisition of Beneco as if such acquisition had occurred on January 1, 1996. 4 8
Pro Forma Nine Months Ended September 30, -------------------------- 1997 1996 ---- ---- (In Thousands, Except Per Share Data) Gross revenue .................................... $410,047 $ 452,193 Net (loss) income................................. $(27,071) $ 8,203 Net (loss) income per share....................... $ (1.00) $ 0.31
The combined pro forma results of operations for the nine months ended September 30, 1997 and 1996 are based upon certain assumptions and estimates which the Company believes are reasonable. The combined pro forma results of operations may not be indicative of the operating results that actually would have been reported had the transaction been consummated on January 1, 1996, nor are they necessarily indicative of results which will be reported in the future. The estimated fair value of the assets acquired and liabilities assumed at the date of acquisition are as follows (in thousands): Current assets.......................... $ 6,042 Property and equipment.................. 895 Goodwill (40 year life)................. 11,934 Assembled workforce (7 year life)....... 428 Trade name (5 year life)................ 346 Current liabilities..................... 5,205 NOTE 4 - INCOME TAXES The reasons for differences between the provisions for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- --------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Federal statutory rate........................... 34.0% 34.0% 34.0% 34.0% Add (deduct): State income taxes, net of federal benefit.... 6.0 4.9 6.0 4.8 Goodwill...................................... 1.5 2.5 (0.7) 2.1 Research and development tax credits.......... (4.6) (5.9) 1.8 (5.9) Write-down of investment in NSC Corporation................................. -- (5.9) -- -- Equity in net earnings of affiliate........... 4.6% (0.8) (0.7) (1.5) Other, net.................................... 0.1 (0.6) (2.2) -- ---- ---- ---- -- 41.6% 34.1% 32.3% 33.5% ==== ==== ==== ====
NOTE 5 - SEASONALITY The timing of revenue recognition is dependent on the Company's backlog, contract awards and the performance requirements of each contract. The Company's revenue is also affected by the timing of its clients' planned contract work which generally increases during the third and fourth quarters. Because of this variability in demand, the Company's quarterly revenue can fluctuate, and revenue for the first and second quarters of each year can normally be expected to be lower than the third and fourth quarters. Although the Company believes that the historical trend in quarterly revenue for the third and fourth quarters of each year are generally higher than the first and second quarters, there can be no assurance that this will occur in future periods. Accordingly, quarterly or other interim results should not be considered indicative of results to be expected for any quarter or for the full year. 5 9 NOTE 6 - LITIGATION AND CONTINGENCIES The Company is subject to a number of claims and litigation. These matters include the following items which were disclosed in the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The Company is in litigation in the U.S. District Court for the Western District of New York with Occidental Chemical Corporation ("Occidental") relating to the Durez Inlet Project performed in 1993 and 1994 for Occidental in North Tonawanda, New York. The Company's account receivables at September 30, 1997 include a claim receivable of $8,653,000 related to this matter. The Company's work was substantially delayed and its costs of performance were substantially increased as a result of conditions at the site that the Company believes were materially different than as represented by Occidental. Occidental's amended complaint seeks $8,806,000 in damages primarily for alleged costs incurred as a result of project delays and added volumes of incinerated waste. The Company's counterclaim seeks an amount in excess of $9,200,000 for damages arising from Occidental's breach of contract, misrepresentation and failure to pay outstanding contract amounts. The Company has established additional reserves for a portion of the receivables related to this matter (see "Note 7 - Special Charges"). Management believes that it has established adequate reserves should the resolution of the above matter be lower than the amounts recorded. As a result of an arbitration proceeding between the Company and Separation and Recovery Systems, Inc. ("SRS") arising out of the Company's termination of SRS' subcontract for the performance of thermal desorption services at the Hilton-Davis Project in Cincinnati, Ohio, SRS was awarded $2,400,000 in damages from the Company. The Company has established a $2,400,000 reserve for the arbitration award and has reduced the receivables relating to SRS' subcontract performance (see "Note 7 - Special Charges"). The Company filed a motion in federal court to overturn the award and SRS has filed a motion to confirm the award. The U.S. District Court for the Southern District of Ohio has denied the Company's motion and confirmed the award. The Company is in litigation with General Motors Corp. in the U.S. District Court for the Northern District of New York. GM filed suit in January 1996 alleging that the Company breached a contract between Hughes Environmental Systems, Inc. (HESI), a GM subsidiary, for work in 1994 for the remediation of 22,000 cubic yards of PCB contaminated sediment in the St. Lawrence River in Massena. GM seeks damages for $3.8 million. The Company in turn filed suit against HESI and ERM Northeast, Inc. in U.S. District Court in Northern