-----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, QjgWjfywyKnGGQYJF41awdk4uHfgjm9oNrIHHmB3ve67FjfqZnS8+cwoyRFHQcdD bBoYXTFWoy+uPg0Zxv2CCw== 0000950152-95-002637.txt : 19951119 0000950152-95-002637.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950152-95-002637 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09654 FILM NUMBER: 95592097 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 1 OHM CORPORATION 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF ---- THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 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 filing such requirement for the past 90 days. Yes X No --- --- The number of shares of Common Stock outstanding on October 31, 1995 was 26,607,222. 2 OHM CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 PART I FINANCIAL INFORMATION
Page Number ------ Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Notes to 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3 Item 1. FINANCIAL STATEMENTS OHM CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
Sept. 30, Dec. 31, 1995 1994 --------- --------- ASSETS (Unaudited) Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,341 $ 4,930 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,561 86,663 Costs and estimated earnings on contracts in process in excess of billings . . 56,596 65,437 Materials and supply inventory, at cost . . . . . . . . . . . . . . . . . . . 11,909 10,099 Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . 11,145 7,252 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,660 6,744 Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 437 205 --------- --------- 244,649 181,330 --------- --------- Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,311 57,240 --------- --------- Other Noncurrent Assets: Deferred debt issuance and financing costs . . . . . . . . . . . . . . . . . . 1,843 2,381 Investment in affiliated company . . . . . . . . . . . . . . . . . . . . . . . 23,639 23,352 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336 336 Intangible assets relating to acquired businesses, net . . . . . . . . . . . . 8,002 370 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,432 7,537 --------- --------- 41,252 33,976 --------- --------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 367,212 $ 272,546 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,774 $ 47,936 Billings on contracts in process in excess of costs and estimated earnings . . 2,606 40 Accrued compensation and related taxes . . . . . . . . . . . . . . . . . . . . 5,802 3,874 Federal, state and local taxes . . . . . . . . . . . . . . . . . . . . . . . . 133 102 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 15,412 9,652 Current portion of noncurrent liabilities . . . . . . . . . . . . . . . . . . 4,316 3,262 --------- --------- 85,043 64,866 --------- --------- Noncurrent Liabilities: Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,733 127,279 Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 92 Pension agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 905 906 --------- --------- 119,696 128,277 --------- --------- Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,774 2,483 --------- --------- 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: 1995 - 26,592,887; 1994 - 15,848,089 . . . . . . . . . . . 2,659 1,584 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 135,718 63,294 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,322 14,598 --------- --------- 157,699 79,476 Less treasury stock, 1995 - 0; 1994 - 211,624 . . . . . . . . . . . . . . . . . . - (2,556) --------- --------- 157,699 76,920 --------- --------- Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . . . $ 367,212 $ 272,546 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 1 4 OHM CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended September 30, September 30, --------------------- ---------------------- 1995 1994 1995 1994 --------- --------- --------- --------- (Unaudited) (Unaudited) Gross Revenues .......................................... $ 135,886 $ 91,308 $ 315,604 $ 261,025 Less direct subcontract costs ......................... 42,945 21,975 95,500 74,854 --------- --------- --------- --------- Net Revenues ............................................ 92,941 69,333 220,104 186,171 Cost of services ...................................... 73,870 54,300 171,979 147,063 --------- --------- --------- --------- Gross Profit ............................................ 19,071 15,033 48,125 39,108 Selling, general and administrative expenses .......... 12,348 8,419 33,314 24,022 --------- --------- --------- --------- Operating Income ........................................ 6,723 6,614 14,811 15,086 --------- --------- --------- --------- Other (Income) Expenses: Investment income ..................................... (577) (10) (600) (26) Interest expense ...................................... 2,456 2,455 8,527 6,424 Equity in net earnings of affiliate ................... (6) (359) (287) (720) Miscellaneous (income) expense, net ................... (95) 362 (56) 645 --------- --------- --------- --------- 1,778 2,448 7,584 6,323 --------- --------- --------- --------- Income Before Income Taxes .............................. 4,945 4,166 7,227 8,763 Income taxes .......................................... 1,758 1,551 2,519 3,274 --------- --------- --------- --------- Net Income .............................................. $ 3,187 $ 2,615 $ 4,708 $ 5,489 ========= ========= ========= ========= Net Income Per Share .................................... $ 0.12 $ 0.16 $ 0.22 $ 0.34 ========= ========= ========= ========= Weighted average number of common and common equivalent shares outstanding .................. 27,064 16,045 21,126 16,176 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 2 5 OHM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Nine Months Ended September 30, ----------------------- 1995 1994 --------- -------- (Unaudited) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,708 $ 5,489 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 7,208 5,181 Amortization of other noncurrent assets . . . . . . . . . . . . . . . . . . 2,071 1,817 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,375 2,608 Loss (gain) on sale of property and equipment . . . . . . . . . . . . . . . (223) 542 Equity in net earnings of affiliate's continuing operations . . . . . . . . . (287) (720) Deferred translation adjustments and other . . . . . . . . . . . . . . . . . 741 89 Changes in current assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,450) (48,439) Costs and estimated earnings on contracts in process in excess of billings . 10,692 (11,721) Materials and supply inventory . . . . . . . . . . . . . . . . . . . . . . . (1,810) (1,220) Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . (4,279) 280 Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (232) (34) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,276) 6,143 Billings on contracts in process in excess of costs and estimated earnings . 200 (326) Accrued compensation and related taxes . . . . . . . . . . . . . . . . . . . (145) 626 Federal, state and local income taxes . . . . . . . . . . . . . . . . . . . 31 (201) Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (3,557) (567) --------- -------- Net cash flows provided by (used in) operating activities . . . . . . . . 9,767 (40,453) --------- -------- Cash flows from investing activities: Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . (8,971) (8,755) Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . 2,504 1,815 Decrease (increase) in other noncurrent assets . . . . . . . . . . . . . . . 331 (2,135) Cash acquired from purchase of business . . . . . . . . . . . . . . . . . . 16,670 - --------- -------- Net cash provided by (used in) investing activities . . . . . . . . . . . 10,534 (9,075) --------- -------- Cash flows from financing activities: Increase in long term debt . . . . . . . . . . . . . . . . . . . . . . . . . 1,945 6,126 Payments on long-term debt and capital leases . . . . . . . . . . . . . . . (2,701) (1,183) Proceeds from borrowing under revolving credit and term loan . . . . . . . . 113,700 112,000 Payments on revolving credit agreement . . . . . . . . . . . . . . . . . . . (120,500) (68,100) Payments on pension agreement . . . . . . . . . . . . . . . . . . . . . . . (74) (81) Proceeds from public offering of common stock . . . . . . . . . . . . . . . . - 863 Proceeds from private placement of common stock . . . . . . . . . . . . . . 10,000 - Reissuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . 1,740 503 --------- -------- Net cash provided by financing activities . . . . . . . . . . . . . . . . 4,110 50,128 --------- -------- Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 24,411 600 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 4,930 5,039 --------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 29,341 $ 5,639 ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 3 6 OHM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited 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, 1995 and 1994, 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 consolidated financial statements should be read in conjunction with the Company's Annual Report to Shareholders for the year ended December 31, 1994. The results of operations for the three and nine months ended September 30, 1995 and 1994, are not necessarily indicative of the results for the full year. The unaudited 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. All material intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements at September 30, 1995, and for the three and nine months then ended have been reviewed, prior to filing, by Ernst & Young LLP, the Company's independent accountants, and their report is included herein. NOTE 2 - SUPPLEMENTARY CASH FLOW INFORMATION As supplemental information related to the consolidated statements of cash flows, cash paid for interest was $7,207,000 and $5,063,000 and cash paid for income taxes was $194,000 and $394,000 for the nine months ended September 30, 1995 and 1994, respectively. NOTE 3 - RECLASSIFICATIONS Certain amounts presented for the three and nine months ended September 30, 1994 have been reclassified to conform to the September 30, 1995 presentation. NOTE 4 - INVESTMENTS IN AFFILIATED COMPANY The Company owns a 40% equity interest in NSC, a nationwide asbestos abatement services company, which has been included in the Company's financial statements using the equity method. The following summarizes the income statements of NSC for the three and nine months ended September 30, 1995 and 1994:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1995 1994 1995 1994 ------- ------- ------- -------- (In Thousands) (In Thousands) Gross revenues . . . . . . . . . . $29,452 $32,076 $90,962 $101,429 Gross profit . . . . . . . . . . . . . . 4,562 6,075 14,465 15,975 Operating income . . . . . . . . . . . . 123 1,764 1,746 3,637 Net income . . . . . . . . . . . . . . . 2 892 714 1,791 Company's interest in net income . . . . 1 359 287 720