New York seeking $3.6 million in damages for breach of contract. The GM suit was later consolidated with the Company's suit against HESI and ERM. GM alleges that the Company abandoned the contract through inability to perform while the Company claims that performance was impacted by conditions at the site that were not as represented. In addition to the above, the Company is subject to a number of claims and lawsuits in the ordinary course of its business. In the opinion of management, the outcome of these actions, which are not clearly determinable at the present time, are either adequately covered by insurance or other reserves, or if not insured or reserved, will not, in the aggregate, have a material adverse impact upon the Company's consolidated future results of operations or financial condition. In the course of the Company's business there is always risk and uncertainty in pursuing and defending claims, litigation and arbitration proceedings and, notwithstanding the reserves currently established, adverse future results in litigation or other proceedings could have a material adverse impact upon the Company's consolidated future results of operations or financial condition. NOTE 7 - SPECIAL CHARGES During the second quarter of 1997, the Company settled litigation and received an unfavorable binding arbitration decision that established a need to write-down claims receivable previously recorded by the Company. These actions together with a thorough analysis by management of other claims, litigation and the related receivables and a decision by management to establish reserves for the consolidation of certain laboratory and operational functions resulted in the Company recording a $22,726,000 (net of $15,151,000 income tax benefit), charge during the second quarter of 1997. The following discussion details the various elements of the charge: Separation and Recovery Systems, Inc. ("SRS"). In June 1997, the Company received an unfavorable binding arbitration decision in a dispute between the Company and SRS. SRS's subcontract with the Company to provide thermal desorption treatment services at the Hilton Davis chemical site in Cincinnati, Ohio was terminated by the Company in the second quarter of 1996 due to failure to perform. The Company subsequently attempted to perform the treatment process with the SRS equipment and was unsuccessful. The inability of SRS to perform caused the Company to incur significant expense to complete the required treatment process. The Company's total claim in arbitration against SRS for the resulting expense of failed performance was $18,500,000 and included deferred cost of $9,814,000 recorded by the Company as a receivable from SRS. In addition to not collecting the receivable, the arbitration decision required the Company to pay SRS $2,400,000 in damages for their counterclaim for wrongful termination. The Company also established a loss reserve of $2,800,000 to complete the treatment effort required as a result of the above. Prior to the arbitration decision the Company had concluded that it was not 6 10 probable that a loss had occurred based on the opinion of counsel, consequently the write-off was taken in the same period that the decision was rendered. Citgo Petroleum Corporation ("Citgo"). In June 1997, the Company settled litigation with Citgo and Occidental Oil & Gas (Oxy) relating to a project which was performed by the Company for Citgo at its Lake Charles, Louisiana refinery in 1993 and 1994. This litigation resulted from the Company filing a request for equitable adjustment in April 1994 based on deficient project specifications provided by Citgo, the subsequent lawsuit filed by Citgo in April 1994 and the counterclaims filed by the Company in July 1994. In 1995 Citgo and the Company brought separate actions against Oxy as a third party with previous involvement at the site. Extensive discovery by all parties prior to a scheduled trial in 1997 led to settlement discussions in the second quarter of 1997. Under the terms of the settlement with Citgo and Oxy, the Company received a cash payment of $14,346,000 against outstanding receivables of $22,609,000 resulting in a write-off of accounts receivable of $8,263,000. Prior to accepting the settlement offer, the Company had concluded that it was not probable that a loss had occurred based on the opinion of legal counsel that there existed a reasonable basis to support the Company's claim in litigation. The settlement and resulting write down of accounts receivable occurred after management completed its assessment of the litigation, the determination of the maximum amount of settlement that could be obtained and its review of the disadvantages of continuing litigation which would divert the attention of company management and resources. Other Litigation and Accounts Receivable. In addition to the aforementioned disputes, the Company made a decision to resolve other significant legal matters involving outstanding accounts receivable. In June 1997, the Company settled outstanding litigation with B&V Construction, Inc. ("B&V") for $1,550,000 pertaining to dispute involving subcontracted services at a General Motors project in Flight, Michigan during late 1994. Payment to B&V was made in July 1997. Accounts receivable involving disputes primarily related to two additional contracts were also written down to facilitate settlement. These decisions resulted from management's analysis of the unfavorable SRS arbitration decision and the protracted Citgo litigation and subsequent settlement. Management concluded that the risk associated with continued pursuit of legal remedies was not acceptable and the further