4 7 NOTE 5 - 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, ------------------ ----------------- 1995 1994 1995 1994 ------ ------- ------- ----- Federal statutory rate .................................. 34.0 % 34.0 % 34.0 % 34.0 % Add (deduct): State income taxes, net of federal benefit........... 5.0 % 4.2 % 4.8 % 4.2 % Equity in net earnings of affiliate ................. - % (2.3)% (1.1)% (2.2)% Other, net .......................................... (3.4)% 1.3 % (2.8)% 1.4 % ---- ---- ---- ---- 35.6 % 37.2 % 34.9 % 37.4 % ==== ==== ==== ====
NOTE 6 - PROPERTY AND EQUIPMENT Property and equipment is summarized as follows:
September 30, Dec. 31, 1995 1994 -------- -------- (In Thousands) Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 374 $ 257 Buildings and improvements . . . . . . . . . . . . . . . . . 17,544 17,179 Machinery and equipment . . . . . . . . . . . . . . . . . . 94,513 74,270 Construction in progress . . . . . . . . . . . . . . . . . . 11,679 4,190 -------- -------- 124,110 95,896 Less accumulated depreciation and amortization . . . . . . . (42,799) (38,656) -------- -------- $ 81,311 $ 57,240 ======== ========
NOTE 7 - NET INCOME PER SHARE INFORMATION Net income per share amounts are based on the weighted average number of common and common equivalent shares outstanding during the respective periods. Shares of common stock issuable upon conversion of the 8% Convertible Subordinated Debentures due 2006 are not considered to be common stock equivalents and were antidilutive in each of the periods presented. NOTE 8 - SEASONALITY The timing of revenues is dependent on the Company's backlog, contract awards and the performance requirements of each contract. The Company's revenues are also affected by the timing of its clients' planned remediation work which generally increases during the third and fourth quarters. Because of this change in demand, the Company's quarterly revenues can fluctuate, and revenues 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 revenues 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. NOTE 9 - ACQUISITION On May 30, 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of the hazardous and nuclear waste remediation service business (the "Division") of Rust International Inc. ("Rust") in exchange for 9,668,000 shares of common stock of the Company, or approximately 37% of the outstanding shares of the Company's common stock. Such shares issued to Rust are subject to a number of restrictions set forth in a Standstill and Non-Competition Agreement that was entered into pursuant to the Agreement and Plan of Reorganization dated December 5, 1994, as amended (the "Reorganization Agreement"), among the Company, Rust and certain of its subsidiaries. In addition to the net assets of the Division, the Company received $16,670,000 in cash pursuant to provisions of the Reorganization Agreement that provided for an adjustment based on the average per share price of the Company's common stock for a 20 trading day period prior to closing. For purposes of calculating 5 8 the consideration given by the Company for the Division, such 20 trading day average per share price of $11.25 was used, adjusted to reflect a discount for the restricted nature of the common stock issued. In exchange for a warrant to purchase up to 700,000 shares of the Company's common stock at an exercise price of $15.00 per share during the five years following the closing date, Rust's parent company, WMX Technologies, Inc. ("WMX"), will provide the Company with a credit enhancement in the form of guarantees, issued from time to time upon request of the Company, of up to $62,000,000 of the Company's indebtedness, which will increase proportionately up to $75,000,000 upon issuance of shares under the warrant. The acquisition of the Division 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 May 30, 1995. The Company's consolidated financial statements for the three and nine month periods ended September 30, 1995, include the results of operations for the Division since May 30, 1995. The following table sets forth the unaudited combined pro forma results of operations for the nine months ended September 30, 1995 and 1994, giving effect to the acquisition of the Division as if such acquisition had occurred on January 1, 1994.
Pro Forma Nine Months Ended September 30, ---------------------- 1995 1994 -------- -------- (In Thousands, Except Per Share Data) Gross revenue . . . . . . . . . . . . . . . . . . . . . . . $378,144 $432,701 Net income . . . . . . . . . . . . . . . . . . . . . . . . . 6,038 9,966 Net income per share . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.39
The actual purchase accounting adjustments to reflect the fair value of assets and liabilities acquired have not been finalized and, as a result, the accompanying consolidated financial statements and combined pro forma results of operations have been prepared on the basis of preliminary estimates of such adjustments. The combined pro forma results of operations for the nine months ended September 30, 1995 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, 1994, nor are they necessarily indicative of results which will be reported in the future. NOTE 10 - CAPITAL STOCK On March 28, 1995, the Company sold to H. Wayne Huizenga and an affiliated family foundation 1,000,000 shares of its common stock and options for an aggregate purchase price of $10,000,000. The options are exercisable over five years for the purchase of 620,000 shares of common stock upon payment of $10.00 per share and 380,000 shares of common stock upon payment of $12.00 per share. NOTE 11 - CREDIT AGREEMENT 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. WMX has issued a guarantee of up to $62,000,000 outstanding under the credit agreement in favor of the Bank Group (See Note 9 Acquisition). Under the terms of the agreement the entire credit facility can be used for either cash borrowings or letters of credit subject to certain covenants. 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 is based on the aggregate amount borrowed under the facility, the presence of the WMX guarantee, and the Company's financial performance as measured by an interest coverage ratio and a total funded debt ratio. The arrangement provides the participating banks and WMX with a security interest in the Company's equipment, inventories, accounts receivables, 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. The Company had $14,757,000 and $34,771,000 of letters of credit and $50,900,000 and $57,700,000 of cash borrowings outstanding under its revolving credit facility at September 30, 1995 and December 31, 1994, respectively. 6 9 NOTE 12 - LITIGATION AND CONTINGENCIES The Company's accounts receivable at September 30, 1995 include a claim receivable aggregating approximately $25,323,000 in direct costs relating to a major remediation project which was performed by the Company for Citgo Petroleum Corporation ("Citgo") at its Lake Charles, Louisiana refinery during 1993 and 1994. This claim receivable represents direct costs to date for activities which the Company's management believed exceeded the scope of the existing contract due to deficient project specifications provided by Citgo and Oxy USA, Inc. ("Oxy") as well as differing site conditions. In addition, at September 30, 1995, the Company has recorded in its financial statements approximately $5,381,000 of accounts receivable that are in dispute for work performed under the terms of the Company's base contract with Citgo. In April 1994, the Company submitted to Citgo a request for equitable adjustment and Citgo responded by filing an action in the U.S. District Court for the Western District of Louisiana seeking a declaratory judgment that the Company is not entitled to additional compensation under the contract and certain other relief. The Company's answer to the declaratory judgment action was filed in July 1994, together with counterclaims against Citgo for negligent misrepresentation, breach of contract and quantum meruit seeking damages in excess of $35,000,000. In August 1994, Citgo amended its complaint seeking damages under the contract for production shortfalls, which Citgo has asserted in answer to the Company's interrogatories to be approximately $27,600,000. The Company believes that such assertion of damages is totally without merit since the contract expressly provides that Citgo's sole remedy for production shortfalls by the Company are liquidated damages not to exceed $500,000. In January 1995, Citgo filed a third party complaint against Occidental Oil and Gas Corporation and Oxy as third party defendants in such litigation because of their prior involvement with the Citgo site and preparation of the contract specifications. Additionally, in July 1995, the Company filed a complaint against Oxy for negligent misrepresentation as a result of its involvement with the development of sampling and analytical data relied upon by the Company in preparation of its bid and cost estimates for work at the site. The Company has also become involved in litigation with Occidental Chemical Corporation ("Occidental") relating to a separate project performed in 1993 and 1994 for