diversion of management's attention to effect favorable outcomes was not appropriate. Prior to that time, the Company had concluded that it was not probable that a loss had occurred based on the opinion of counsel. Litigation Costs. As a result of the above legal matters and the significant expense of resolving such matters, the Company has accrued $2,100,000 for the expenses of the litigation such as attorney's fees. This accrual includes costs associated with those matters included in the special charge discussed above including those that expect to be settled. The Company concluded that due to the timing of the settlements discussed above, the related expense of settlement should also be accrued. Region Reorganization, Laboratory Closure & Severance. In May 1997, management of the Company made a decision to consolidate certain region operations, close certain offices and cease commercial laboratory operations. These decisions were made as a part of a comprehensive plan completed in the second quarter of 1997 to restructure operations of the Company. Thus, resulting expense was recognized as a special charge at that time. Employees of the Company were notified of the reduction in force at that time and substantially all of the reserve requiring a cash settlement was paid prior to the end of 1997. The components of this special charge were: Cash items: (In Thousands) Severance $1,500 Lease termination and facility closure 1,139 Other 388 ------ Subtotal 3,027 Non cash items: Fixed Assets 773 ------ Total $3,800 ====== NSC Divestiture. During the second quarter of 1997, the Company wrote down its investment in NSC to the expected net realizable value based on its plans to sell its 40% share of NSC. As a result, the Company recorded a $12,089,000 (net of $2,860,000 income tax benefit) charge to earnings. The Company accounts for its investment in 40% of the outstanding stock of NSC Corporation on the equity method. Although NSC's stock had traded below the per share carrying value of the recorded investment for some time prior to June 1997, the Company believed this decline was temporary because NSC had continued to report net income, positive cash flow from operations, and continued to pay dividends. In the second quarter of 1997, the Company made the decision to sell its investment in NSC. The Company concluded in the second quarter of 1997 that as a result of its decision to sell its investment in NSC, it should record an impairment loss. This loss was calculated to be $14.9 million before tax which represents the difference between the Company's carrying amount of its investment per share ($5.83) and the fair market value per share of NSC's stock on the day that the Company decided to sell ($2.10) times the 4,010,000 shares held by the Company. 7 11 The following table summarizes the detailed components of the charge:
(In Thousands, Except Per Share Data) Tax Net Charge Benefit Loss ------ ------- ---- SRS Settlement and Project Loss Accrual $15,014 $ 6,006 $ 9,008 Citgo Settlement (Net of $14.3 million) 8,263 3,305 4,958 Other Litigation and Accounts Receivable 8,700 3,480 5,220 Litigation Costs 2,100 840 1,260 Region Reorganization & Other 3,800 1,520 2,280 ------- ------- ------- Total Claims Settlement & Other 37,877 15,151 22,726 Total Write-down of Investment in NSC 14,949 2,860 12,089 ------- ------- ------- Total Charge $52,826 $18,011 $34,815 ======= ======= =======
8 12 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors and Shareholders OHM Corporation We have reviewed the accompanying consolidated balance sheet of OHM Corporation as of September 30, 1997, and the related consolidated statements of operations for the three and nine month periods ended September 30, 1997 and 1996 and the consolidated statements of cash flows for the nine month periods ended September 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of OHM Corporation as of December 31, 1996, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the year then ended, not present herein, and in our report dated February 7, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ ERNST & YOUNG LLP Columbus, Ohio October 29, 1997, except for Note 1, as to which the date is May 4, 1998 9 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a diversified services firm for government and private sector clients and provides a broad range of outsourced services including environmental remediation and project, program and construction management services. The timing of the Company's revenue is dependent on its backlog, contract awards and the performance requirements of each contract. The Company's revenue is also affected by the timing of its clients' planned contract activities which generally increase during the third and fourth quarters. Because of this change in demand, the Company's quarterly revenue can fluctuate, and revenue for the first and second quarters of each year have historically been lower than for the third and fourth quarters, although there can be no assurance that this will occur in future years. Accordingly, quarterly or other interim results should not be considered indicative of results to be expected for any quarter or full fiscal year. Effective June 1, 1997, the Company acquired all of the outstanding stock of Beneco Enterprises, Inc., a Utah corporation ("Beneco"), for an aggregate purchase price of $14,700,000. The purchase price was paid as follows: (i) $9,700,000 in cash and (ii) unsecured promissory notes in the aggregate of $5,000,000. The Company has agreed to make an additional payment in the year 2000 contingent upon the achievement of certain operating results and other contractual conditions. Beneco is a provider of project, program and construction management services to the Department of Defense ("DOD") and other government agencies throughout the United States. The acquisition of Beneco has been accounted for using the purchase method and, accordingly, the acquired assets and assumed liabilities, including goodwill, have been recorded at their estimated fair values as of June 1, 1997. The Company's consolidated statements of operations include the results of Beneco since June 1, 1997. See "Note 3 to the Consolidated Financial Statements." RESULTS OF OPERATIONS REVENUE. The following table sets forth the Company's revenue by client type for the three and nine months ended September 30, 1997 and 1996 (in thousands, except percentages):