Occidental. The Company's accounts receivable at September 30, 1995 include a claim receivable of $8,297,000 in direct costs relating to this project. The litigation arises from an October 1993 contract between the Company and Occidental for work at a contaminated site in North Tonawanda, New York. The Company's work was substantially delayed and its costs of performance were substantially increased as a result of conditions at the site which the Company's management believes were materially different than as represented by Occidental. The Company believes that Occidental has implicitly acknowledged the existence of differing conditions at the site through its previous execution and partial payment of a change order relating to the Company's position. In October 1994, Occidental issued a deductive change order deleting substantially all remaining work from the contract. On December 30, 1994, while the Company was in the process of developing a comprehensive request for equitable adjustment, Occidental filed suit against the Company in U.S. District Court for the Western District of New York alleging damages in excess of $50,000, the jurisdictional minimum. On March 3, 1995, Occidental filed an amended complaint seeking $8,806,000 in damages primarily for alleged costs incurred as a result of project delays and added volumes of incinerated wastes. On April 6, 1995, the Company filed its answer and counterclaim denying any liability to Occidental and seeking 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. During the fourth quarter of 1994, the Company recorded a $25,000,000 pre-tax charge, $15,000,000 after-tax or $0.96 per share, to establish a reserve for accounts receivable, primarily where such accounts are in litigation. Management believes that it has established adequate reserves should the resolution of such accounts receivable be lower than the amounts recorded and such resolution should not have a material adverse impact upon the Company's consolidated results of future operations or financial condition. The Company was named in April 1994 as one of 33 third party defendants in a case titled United States of America v. American Cyanamid Company, Inc., et al., pending in the United States District Court for the Southern District of West Virginia. This litigation arises out of claims made against several potentially responsible parties ("PRPs") by the Environmental Protection Agency ("EPA") for amounts in excess of $24,000,000 for response costs arising out of releases and threatened releases of hazardous waste at the Fike Chemical, Inc. Superfund site (the "Site") in Nitro, West Virginia. The Company was retained as a response action contractor for the site under contracts with the United States Army Corps of Engineers ("USACE") and the EPA. The third party complaint alleges that the Company was an operator of the Site during the remediation and that the Company caused releases or threatened releases of hazardous substances at the Site as a result of its negligent conduct, grossly negligent conduct or intentional misconduct. The third party complaint seeks damages and contribution from the Company and the other third party defendants. The Company has submitted claims for indemnification related to the lawsuit under its contract with the 7 10 USACE and the EPA and has notified its contractors pollution liability insurance carrier. The Company believes the lawsuit is without merit, intends to vigorously defend against it and does not believe that it will have a material adverse effect on the results of future operations and financial condition of the Company. The Company has also been subject to an investigation by the government relating to the Company's billings to the EPA for its work at the Site. The investigation was prompted by allegations made by certain of the PRPs in defense of the main cost recovery action. Those PRPs have also filed a qui tam suit against the Company under seal. The Company cooperated fully with the investigation and has been informed that the government will not be proceeding criminally against the Company. The Company is in the process of discussing with the government the potential disposition of any civil or administrative action by the government, including the qui tam suit. 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 if not insured, will not, in the aggregate, have a material adverse impact upon the Company's consolidated financial position or the results of future operations. NOTE 13 - INTEGRATION EXPENSES The Company's consolidated statements of income for the nine months ended September 30, 1995, include expenses aggregating $2,428,000 (net of $1,426,000 income tax benefit) or $0.12 per share, for integration costs related to the acquisition of the Division. The costs were recorded in selling, general and administrative expenses and were primarily for severance and relocation costs for certain of the Company's personnel and the closing of certain of the Company's offices as a result of combining the operations of the Division and the Company. 8 11 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors and Shareholders OHM Corporation We have reviewed the accompanying consolidated balance sheet of OHM Corporation and subsidiaries as of September 30, 1995, and the related consolidated statements of income for the three and nine month periods ended September 30, 1995 and 1994 and the consolidated statements of cash flows for the nine month periods ended September 30, 1995 and 1994. 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 and subsidiaries as of December 31, 1994, 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 1, 1995, except for Note 19, as to which the date is May 4, 1995, 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, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP Columbus, Ohio October 31, 1995 9 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company provides a broad range of environmental, hazardous and nuclear waste remediation services to its clients located primarily in the United States. The timing of the Company's revenues is dependent on its backlog, contract awards and the performance requirements of each contract. The Company's revenues are also affected by the timing of its clients' planned remediation activities which generally increase during the third and fourth quarters. Because of this change in demand, the Company's quarterly revenues can fluctuate, and revenues 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 this year or 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. On March 28, 1995, the Company sold to H. Wayne Huizenga and an affiliated family foundation 1,000,000 shares of its common stock and options for an aggregate purchase price of $10,000,000. The options are exercisable over five years for the purchase of 620,000 shares of common stock upon payment of $10.00 per share and 380,000 shares of common stock upon payment of $12.00 per share. On May 30, 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of the hazardous and nuclear waste remediation service business (the "Division") of Rust International Inc. ("Rust") in exchange for 9,668,000 shares of common stock of the Company, or approximately 37% of the outstanding shares of the Company's common stock. In exchange for a warrant to purchase up to 700,000 shares of the Company's common stock at an exercise price of $15.00 per share during the five years following the closing date, Rust's parent company, WMX Technologies, Inc. ("WMX"), will provide the Company with a credit enhancement in the form of guarantees, issued from time to time upon request of the Company, of up to $62,000,000 of the Company's indebtedness, which will increase proportionately up to $75,000,000 upon issuance of shares under the warrant. The acquisition of the Division 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 May 30, 1995. The Company's consolidated financial statements for the nine months ended September 30, 1995, include the results of operation for the Division since May 30, 1995. The Company's consolidated statements of income for the nine months ended September 30, 1995, include expenses of $3,854,000 pre-tax, $2,428,000 after-tax or $0.12 per share, for integration costs related to the acquisition of the Division. The costs were recorded in selling, general and administrative expenses and were primarily for severance and relocation costs for certain of the Company's personnel and the closing of certain of the Company's offices as a result of combining the operations of the Division and the Company. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS THREE MONTHS ENDED SEPTEMBER 30, 1994 GROSS REVENUES. The following table sets forth the Company's gross revenues by client type for the three months ended September 30, 1995 and 1994 (in thousands, except percentages):
1995 1994 ---------------- -------------- Government . . . . . . . . . . . . . . . . . . . $ 96,192 71% $55,959 61% Industrial . . . . . . . . . . . . . . . . . . . 39,694 29% 35,349 39% -------- --- ------- --- $135,886 100% $91,308 100% ======== === ======= ===
Total gross revenues increased by $44,578,000 to $135,886,000 for the three months ended September 30, 1995 from $91,308,000 for the same period in 1994. Gross revenues for the three months ended September 30, 1995 include revenues from the Division acquired on May 30, 1995. Gross revenues reflect all amounts to be billed by the Company to its clients for work performed and include subcontract costs that are generally passed through to clients with a minimal amount of mark-up. The Company's management believes that net revenues represent a better measurement of the Company's ability to generate profit from activities performed by the Company and, accordingly, management's discussion and analysis of revenues focuses on net revenues. 10 13 DIRECT SUBCONTRACT COSTS. Direct subcontract costs for the three months ended September 30, 1995 increased 95% to $42,945,000 from $21,975,000 for the same period in 1994. Increases or decreases in direct subcontract costs generally result from varying requirements for the use of subcontractors in the projects performed by the Company. The increase in direct subcontract costs is primarily due to the increase in gross revenues during the third quarter of 1995 when compared to the same period in 1994 and the increased use of subcontractors for projects performed under the Company's government contracts. Direct subcontract costs as a percentage of gross revenues were 32% for the three months ended September 30, 1995, compared to 24% for the same period in 1994. NET REVENUES. The following table sets forth the Company's net revenues by client type for the three months ended September 30, 1995 and 1994 (in thousands, except percentages):