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---------------- ---------------- ------------------- ------------------- Federal, State, and Local Government............... $110,879 77% $117,754 74% $308,036 81% $305,128 75% Industrial ................ 32,777 23% 40,518 26% 73,431 19% 101,284 25% -------- --- -------- --- -------- --- -------- --- Total Revenue .... $143,656 100% $158,272 100% $381,467 100% $406,412 100% ======== === ======== === ======== === ======== ===
Revenue decreased $14,616,000 or 9% and $24,945,000 or 6% for the three and nine months ended September 30, 1997, respectively, when compared to the same time period in 1996. Such decrease in revenue is primarily due to decreased environmental remediation revenues from government and industrial sector clients, partially offset by revenue from Beneco of $24,533,000 which was acquired effective June 1, 1997 and has been included in the results of operations for the entire third quarter of 1997. Revenue from government agencies for the three months ended September 30, 1997 decreased $6,875,000 or 6% and increased $2,908,000 or 1% for the nine months ended September 30, 1997, when compared to the same periods in 1996. The improvement for the nine months ended September 30, 1997 is primarily due to the inclusion of revenue from Beneco of $24,533,000 which was acquired effective June 1, 1997, partially offset by a decrease in revenue from government contracts in the Company's environmental remediation services business. Beneco's revenue is primarily derived from program and construction management services provided under term contracts with the various DOD agencies and state and local governments. The environmental remediation business experienced a decrease in revenue from the Company's term contracts with the various DOD agencies, which was partially offset by an increase in revenue from the Environmental Protection Agency as well as from state and local governments, during the three and nine months ended September 30, 1997 when compared to the same periods in 1996. In addition, the Company has experienced a decrease in revenue from its site specific thermal incineration project in Holbrook, Massachusetts with the United States Army Corps of Engineers as such project nears its completion. The Company expects to continue to receive funding under its federal contracts in the foreseeable future and is experiencing a significant amount of proposal activity for new contracts with the various DOD agencies, as well as the Department of Energy. However, reductions by Congress in future environmental remediation budgets of government agencies may have a material adverse impact upon future revenue from such agencies and the funding of the Company's government term contracts included in contract backlog. The Company experienced a decrease in revenue from industrial clients of $7,741,000 or 19% and $27,853,000 or 27% for the three months and nine months ended September 30, 1997, respectively, when compared to the same periods in 1996. The 10 14 Company believes that demand for its services from the industrial sector has been negatively impacted due to anticipated changes in the Superfund law pending its reauthorization as well as current economic conditions in certain industry and geographic sectors. Although the Company cannot predict the impact upon the environmental industry of the failure of Congress to reauthorize the Superfund law, further delays in Superfund reauthorization will continue to have a material adverse impact upon the demand for the Company's services in the form of project delays as clients and potential clients wait for and anticipate changes in these regulations. The result of decreased demand from the industrial sector has increased the competitive pressures on the contracts available for bid from the industrial market. The Company has been very selective in bidding industrial contracts and has established specific minimum criteria on profitability and risk in determining whether or not to compete for any given contract. The Company expects the current market conditions to continue in the industrial sector into the foreseeable future. COST OF SERVICES AND GROSS PROFIT. Cost of services decreased for the three and nine months ended September 30, 1997 when compared to the same periods in 1996. The decrease is due primarily to the decrease in revenue. Gross profit increased slightly for the three months ended September 30 1997 and decreased slightly for the nine months ended September 30, 1997 when compared to the same periods in 1996. The Company's gross profit as a percentage of revenue increased for the three and nine months ended September 30, 1997 when compared to the same periods in 1996 due to an increase in the margin percent on the Company's government projects and increased selectivity in bidding industrial contracts. CLAIMS SETTLEMENT COSTS AND OTHER. During the second