1995 1994 ------------- -------------- Government . . . . . . . . . . . . . . . . . . . $64,710 70% $40,408 58% Industrial . . . . . . . . . . . . . . . . . . . 28,231 30% 28,925 42% ------- --- ------- --- $92,941 100% $69,333 100% ======= === ======= ===
Net revenues for the three months ended September 30, 1995 increased 34% to $92,941,000 from $69,333,000 for the same period in 1994. Net revenues for the three months ended September 30, 1995 include revenues from the Division acquired on May 30, 1995. Net revenues from government agencies for the three months ended September 30, 1995 increased 60% to $64,710,000 from $40,408,000 for the same period in 1994. Such improvement resulted primarily from increased net revenues from the Company's term contracts with the U.S. Navy, the United States Army Corps of Engineers and the Air Force, as well as increased revenues from other federal government agencies. Such increases were offset by a significant decrease in revenues from state and local governments during the three months ended September 30, 1995 when compared to the same period in 1994. The Company expects to experience a continued increase in net revenues from such federal government contracts for the balance of 1995 when compared to the same periods in 1994 and the Company continues to experience a significant amount of proposal activity with the various Department of Defense agencies. However, further reductions by Congress in future environmental remediation budgets of government agencies may adversely impact future revenues from such agencies and the funding of the Company's government term contracts included in contract backlog. The Company experienced a $694,000 or 2% decrease in net revenues from industrial clients during the three months ended September 30, 1995 as compared to the same period in 1994. Such revenues would have decreased further if not for the Company's acquisition of the Division. The Company's industrial sector revenues have been sluggish, which the Company believes is due to anticipated changes in the Superfund law pending its reauthorization and current economic conditions in certain industry and geographic sectors. 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 may have an 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 the regulations. Demand for the Company's services from the private sector will remain dependant on general economic conditions and the outcome of the proposed changes to the Superfund regulations. Industrial sector net revenues as a percentage of total net revenues decreased to 30% for the three months ended September 30, 1995 from 42% for the same period in 1994. The Company believes that the government sector will be its primary source of revenues for the foreseeable future in light of the factors discussed above. COST OF SERVICES AND GROSS PROFIT. Cost of services for the three months ended September 30, 1995 increased 36% to $73,870,000 from $54,300,000 for the same period in 1994 primarily due to increased net revenues. Cost of services as a percentage of net revenues was 79% and 78% for the three months ended September 30, 1995 and 1994, respectively. Gross profit for the three months ended September 30, 1995 increased 27% to $19,071,000 from $15,033,000 for the same period in 1994. Both gross profit and cost of services were negatively impacted during the three months ended September 30, 1995 by the acquisition of the Division. The Company incurred additional indirect cost of services for the Division's offices and employees, while revenues from the Division's projects were significantly lower than expected. The Company is pursuing certain remediation and construction related opportunities with senior management of WMX to expand the 11 14 Company's status as a preferred provider, which the Company is hopeful will expand the revenue opportunities on behalf of the Division. However, the Company is uncertain as to the outcome of such discussions. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SGA") expenses for the three months ended September 30, 1995 increased 47% to $12,348,000 from $8,419,000 for the same period in 1994. SGA expense increased primarily as a result of the revenue growth and the acquisition of the Division. SGA expense as a percentage of net revenues increased to 13% for the third quarter of 1995 from 12% in the same period in 1994. OPERATING INCOME. Operating income for the three months ended September 30, 1995 increased 2% to $6,723,000 from $6,614,000 for the same period in 1994, as a result of factors discussed above. OTHER (INCOME) EXPENSES. Other (income) expenses, excluding the Company's equity in net earnings of NSC, decreased $1,023,000 to $1,784,000 from $2,807,000 for the three months ended September 30, 1995 when compared to the same period in 1994. Such decrease is primarily due to interest earned on certain outstanding receivables guaranteed by Rust pursuant to the agreement for the acquisition of the Division and gains realized on the disposition of certain of the Company's operations equipment. The receivables guaranteed by Rust were paid to the Company on September 30, 1995. EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in NSC's net earnings for the three months ended September 30, 1995 was $6,000 compared to $359,000 for the same period in 1994. Such decrease in earnings is primarily a result of losses recorded by NSC on claims settled in the third quarter of 1995 with certain of its clients. In addition, the asbestos abatement industry in general continues to experience competitive pressures in the market place which have negatively impacted the gross margin on NSC's projects. NET INCOME. Net income for the three months ended September 30, 1995 was $3,187,000 or $0.12 per share compared to $2,615,000 or $0.16 per share for the same period in 1994. As a result of the acquisition of the Division and the shares issued to H. Wayne Huizenga, the Company had approximately 69% more shares outstanding during the third quarter of 1995 when compared to the same period in 1994. The effective income tax rate was 36% for the three months ended September 30, 1995, compared to 37% for the same period in 1994. See "Note 5 to the Consolidated Financial Statements" for a reconciliation of the statutory federal income tax rate to the effective income tax rate. NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1994 GROSS REVENUES. The following table sets forth the Company's gross revenues by client type for the nine months ended September 30, 1995 and 1994 (in thousands, except percentages):
1995 1994 -------------- --------------- Government . . . . . . . . . . . . . . . . . . . $233,907 74% $145,393 56% Industrial . . . . . . . . . . . . . . . . . . . 81,697 26% 115,632 44% -------- --- -------- --- $315,604 100% $261,025 100% ======== === ======== ===
Total gross revenues increased by $54,579,000 to $315,604,000 for the nine months ended September 30, 1995 from $261,025,000 for the same period in 1994. Gross revenues for the nine months ended September 30, 1995 include revenues from the Division since it was acquired on May 30, 1995. Gross revenues reflect all amounts to be billed by the Company to its clients for work performed and include subcontract costs that are generally passed through to clients with a minimal amount of mark-up. The Company's management believes that net revenues represent a better measurement of the Company's ability to generate profit from activities performed by the Company and, accordingly, management's discussion and analysis of revenues focuses on net revenues. DIRECT SUBCONTRACT COSTS. Direct subcontract costs for the nine months ended September 30, 1995 increased 28% to $95,500,000 from $74,854,000 for the same period in 1994. Increases or decreases in direct subcontract costs generally result from varying requirements for the use of subcontractors in the projects performed by the Company. Direct subcontract costs as a percentage of gross revenues were 30% for the nine months ended September 30, 1995, compared to 29% for the same period in 1994. 12 15 NET REVENUES. The following table sets forth the Company's net revenues by client type for the nine months ended September 30, 1995 and 1994 (in thousands, except percentages):
1995 1994 -------------- --------------- Government . . . . . . . . . . . . . . . . . . . $159,403 72% $ 99,889 54% Industrial . . . . . . . . . . . . . . . . . . . 60,701 28% 86,282 46% -------- --- -------- --- $220,104 100% $186,171 100% ======== === ======== ===
Net revenues for the nine months ended September 30, 1995 increased 18% to $220,104,000 from $186,171,000 for the same period in 1994. Net revenues for the nine months ended September 30, 1995 include revenues from the Division since it was acquired on May 30, 1995. Net revenues from government agencies for the nine months ended September 30, 1995 increased 60% to $159,403,000 from $99,889,000 for the same period in 1994. Such improvement resulted primarily from increased net revenues from the Company's term contracts with the U.S. Navy, the United States Army Corps of Engineers and the Air Force, as well as increased revenues from other federal government agencies. Such increases were offset by a decrease in revenues from state and local governments during the nine months ended September 30, 1995 when compared to the same period in 1994. The Company expects to experience a continued increase in net revenue from such federal government contracts for the balance of 1995 when compared to the same periods in 1994 and the Company continues to experience a significant amount of proposal activity with the various Department of Defense agencies. However, further reductions by Congress in future environmental remediation budgets of government agencies may adversely impact future revenues from such agencies and the funding of the Company's government term contracts included in contract backlog. The Company experienced a $25,581,000 or 30% decrease in net revenues from industrial clients during the nine months ended September 30, 1995 as compared to the same period in 1994. Such revenues would have decreased further if not for the Company's acquisition of the Division. The nine months ended September 30, 1994 included significant net revenues from a project that was performed for Citgo Petroleum Corporation ("Citgo") (see "Note 12 to the Consolidated Financial Statements") that ended during the third quarter of 1994. The Company's industrial sector revenues have been sluggish, which the Company believes is due to anticipated changes in the Superfund law pending its reauthorization and current economic conditions in certain industry and geographic sectors. 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 may have an 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 the regulations. Demand for the Company's services from the private sector will remain dependant on general economic conditions and the outcome of the proposed changes to the Superfund regulations. Industrial sector net revenues as a percentage of total net revenues decreased to 28% for the nine months ended September 30, 1995 from 46% for the same period in 1994. The Company believes that the government sector will be its primary source of revenues for the foreseeable future in light of the factors discussed above. COST OF SERVICES AND GROSS PROFIT. Cost of services for the nine months ended September 30, 1995 increased 17% to $171,979,000 from $147,063,000 for the same period in 1994 primarily due to increased net revenues. Cost of services as a percentage of net revenues was 78% and 79% for the nine months ended September 30, 1995 and 1994, respectively. Cost of services as a percentage of net revenues was negatively impacted during the nine months of 1994 by contract claims arising out of the Company's project with Citgo, which was recorded without gross profit margin. Gross profit for the nine months ended September 30, 1995 increased 23% to $48,125,000 from $39,108,000 for the same period in 1994. Both gross profit and cost of services were negatively impacted during the nine months ended September 30, 1995 by the acquisition of the Division. The Company incurred additional indirect cost of services for the Division's offices and employees, while revenues from the Division's projects were significantly lower than expected. The Company is pursuing certain remediation and construction related opportunities with senior management of WMX to expand the Company's status as a preferred provider, which the Company is hopeful will expand the revenue opportunities on behalf of the Division. However, the Company is uncertain as to the outcome of such discussions. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SGA") expenses for the nine months ended September 30, 1995 increased 39% to $33,314,000 from $24,022,000 for the same 13 16 period in 1994. Selling, general and administrative expenses for the nine months ended September 30, 1995, include expenses of $3,854,000 for integration costs related to the acquisition of the Division. The expenses were primarily for severance and relocation costs for certain of the Company's personnel and the closing of certain of the Company's offices as a result of combining the operations of the Company and the Division. SGA expense as a percentage of net revenues increased to 15% for the first nine months of 1995 from 13% in the same period in 1994. OPERATING INCOME. Operating income for the nine months ended September 30, 1995 decreased 2% to $14,811,000 from $15,086,000 for the same period in 1994. The decrease is primarily due to the integration expenses incurred during the second quarter of 1995 related to combining the operations of the Company and the Division as well as the other factors discussed above. OTHER (INCOME) EXPENSES. Other (income) expenses, excluding the Company's equity in net earnings of NSC, increased $828,000 to $7,871,000 from $7,043,000 for the nine months ended September 30, 1995 when compared to the same period in 1994. Such increase is primarily due to the increase in interest expense for the nine months ended September 30, 1995 of $2,103,000 to $8,527,000 from $6,424,000 for the same period in 1994. The increase in interest expense was offset by interest earned on certain outstanding receivables guaranteed by Rust pursuant to the agreement for the acquisition of the Division and gains realized on the disposition of certain of the Company's operations equipment. Such receivables guaranteed by Rust were paid to the Company on September 30, 1995. The increase in interest expense was due to additional borrowing under the Company's credit facility during the first half of 1995 as a result of the increased working capital requirements of certain large remediation projects and government contracts. EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in NSC's net earnings for the nine months ended September 30, 1995 was $287,000 compared to $720,000 for the same period in 1994. Such decrease in earnings is primarily a result of losses recorded by NSC on claims settled in the third quarter of 1995 with certain of its clients. In addition, the asbestos abatement industry in general continues to experience competitive pressures in the market place which have negatively impacted the gross margin on NSC's projects. NET INCOME. Net income for the nine months ended September 30, 1995 was $4,708,000 or $0.22 per share compared to $5,489,000 or $0.34 per share for the same period in 1994. The effective income tax rate was 35% for the nine months ended September 30, 1995, compared to 37% for the same period in 1994. See "Note 5 to the Consolidated Financial Statements" for a reconciliation of the statutory federal income tax rate to the effective income tax rate. CONTRACT BACKLOG The following table lists, at the dates indicated, (i) the Company's backlog, defined as the unearned portion of the Company's existing contracts and unfilled orders, and (ii) the Company's term contracts, defined as the potential value of government term contracts (in thousands):
September 30, December 31, 1995 1994 ------------ ------------ Backlog . . . . . . . . . . . . . . . . . . . . . . $ 482,000 $ 255,000 Term contracts . . . . . . . . . . . . . . . . . . . 1,589,000 1,498,000 ---------- ---------- Total contract backlog . . . . . . . . . . . . . $2,071,000 $1,753,000 ========== ==========
The Company received more new contract awards from clients and delivery orders issued under the Company's term contracts during the first nine months of 1995 than was recorded as revenue, which resulted in the increase in backlog at September 30, 1995. In accordance with industry practice, substantially all of the Company's contracts in backlog may be terminated at the convenience of the client. In addition, the amount of the Company's backlog is subject to changes in the scope of services to be provided under any given contract. The Company estimates that approximately 60% of the backlog at September 30, 1995 will be realized within the next year. Term contracts are typically performed under delivery orders, issued by the contracting government entity, for a large number of small- to medium-sized remediation projects throughout the geographic area covered by the contract. The Company's government term contracts generally may be canceled, delayed or modified at 14 17 the sole option of the government, and typically are subject to annual funding limitations and public sector budget constraints. Accordingly, such government contracts represent the potential dollar value that may be expended under such contracts, but there is no assurance that such amounts, if any, will be actually spent on any projects or of the timing thereof. In addition, further reductions by Congress in future environmental remediation budgets of government agencies may adversely impact future revenues from such agencies and the funding of the Company's government term contracts included in contract backlog. 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. WMX has issued a guarantee of up to $62,000,000 outstanding under the credit agreement in favor of the Bank Group (See Note 9 - Acquisition). 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 guaranty, 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 receivables, 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. The Company had $14,757,000 and $34,771,000 of letters of credit and $50,900,000 and $57,700,000 of cash borrowings outstanding under its revolving credit facility at September 30, 1995 and December 31, 1994, respectively. The Company had $29,341,000 and $4,930,000 of cash and cash equivalents at September 30, 1995 and December 31, 1994 respectively. The increase in cash at September 30, 1995 when compared to December 31, 1994 is primarily due to the receipt of cash on September 30, 1995 from Rust for certain of the Division's receivables that were guaranteed under the terms of the merger agreement. Capital expenditures for the nine months ended September 30, 1995 and 1994 were $8,971,000 and $8,755,000, respectively. The Company's capital expenditures are primarily related to the purchase of heavy equipment and the fabrication of custom equipment by the Company for the execution of remediation projects. Capital expenditures for fiscal year 1995 are expected to range between $10,000,000 and $12,000,000. The Company's long-term capital expenditure requirements are dependent upon the type and size of future remediation projects awarded to the Company. During the first nine months of 1995, the Company derived 74% of its gross revenues from government agencies compared to 56% during the same period in 1994. Revenues from government agencies historically have required greater working capital, the major component of which is accounts receivable, than revenues 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 increased working capital needs and capital expenditures in the short term through a combination of cash flows from continuing operations, borrowing under its Revolving Credit Facility, proceeds from permitted asset sales and other external sources. In addition, under the terms of its recently completed acquisition of Rust's hazardous and nuclear waste remediation business, Rust's parent company, WMX, has provided the Company with a credit guarantee of up to $62,000,000 of the Company's indebtedness outstanding until May 30, 2000. Such credit guarantee has allowed the Company to expand its borrowing capacity and lower its cost of capital under its new credit facility entered into on May 31, 1995. 