quarter of 1997, the Company settled litigation and received an unfavorable binding arbitration decision that established a need to write-down claims receivable previously recorded by the Company. These actions together with a thorough analysis by management of other claims, litigation and the related receivables and a decision by management to establish reserves for the consolidation of certain laboratory and operational functions resulted in the Company recording a $22,726,000 (net of $15,151,000 income tax benefit), charge during the second quarter of 1997. The following discussion details the various elements of the charge: SEPARATION AND RECOVERY SYSTEMS, INC. ("SRS"). In June 1997, the Company received an unfavorable binding arbitration decision in a dispute between the Company and SRS. SRS's subcontract with the Company to provide thermal desorption treatment services at the Hilton Davis chemical site in Cincinnati, Ohio was terminated by the Company in the second quarter of 1996 due to failure to perform. The Company subsequently attempted to perform the treatment process with the SRS equipment and was unsuccessful. The inability of SRS to perform caused the Company to incur significant expense to complete the required treatment process. The Company's total claim in arbitration against SRS for the resulting expense of failed performance was $18,500,000 and included deferred cost of $9,814,000 recorded by the Company as a receivable from SRS. In addition to not collecting the receivable, the arbitration decision required the Company to pay SRS $2,400,000 in damages for their counterclaim for wrongful termination. The Company also established a loss reserve of $2,800,000 to complete the treatment effort required as a result of the above. Prior to the arbitration decision the Company had concluded that it was not probable that a loss had occurred based on the opinion of counsel, consequently the write-off was taken in the same period that the decision was rendered. CITGO PETROLEUM CORPORATION ("CITGO"). In June 1997, the Company settled litigation with Citgo and Occidental Oil & Gas (Oxy) relating to a project which was performed by the Company for Citgo at its Lake Charles, Louisiana refinery in 1993 and 1994. This litigation resulted from the Company filing a request for equitable adjustment in April 1994 based on deficient project specifications provided by Citgo, the subsequent lawsuit filed by Citgo in April 1994 and the counterclaims filed by the Company in July 1994. In 1995 Citgo and the Company brought separate actions against Oxy as a third party with previous involvement at the site. Extensive discovery by all parties prior to a scheduled trial in 1997 led to settlement discussions in the second quarter of 1997. Under the terms of the settlement with Citgo and Oxy, the Company received a cash payment of $14,346,000 against outstanding receivables of $22,609,000 resulting in a write-off of accounts receivable of $8,263,000. Prior to accepting the settlement offer, the Company had concluded that it was not probable that a loss had occurred based on the opinion of legal counsel that there existed a reasonable basis to support the Company's claim in litigation. The settlement and resulting write down of accounts receivable occurred after management completed its assessment of the litigation, the determination of the maximum amount of settlement that could be obtained and its review of the disadvantages of continuing litigation which would divert the attention of company management and resources. OTHER LITIGATION AND ACCOUNTS RECEIVABLE. In addition to the aforementioned disputes, the Company made a decision to resolve other significant legal matters involving outstanding accounts receivable. In June 1997, the Company settled outstanding litigation with B&V Construction, Inc. ("B&V") for $1,550,000 pertaining to a dispute involving subcontracted services at a General Motors project in Flint, Michigan during late 1994. Payment to B&V was made in July 1997. Accounts receivable involving disputes primarily related to two additional contracts were also written down to facilitate settlement. These decisions resulted from management's analysis of the unfavorable SRS arbitration decision and the protracted Citgo litigation and subsequent settlement and concluded that the risk associated with continued pursuit of legal remedies was not acceptable and the further diversion of management's attention to effect favorable outcomes was not appropriate. Prior to that time, the Company had concluded that it was not probable that a loss had occurred based on the opinion of counsel. 11 15 LITIGATION COSTS. As a result of the above discussed legal matters and the significant expense of resolving such matters, the Company has accrued $2,100,000 for the expenses of the litigation such as attorney's fees. This accrual includes costs associated with those matters included in the special charge discussed above including those that expect to be settled. The Company concluded that due to the timing of the settlements discussed above, the related expense of settlement should also be accrued. REGION REORGANIZATION LABORATORY CLOSURE & SEVERANCE. In May 1997, management of the Company made a decision to consolidate certain regional operations, close certain offices and cease commercial laboratory operations. These decisions were made as a part of a comprehensive plan completed in the second quarter of 1997 to restructure operations of the company. Thus, resulting expense was recognized as a special charge at that time. Employees of the Company were notified of the reduction in force at that time and substantially all of the reserve requiring a cash settlement was paid prior to the end of 1997. The components of this special charge were: Cash items: (In Thousands) Severance $1,500 Lease termination and facility closure 1,139 Other 388 ------ Subtotal 3,027 Non cash items: Fixed Assets 773 ------ Total $3,800 ====== The following table summarizes the detailed components of the charge:
(In Thousands) Tax Net Charge Benefit Loss ------ ------- ---- SRS Settlement and Project Loss Accrual $15,014 $ 6,006 $ 9,008 Citgo Settlement (Net of $14.3 million) 8,263 3,305 4,958 Other Litigation and Accounts Receivable 8,700 3,480 5,220 Litigation Costs 2,100 840 1,260 Region Reorganization & Other 3,800 1,520 2,280 ------- ------- ------- Total Claims Settlement & Other $37,877 $15,151 $22,726 ======= ======= =======
PROVISIONS FOR BAD DEBTS. The Company's provision for bad debts, excluding items recorded as a part of the claims settlement costs, was $700,000 and $3,485,000 for the nine months ended September 30, 1997 and 1996, respectively. The provision was higher in 1996 primarily due to settlement of rate variances for government cost plus contracts. The provision for bad debts with respect to claims settlements is discussed in Claims Settlement Costs and Other above. 12 16 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SGA") expenses decreased $1,152,000 or 9% and $2,371,000 or 7%, for the three and nine months ended September 30, 1997, respectively, when compared to the same periods in 1996. SGA expense as a percentage of revenue was 8% for the three months ended September 30, 1997 and 1996 and 9% for the nine months ended September 30, 1997 and 1996. SGA expense has decreased primarily as a result of decreased revenue and reductions made to overhead expenses in light of such decreased revenue. INTEREST EXPENSE. Interest expense decreased 31% and 33% during the three and nine months ended September 30, 1997, respectively, when compared to the same periods in 1996. The decrease in interest expense was a result of a decrease in the average borrowings outstanding under the Company's revolving credit agreement during such periods in 1997 when compared to the same periods in 1996. WRITE DOWN OF INVESTMENT IN NSC CORPORATION. During the second quarter of 1997, the Company wrote down its investment in NSC to the expected net realizable value based on its plans to sell its 40% share of NSC. As a result, the Company recorded a $12,089,000 (net of $2,860,000 income tax benefit) charge to earnings. The Company accounts for the investment in 40% of the outstanding stock of NSC Corporation on the equity method. Although NSC's stock had traded below the per share carrying value of the recorded investment for some time prior to June 1997, the Company believed this decline was temporary because NSC had continued to report net income, positive cash flow from operations, and continued to pay dividends. In the second quarter of 1997, the Company made the decision to sell its investment in NSC. The company concluded in the second quarter of 1997 that as a result of its decision to sell its investment in NSC, it should record an impairment loss. This loss was calculated to be $14.9 million before tax which represents the difference between the Company's carrying amount of its investment per share ($5.83) and the fair market value per share of NSC's stock on the day that the Company decided to sell ($2.10) times the 4,010,000 shares held by the Company. EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in NSC's net earnings (loss) decreased $1,035,000 to $(852,000) for the three months ended September 30, 1997, from $183,000 for the same period in 1996. The Company's equity interest in NSC's net earnings (loss) decreased $1,299,000 to $(667,000) for the nine months ended September 30, 1997, from $632,000 for the same period in 1996. Such decreases were primarily the result of losses on certain contracts at NSC and decreased revenues in its Olshan demolition business. NET INCOME (LOSS). Net income for the three months ended September 30, 1997 was $4,062,000 or $0.15 per share compared to $3,996,000 or $0.15 per share for the same period in 1996. For the nine months ended September 30, 1997, net loss was $(26,109,000) or $(0.96) per share compared to net income of $7,705,000 or $0.29 per share for the same period in 1996. Such losses were a result of the aforementioned charges recorded during the second quarter of 1997. Without such charges, net income would have been $8,706,000 or $0.32 per share, for the nine months ended September 30, 1997. The effective income tax rate was 42% and 34% for the three months ended September 30, 1997 and 1996, respectively. For the nine month period ending September 30, 1997 and 1996, the effective income tax rate was 32% and 34%, respectively. See "Note 4 to the Consolidated Financial Statements" for a reconciliation of the statutory federal income tax rate to the effective income tax rate. LIQUIDITY AND CAPITAL RESOURCES On May 31, 1995, the Company entered into a $150,000,000 revolving credit agreement with a group of banks (the "Bank Group") to provide letters of credit and cash borrowings. The agreement has a five year term and is scheduled to expire on May 30, 2000. Waste Management, Inc. ("WMX") has issued a guarantee of up to $62,000,000 outstanding under the credit agreement in favor of the Bank Group. Under the terms of the agreement the entire credit facility can be used for either cash borrowings or letters of credit. Cash borrowings bear interest at either the prime rate plus a percentage up to 0.625% or, at the Company's option, the Eurodollar market rate plus a percentage ranging from 0.325% to 