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 commencing in 1996 as well as payments due upon maturity of its Convertible Debentures in 2006. The Company purchased and retired $5,000,000 of the outstanding Convertible Debentures during October 1995, sufficient to meet its first annual sinking fund obligation due October 1, 1996. The Company believes that it will be able to refinance the remaining indebtedness as necessary. 15 18 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. See "Note 12 to the Consolidated Financial Statements." 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 for future government contracting, could have a material adverse effect on the Company's business. 16 19 PART II -- OTHER INFORMATION Item 1. Legal Proceedings In October 1993, the Company was retained by Citgo for the removal of surface impoundment sludge at its Lake Charles, Louisiana refinery. Based on information provided to the Company by Citgo and Oxy USA, Inc. ("Oxy"), the Company bid and was awarded a contract for approximately $28,600,000. During April 1994, the Company submitted to Citgo a request for a substantial equitable adjustment to the contract as a result of deficient project specifications provided by Citgo as well as other unplanned events controlled by Citgo. On April 29, 1994, Citgo filed a declaratory judgment action in the United States District Court for the Western District of Louisiana requesting a declaratory judgement that the Company is not entitled to additional compensation and requesting an order for specific performance requiring the Company to perform the contract. The Company accounts receivable as of September 30, 1995 reflect a claim receivable and other accounts receivable relating to performance of the Citgo project aggregating approximately $30,704,000. The Company's answer to the declaratory judgement action was filed on July 28, 1994, together with counterclaims against Citgo for negligent misrepresentation, breach of contract and quantum meruit seeking damages in excess of $35,000,000. Subsequent to filing of the Company's answer and counterclaim, Citgo amended its complaint seeking damages under the contract for production shortfalls, which Citgo has asserted in answer to the Company's interrogatories to be approximately $27,600,000. The Company believes that such assertion of damages is totally without merit since the contract expressly provides that Citgo's sole remedy for production shortfalls by the Company are liquidated damages not to exceed $500,000. In January 1995, Citgo filed a third party complaint against Occidental Oil and Gas Corporation and Oxy asserting various claims relating to their prior involvement with the Citgo site and its contract specifications. Additionally, in July 1995, the Company filed a complaint against Oxy for negligent misrepresentation as a result of its involvement with the development of sampling and analytical data relied upon by the Company in preparation of its bid and cost estimates for work at the site. The Company was named in April 1994 as one of 33 third party defendants in a case titled United States of America v. American Cyanamid Company, Inc., et al., pending in the United States District Court for the Southern District of West Virginia. This litigation arises out of Superfund cost recovery claims made against several potentially responsible parties ("PRPs") by the Environmental Protection Agency ("EPA") for amounts in excess of $24,000,000 for response costs arising out of releases and threatened releases of hazardous waste at the Fike Chemical, Inc. Superfund site (the "Site") in Nitro, West Virginia. The Company was retained as a response action contractor for the Site under contracts with the United States Army Corps of Engineers ("USACE") and the EPA. The third party complaint alleges that the Company was an operator of the Site during the remediation and that the Company caused releases or threatened releases of hazardous substances at the Site as a result of its negligent conduct, grossly negligent conduct or intentional misconduct. The third party complaint seeks damages and contribution from the Company and the other third party defendants. The Company has submitted claims for indemnification related to this lawsuit under its contract with the USACE and the EPA and has notified its contractors pollution liability insurance carrier. The Company believes the lawsuit is without merit, intends to vigorously defend against it and does not believe that it will have a material adverse effect on the results of operations and financial condition of the Company. The Company has also been subject to an investigation by the government relating to the Company's billings to the EPA for its work at the Site. The investigation was prompted by allegations made by certain of the PRPs in defense of the main cost recovery action. Those PRPs also filed a qui tam suit against the Company under seal. The Company cooperated fully with the investigation and has been informed that the government will not be proceeding criminally against the Company. The Company is in the process of discussing with the government the potential disposition of any civil or administrative action by the government, including the qui tam suit. See "Managements Discussion and Analysis of Financial Condition and Results of Operation - Environmental Matters and Government Contracting." 17 20 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10(a) Amendment No. 2 dated July 27, 1995 to Agreement and Plan of Reorganization dated December 5, 1994 by and among OHM Corporation, Rust Remedial Services, Inc., Enclean Environmental Services Group, Inc., Rust Environmental Inc., and Rust International, Inc. 10(b) Amendment No. 1 dated as of October 16, 1995 to the Revolving Credit Agreement dated as of May 31, 1995 among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America Illinois, as Issuing and Paying Agent and Co-Agent 11 Statement Re Computation of Per Share Earnings 15 Letter Re Unaudited Financial Information 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on form 8-K were filed during the quarter ended September 30, 1995. 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: November 14, 1995 By /s/ JAMES L. KIRK ----------------------------- James L. Kirk Chairman of the Board, President and Chief Executive Officer (Duly Authorized Officer) Date: November 14, 1995 By /s/ Harold W. Ingalls ----------------------------- Harold W. Ingalls Vice President and Chief Financial Officer (Principal Financial Officer) Date: November 14, 1995 By /s/ KRIS E. HANSEL ----------------------------- Kris E. Hansel Vice President and Controller (Principal Accounting Officer) 18 21 EXHIBIT INDEX
Exhibit Exhibit Number Description - ------- ----------- 10(a) Amendment No. 2 dated July 27, 1995 to Agreement and Plan of Reorganization dated December 5, 1994 by and among OHM Corporation, Rust Remedial Services, Inc., Enclean Environmental Services Group, Inc., Rust Environmental Inc., and Rust International, Inc. 10(b) Amendment No. 1 dated as of October 16, 1995 to the Revolving Credit Agreement dated as of May 31, 1995 among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America Illinois, as Issuing and Paying Agent and Co-Agent 11 Statement Re Computation of Per Share Earnings 15 Letter Re Unaudited Financial Information 27 Financial Data Schedule
EX-10.A 2 EXHIBIT 10 (A) 1 Exhibit 10(a) AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF REORGANIZATION This Amendment, dated as of July 27, 1995 (the "Amendment") to the Agreement and Plan of Reorganization, dated December 5, 1995, as amended, (the "Reorganization Agreement") by and among OHM Corporation, an Ohio corporation, Rust Remedial Services, Inc., a Delaware corporation, Enclean Environmental Services Group, Inc., a Delaware corporation, Rust Environmental Inc., a former Delaware corporation that merged out of existence with and into OHM Remediation Services Corp., an Ohio corporation and Rust International, Inc., a Delaware corporation. For good and valuable consideration, the parties hereby agree that the Reorganization Agreement shall be amended as follows: 1. Section 3.1(a) of the Reorganization Agreement is hereby amended and restated as follows: (a) By the close of business on August 15, 1995, OHM shall prepare and deliver a statement of current assets and current liabilities of Environmental as of the last day of the month either preceding or following the Closing Date which is closest to the Closing Date (the "Closing Statement") which shall be prepared on a basis consistent with the Division Balance Sheet (each, as hereinafter defined). 2. Section 3.1(b) of the Reorganization Agreement is hereby amended and restated as follows: (b) If, within 45 days after the date such Closing Statement is delivered to Rust, Rust shall not have given written notice to OHM setting forth in detail any objection of Rust to such Closing Statement, then such Closing Statement shall constitute the "Division Closing Statement" and the current assets shown thereon less the current liabilities shown thereon shall constitute the "Division Closing Net Current Asssets." In the event Rust, within such 45-day period, shall give written notice of any objection to such Closing Statement, OHM and Rust shall endeavor to reach agreement on all differences within the 30-day period following the giving of notice by Rust of its objections. If the parties are unable to reach agreement within such 30-day period, the matter shall be submitted to a firm of independent certified public accountants as may be agreed to by OHM and Rust (the "Independent Accountants"), the decision of which shall be final and binding upon the OHM and Rust. The Closing Statement agreed upon by OHM and Rust or as determined by the Independent Accountants pursuant to this Section 3.1 shall constitute the "Division Closing Statement" and the net current assets shown thereon shall constitute the "Division Closing Net Current Assets". 2 OHM and Rust shall bear equally the expenses of the Independent Accountants. 3. Except as amended herein, the Reorganization Agreement and the Schedules thereto shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. OHM CORPORATION RUST REMEDIAL SERVICES INC. By: /s/ Randall M. Walters By: /s/ Michael T. Brown ----------------------------- ----------------------------- Title: Vice President Title: Treasurer ENCLEAN ENVIRONMENTAL SERVICES OHM REMEDIATION SERVICES CORP. By: /s/ Michael T. Brown By: /s/ Randall M. Walters ----------------------------- ----------------------------- Title: Treasurer Title: Vice President RUST INTERNATIONAL INC. By: /s/ Michael T. Brown ------------------------------ Title: Vice President EX-10.B 3 EXHIBIT 10 (B) 1 Exhibit 10(b) AMENDMENT NO. 1 Dated as of October 16, 1995 to REVOLVING CREDIT AGREEMENT Dated as of May 31, 1995 THIS AMENDMENT NO. 1 dated as of October 16, 1995 (this "Amendment") is entered into by and among OHM Corporation ("OHM"), OHM Remediation Services Corp. ("Remediation", and together with OHM, the "Borrowers"), the financial institutions listed on the signature pages hereto (collectively, the "Banks"), Citicorp USA, Inc., as administrative agent (in such capacity, the "Administrative Agent") and Bank of America Illinois, as issuing and paying agent and as co-agent (in such capacity, the "Issuing and Paying Agent"). PRELIMINARY STATEMENT: --------------------- A. The Borrowers, the Banks, the Administrative Agent and the Issuing and Paying Agent have entered into that certain Revolving Credit Agreement dated as of May 31, 1995 (the "Credit Agreement"; capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement as amended by this Amendment No. 1), pursuant to which, among other things, the Banks have agreed to make certain loans, issue certain letters of credit and make certain other financial accommodations to the Borrowers upon the terms and conditions set forth therein. B. OHM proposes to issue up to $59,000,000 in principal amount of its Senior Notes due 2000 pursuant to an Indenture to be entered into among OHM, as issuer, WMX, as guarantor and a financial institution. C. Subject to the terms and conditions set forth below, the Borrowers, the Banks, the Administrative Agent and the Issuing and Paying Agent have, among other things, agreed to amend the Credit Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent set forth in SECTION 3 below, the Credit Agreement shall be amended as follows: 2 1.01. The definitions of "EBITDA", "EBITDA to Interest Expense Ratio", "Funded Debt to EBITDA Ratio", "WMX Guaranty", "WMX Intercreditor Agreement", and "WMX Reimbursement Agreement" are amended and restated in their entirety as follows: "'EBITDA' means, for any period, on a Consolidated basis for the Borrowers and their Subsidiaries, gross revenues MINUS direct subcontract costs MINUS costs of services MINUS selling, general and administration expenses PLUS depreciation expense and amortization expense for such period (in each case to the extent such items were included in selling, general and administration expenses and other costs of services), PLUS, in the case of any period which includes the fiscal quarter ending December 31, 1994, the amount of the Accounts Receivable Reserve PLUS, in the case of any period which includes the fiscal quarter ending June 30, 1995, expenses in the amount of $3,900,000 in the aggregate representing costs incurred (other than purchase accounting adjustments) made in connection with the Rust Transactions." "'EBITDA TO INTEREST EXPENSE RATIO' means, as of the last day of any fiscal quarter, the ratio of (i) EBITDA for the preceding four fiscal quarter period ending as of such day to (ii) Interest Expense for such period MINUS income of the Borrowers from dividends and interest, whether accrued or received during such period." "'FUNDED DEBT TO EBITDA RATIO' means, at any date, the ratio of (i) the aggregate amount of Funded Debt of the Borrowers and their Subsidiaries on a Consolidated basis as at such date MINUS the excess, if any, of (A) the amount of cash, cash equivalents and marketable securities held by the Borrowers and their Subsidiaries on such date OVER (B) $7,500,000, to (ii) EBITDA for the four fiscal quarter period ending as of the last day of the fiscal quarter with respect to which the Borrowers have most recently delivered quarterly financial statements pursuant to SECTION 5.03(B)." "'WMX GUARANTY' means that certain Guaranty dated as of May 31, 1995, executed by WMX in favor of the Administrative Agent and the Issuing and Paying Agent and acknowledged by the Borrowers, and any subsequent guaranty of the Obligations executed by WMX in favor of the Administrative Agent and the Issuing and Paying Agent in the form (but not the amount) of the Guaranty dated May 31, 1995." "'WMX INTERCREDITOR AGREEMENT' means that certain Intercreditor Agreement dated as of May 31, 1995 among -2- 3 WMX, the Administrative Agent and the Issuing and Paying Agent, acknowledged by the Borrowers, as the same may be amended, restated, supplemented or otherwise modified from time to time." "'WMX REIMBURSEMENT AGREEMENT' means the Reimbursement Agreement entered into between WMX and the Borrowers as of May 31, 1995 providing for the reimbursement of WMX by the Borrowers upon payment being made by WMX under the WMX Guaranty dated as of that date, and any subsequent reimbursement agreement entered into between WMX and the Borrowers providing for the reimbursement of WMX by the Borrowers upon payment being made by WMX under any subsequent WMX Guaranty." 1.02. The following new definitions are added to SECTION 1.01 of the Credit Agreement, to be added in alphabetical order: "'SENIOR NOTE INDENTURE' means the Indenture to be entered into among OHM, as issuer, WMX, as guarantor, and a financial institution, as trustee, providing for the issuance of the Senior Notes." "'SENIOR NOTES' means the Senior Notes due 2000 in the original principal amount of $59,000,000 issued by OHM pursuant to the Senior Note Indenture." "'WMX SENIOR NOTE GUARANTY' means the guaranty by WMX of the Senior Notes, such guaranty included as part of the Senior Note Indenture." "'WMX SENIOR NOTE REIMBURSEMENT AGREEMENT' means the Reimbursement Agreement to be entered into between WMX and the Borrowers providing for the reimbursement of WMX by the Borrowers upon payment being made by WMX under the WMX Senior Note Guaranty." 1.03. SECTION 5.02(a) of the Credit Agreement is amended by striking "and" at the end of clause (xiii), striking the period and substituting ";and" at the end of clause (xiv), and adding the following new clause (xv): "(xv) Liens securing obligations owed to WMX under the WMX Senior Note Reimbursement Agreement," 1.04. SECTION 5.02(h) of the Credit Agreement is amended by amending and restating clause (iv) thereof as follows: "(iv) the Borrowers may enter into and perform their obligations under the WMX Reimbursement Agreement -3- 4 and the WMX Senior Note Reimbursement Agreement and any related security agreements; and" 1.05. SECTION 5.02(i) of the Credit Agreement is amended by amending and restating clause (vi) thereof as follows: "(vi) Investments in (A) direct obligations and repurchase agreements of the United States or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States or have a short-term rating of "A-1" or better by Standard and Poor's or "P-1" or better by Moody's or a long-term rating of "A-" or better by Standard & Poor's or "A3" or better by Moody's, in each case having a maturity of six months or less, (B) commercial paper, in an aggregate amount not exceeding $10,000,000 per issuer, issued by corporations organized in the United States and having ratings equivalent to those described in CLAUSE (A) and a maturity of six months or less, (C) certificates of deposit or bankers acceptances in an aggregate amount not exceeding $10,000,000 per issuer or accepting bank, issued or created, as the case may be, by domestic or foreign commercial banks with assets in excess of $10,000,000,000 and ratings equivalent to those described in CLAUSE (A), and (D) Eurodollar time deposits in domestic or foreign commercial banks with assets in excess of $10,000,000,000 in an aggregate amount not exceeding $10,000,000 per bank, having a maturity of six months or less and ratings equivalent to those described in CLAUSE (A); (E) municipal bonds, in an aggregate amount not exceeding $10,000,000 per issuer, having a maturity of six months or less and ratings equivalent to those in CLAUSE (A); and (F) adjustable rate preferred stock or money market preferred stock, in an aggregate amount not exceeding $10,000,000 per issuer, having a maturity of six months or less and ratings equivalent to those described in CLAUSE (A);" 1.06. SECTION 5.02(j) of the Credit Agreement is amended by striking "and" at the end of clause (ix), striking the period at the end of clause (x) and substituting a semicolon therefor, and by adding the following: "(xi) any Indebtedness owed to WMX under the WMX Senior Note Reimbursement Agreement as a result of payments made by WMX under the WMX Senior Note Guaranty or any subrogation rights of WMX arising as a result of payments made by WMX under the WMX Senior Note Guaranty; and -4- 5 (xii) Indebtedness represented by the Senior Notes." 