1.625%. The percentage over the prime rate or the Eurodollar market rate is based on the aggregate amount borrowed under the facility, the presence of the guarantee, and the Company's financial performance as measured by an interest coverage ratio and a total funded debt ratio. The agreement provides the participating banks with a security interest in the Company's equipment, inventories, accounts receivable, general intangibles and in the Company's investment in the common stock of NSC as well as the Company's other subsidiaries. The agreement also imposes, among other covenants, a minimum tangible net worth covenant, a restriction on all of the Company's retained earnings including the declaration and payment of cash dividends and a restriction on the ratio of total funded debt to earnings before income taxes, depreciation and amortization. There were no amounts outstanding for cash borrowing under the revolving credit facility at September 30, 1997 or December 31, 1996. Aggregate letters of credit outstanding at September 30, 1997 and December 31, 1996 were $14,108,000 and $12,223,000, respectively. Capital expenditures for the nine months ended September 30, 1997 and 1996, were $14,547,000 and $15,263,000, respectively. The Company's capital expenditures are primarily related to the installation of computer systems and related equipment, the purchase of heavy equipment and the fabrication of custom equipment by the Company for the execution of remediation projects. Capital expenditures for the entire fiscal year 1997 are expected to range between $18,000,000 and 13 17 $22,000,000. The Company's long-term capital expenditure requirements are dependent upon the type and size of future remediation projects awarded to the Company. The Company believes that the government sector will continue to be its primary source of revenue for the foreseeable future in light of its contract backlog with federal government agencies. Revenue from government agencies historically has required greater working capital, the major component of which is accounts receivable, than revenue from industrial sector clients. In addition, the Company is bidding on a number of large, long-term contract opportunities which, if awarded to the Company, would also increase working capital needs and capital expenditures. The Company believes it will be able to finance its working capital needs and capital expenditures in the short term through a combination of cash flows from operations, borrowing under its revolving credit facility, proceeds from permitted asset sales and other external sources. The Company, from time to time, evaluates potential acquisitions of companies in the environmental remediation industry and industries related to the core skills of the Company. The Company cannot predict whether it will be successful in pursuing such acquisition opportunities or what the consequences of any such acquisition would be. Future acquisitions may involve the expenditure of significant funds and management time. Depending upon the nature, size and timing of future acquisitions, the Company may be required to raise additional capital through financings, including public or private equity or debt offerings or additional bank financings. There is no assurance that such additional financing will be available to the Company, or if available, will be on acceptable terms. The Company's identified long-term capital needs consist of payments due upon the maturity of the Company's Revolving Credit Facility in 2000 and sinking fund payments which commenced in 1996 of 7.5% of the principal amount as well as payments due upon maturity of its Convertible Debentures in 2006. The Company has purchased and retired $10,736,000 of the outstanding Convertible Debentures during 1995 and 1996, sufficient to meet its annual sinking fund obligations through October 1, 1997, as well as a portion of the sinking fund obligation due October 1, 1998. The Company believes that it will be able to refinance the remaining indebtedness as necessary. ENVIRONMENTAL MATTERS AND GOVERNMENT CONTRACTING Although the Company believes that it generally benefits from increased environmental regulations and from enforcement of those regulations, increased regulation and enforcement also create significant risks for the Company. The assessment, remediation, analysis, handling and management of hazardous substances necessarily involve significant risks, including the possibility of damages or injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties or other regulatory action. These risks include potentially large civil and criminal liabilities for violations of environmental laws and regulations, and liabilities to customers and to third parties for damages arising from performing services for clients, which could have a material adverse effect on the Company. The Company does not believe there are currently any material environmental liabilities which should be recorded or disclosed in its financial statements. The Company anticipates that its compliance with various laws and regulations relating to the protection of the environment will not have a material effect on its capital expenditures, future earnings or competitive position. Because of its dependence on government contracts, the Company also faces the risks associated with such contracting, which could include civil and criminal fines and penalties. As a result of its government contracting business, the Company has been, is, and may in the future be subject to audits and investigations by government agencies. The fines and penalties which could result from noncompliance with the Company's government contracts or appropriate standards and regulations, or the Company's suspension or debarment from future government contracting, could have a material adverse effect on the Company's business. FORWARD-LOOKING STATEMENTS All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures, including the amount and nature thereof, potential acquisitions by the Company, trends affecting the Company's financial condition or results of operations, and the Company's business and growth strategies are forward-looking statements. Such statements are subject to a number of risks and uncertainties, including risks and uncertainties identified in this Form 10-Q, and in "Business -- Environmental Contractor Risks," "Business -- Regulation," "--Results of Operations" "--Environmental Matters and Government Contracting," and "Note 1 to Consolidated Financial Statements" of the Company's Annual Report on Form 10-K for the year ended December 31, 1996, which sections are incorporated herein by reference, and other general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in laws or regulations affecting the Company's operations and other factors, many of which are beyond the control of the Company. In addition, these risks and uncertainties include, without limitation, (i) the potential for fluctuations in funding of backlog, (ii) weather conditions affecting or delaying the Company's ability to perform or complete the services required by its contracts, (iii) the Company's ability to be awarded new contracts in its target markets or its ability to 14 18 expand existing contracts, (iv) other industry-wide market factors, including the timing of client's planned remediation activities and (v) interpretation or enforcement by federal, state or local regulators of existing environmental regulations. Also, there is always risk and uncertainty in pursuing and defending litigation, arbitration proceedings and claims in the course of the Company?s business. All of these risks and uncertainties could cause actual results to differ materially from those assumed in the forward-looking statements. These forward-looking statements reflect management's analysis, judgment, belief or expectation only as of the date of this Form 10-Q. The Company undertakes no obligations to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosure contained herein, readers should carefully review risks and uncertainties contained in other documents the Company files or has filed from time to time with the Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934, including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 15 19 PART II -- OTHER INFORMATION Item 1. Legal Proceedings See Note 6 to Consolidated Financial Statements for a discussion of legal proceedings. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Statement Re Computation of Per Share Earnings 27 Financial Data Schedule (b) Reports on Form 8-K On July 2, 1997, the Company filed a Current Report on Form 8-K in connection with the acquisition of all of the issued and outstanding capital stock of Beneco Enterprises, Inc., a Utah corporation ("Beneco"). On August 22, 1997, the Company filed an amendment to the Current Report on Form 8-K, dated July 2, 1997. 16 20 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. OHM CORPORATION Date: May 8, 1998 By /s/ ANTHONY J. DELUCA ------------------------------- Anthony J. DeLuca Chief Executive Officer and President (Duly Authorized Officer) Date: May 8, 1998 By /s/ PHILIP O. STRAWBRIDGE ------------------------------- Philip O. Strawbridge Vice President and Chief Financial and Administrative Officer (Principal Financial Officer) 17 EX-11 2 OHM CORPORATION 1 EXHIBIT 11 Statement Re Computation of Per Share Earnings OHM CORPORATION COMPUTATION OF PER SHARE EARNINGS (In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ---------------------------- 1997 1996 1997 1996 --------- --------- --------- -------- PRIMARY: Average shares outstanding $ 27,267 $ 26,862 $ 27,151 $ 26,774 Net effect of dilutive stock options and warrants-based on the treasury stock method 34 -- --(1) 13 --------- --------- --------- --------- Total 27,301 26,862 27,151 26,787 ========= ========= ========= ========= Net income (loss) $ 4,062 $ 3,996 $ (26,109) $ 7,705 ========= ========= ========= ========= Per share amount $ 0.15 $ 0.15 $ (0.96) $ 0.29 ========= ========= ========= ========= FULLY DILUTED: Average shares outstanding $ 27,267 $ 26,862 $ 27,151 $ 26,774 Net effect of dilutive stock options and warrants-based on the treasury stock method 34(2) 38(2) --(1) 38(2) --------- --------- --------- --------- Total 27,301 26,900 27,151 27,812 ========= ========= ========= ========= Net income (loss) $ 4,062 $ 3,996 $ (26,109) $ 7,705 ========= ========= ========= ========= Per share amount $ 0.15 $ 0.15 $ (0.96) $ 0.29 ========= ========= ========= =========
(1) Primary and fully diluted earnings per share computations for the nine months ended September 30, 1997, do not give effect to stock options and warrants since their inclusion would have the effect of decreasing the net loss per share. (2) Fully dilutive effect of stock options and warrants on per share amounts for the three and nine months ended September 30, 1997, has not been presented in the statement of operations since any reduction of less than 3% in the aggregate need not be considered as dilution. EX-27 3 OHM CORPORATION
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 8,544 0 146,065 21,412 14,037 186,700 104,290 44,474 308,167 103,558 49,322 0 0 2,730 148,247 308,167 0 381,467 0 328,833 87,443 0 3,779 (38,588) (12,479) (26,109) 0 0 0 (26,109) (0.96) (0.96)
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