1.07. SECTION 5.02(m) of the Credit Agreement is amended by inserting "$2,500,000" in the blank in the third line (referring to 25% of the net cash proceeds received by OHM from the issuance of common stock on March 28, 1995), and "$33,318,500" in the blank in the sixth line (referring to 50% of the increase in Net Worth arising from the Rust Transactions). 1.08 SECTION 5.02(m) of the Credit Agreement is further amended by adding the following sentence at the end of such Section: "The Borrowers and the Banks acknowledge that $2,400,000 of the $3,000,000 of reductions to Net Worth described in the foregoing clause (6) were made in the quarter ending June 30, 1995." 1.09. SECTION 5.02(o) of the Credit Agreement is amended and restated as follows: "(o) MAXIMUM FUNDED DEBT TO EBITDA RATIO. (1) During any Facility B Level 1 or 2 Period, permit the Funded Debt to EBITDA Ratio to exceed 4.50 to 1.0 as of the last day of any fiscal quarter of the Borrowers, and (2) during any Facility B Level 3, 4 or 5 Period, permit the Funded Debt to EBITDA Ratio to exceed 4.50 to 1.0 at any time." 1.10. SECTION 6.01(a) of the Credit Agreement is amended and restated as follows: "(a) Either Borrower shall fail to pay (i) any installment of principal of any Note when due; or (ii) any reimbursement obligation with respect to a drawing under any Letter of Credit when due; or (iii) any interest on any Note, or any fees or other Obligations hereunder, in each case when due or within one Business Day thereafter; or" 1.11. SECTION 8.15(c) of the Credit Agreement is amended and restated as follows: "(c) Upon the written request of the Borrowers prior to December 15, 1995, which request certifies the Borrower's intent to have WMX execute and deliver the WMX Senior Note Guaranty prior to December 15, 1995, and if the Senior Notes are issued and the WMX Guaranty is executed and delivered prior to December 15, 1995, the Administrative Agent and the Issuing and Paying Agent shall release and terminate the WMX Guaranty -5- 6 dated May 31, 1995 simultaneously with the execution and delivery of the WMX Senior Note Guaranty." SECTION 2. FEES. The Borrowers jointly and severally agree to pay to the Issuing and Paying Agent, for the account of the Banks, the following fees at the following times: (a) upon the execution and delivery of this Amendment by each of the Banks, the Issuing and Paying Agent and the Administrative Agent, an amendment fee (the "Amendment Fee") for each Bank in an amount equal to 0.05% of such Bank's Commitment; and (b) upon the release of the WMX Guaranty dated as of May 31, 1995, the additional commitment fee (the "Additional Commitment Fee") owed to each Bank upon the release of such WMX Guaranty pursuant to the terms of the Commitment Fee Letter. SECTION 3. CONDITIONS PRECEDENT. With respect to the amended and restated definitions of EBITDA, EBITDA TO INTEREST EXPENSE RATIO, WMX GUARANTY, WMX INTERCREDITOR AGREEMENT and WMX REIMBURSEMENT AGREEMENT in SECTIONS 1.01 hereof, and SECTIONS 1.05, 1.07, and 1.08 hereof, the amendments to the Credit Agreement set forth in this Amendment shall become effective upon the first Business Day upon which all of the following conditions shall be satisfied: (i) the Borrowers shall have paid the Amendment Fee; (ii) the representations and warranties contained in the Credit Agreement are true and correct as though made on such date; (iii) no Default or Event of Default has occurred and is outstanding as of such date, unless the same shall be waived or cured hereby; and (iv) the Agent shall have received, on or before such date, fifteen original counterparts of this Amendment, executed by each of the Borrowers, each of the Banks, the Issuing and Paying Agent and the Administrative Agent; With respect to the remainder of the amendments to the Credit Agreement set forth in SECTION 1 hereof, this Amendment shall become effective on the first Business Day upon which, in addition to the foregoing conditions being satisfied, all of the following conditions shall be satisfied: (i) the Borrowers shall have paid the Additional Commitment Fee; -6- 7 (ii) the Senior Note Indenture, in form and substance satisfactory to the Administrative Agent shall have been executed and delivered by the parties thereto on or before December 15, 1995; (iii) the Senior Notes shall have been issued on or before December 15, 1995 at an effective per annum interest rate less than or equal to 7.50%; (iv) the WMX Senior Note Guaranty shall have become effective; and (v) the WMX Intercreditor Agreement shall have been amended, in a manner satisfactory to the Administrative Agent, to take into account the issuance of the WMX Senior Note Guaranty. SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER; REAFFIRMATION OF COVENANTS. Each of the Borrowers hereby represents and warrants that this Amendment has been duly authorized by all necessary corporate action on the part of such Borrower and constitutes a legal, valid and binding obligation of such Borrower, enforceable against it in accordance with its terms. Each of the Borrowers hereby reaffirms all representations, warranties and covenants made by it in the Credit Agreement, as amended hereby, except to the extent any of such representations or warranties expressly speak as of a prior date, and hereby agrees that, subject to the terms hereof, all such representations, warranties and covenants shall be deemed to have been re-made as of the effective date of this Amendment. SECTION 5. EFFECT ON THE CREDIT AGREEMENT. 5.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement and in each of the other Transaction Documents to "this Agreement," "hereunder," "hereof," "herein," or words of like import shall mean and be a reference to the Credit Agreement as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 5.2 Except as specifically set forth herein, the Credit Agreement, each of the other Transaction Documents and all other documents, amendments, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. 5.3 The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or -7- 8 remedy of any of the Banks, the Issuing and Paying Agent or the Administrative Agent under the Credit Agreement or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 6. COST, EXPENSES, FEES. Each of the Borrowers hereby jointly and severally agrees to pay, on demand, all costs, fees and expenses (including, without limitation, attorneys' fees, court costs, filing charges and taxes) incurred by, or required to be paid by the Administrative Agent in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments, documents and agreements executed and/or delivered pursuant to or in connection herewith. SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK. SECTION 9. SECTION TITLES. Section titles in this Amendment are included herein for convenience of reference only and shall not affect in any way the interpretation of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first written above. BORROWERS: OHM CORPORATION Attest: By /s/ Pamela K.M. Beall -------------------------- Title: Vice President, Treasurer and /s/ Randall M. Walters Asst. Secretary - ---------------------- Secretary OHM REMEDIATION SERVICES CORP. By /s/ Pamela K.M. Beall ---------------------------- Title: Vice President, Treasurer and Asst. Secretary -8- 9 BANKS: CITICORP USA, INC., Individually and as Administrative Agent By /s/ Carolyn R. Bodmer ------------------------------------ Title: Vice President BANK OF AMERICA ILLINOIS, Individually and as Issuing and Paying Agent By /s/ Timothy J. Pepowski ------------------------------------- Title: Vice President NBD BANK, N.A. By /s/ Daniel J. Pienta ------------------------------------ Title: Second Vice President THE FIRST NATIONAL BANK OF BOSTON By /s/ Ann E. Howard ------------------------------------ Title: Managing Director NATIONAL CITY BANK By /s/ Terri L. Cable ------------------------------------ Title: Vice President COMERICA BANK By /s/ Dan M. Roman ------------------------------------- Title: Vice President BHF BANK By /s/ John Sykes ------------------------------------- Title: AVP By /s/ David Fraenkel ------------------------------------- Title: VP BANK ONE, LIMA, N.A. By /s/ Jeffrey L. Dodderer ------------------------------------- Title: Vice President 0067381.02 November 7, 1995 -9- EX-11 4 EXHIBIT 11 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, ----------------- ----------------- 1995 1994 1995 1994 ---- ---- ---- ---- PRIMARY: Average Shares Outstanding 26,557 15,597 20,819 15,572 Net effect of dilutive stock options and warrants -- based on the treasury stock method 507 448 307 604 ------ ------ ------ ------ Total 27,064 16,045 21,126 16,176 ====== ====== ====== ====== Net Income $3,187 $2,615 $4,708 $5,489 ====== ====== ====== ====== Per Share Amount $ 0.12 $ 0.16 $ 0.22 $ 0.34 ====== ====== ====== ====== FULLY DILUTED:(1) Average Shares Outstanding 26,557 15,597 20,819 15,572 Net effect of dilutive stock options and warrants -- based on the treasury stock method 507 448 307 604 ------ ------ ------ ------ Total 27,064 16,045 21,126 16,176 ====== ====== ====== ====== Net Income $3,187 $2,615 $4,708 $5,489 ====== ====== ====== ====== Per Share Amount $ 0.12 $ 0.16 $ 0.22 $ 0.34 ====== ====== ====== ======
(1) Fully dilutive effect of stock options and warrants on per share amounts for the three and nine months ended September 30, 1995 and 1994, has not been presented in the statement of income since any reduction of less than 3% in the aggregate need not be considered as dilution. EX-15 5 EXHIBIT 15 1 EXHIBIT 15 Letter Re Unaudited Financial Information Board of Directors and Shareholders OHM Corporation We are aware of the incorporation by reference into the Registration Statements (Form S-8 No. 33-24953, Form S-8 No. 33-28025, and Form S-8 No. 33-63233) of OHM Corporation of our report dated October 31, 1995, relating to the unaudited consolidated interim financial statements of OHM Corporation which are included in its Form 10-Q for the quarter ended September 30, 1995. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. Ernst & Young LLP Columbus, Ohio October 31, 1995 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET AND THE UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 29,341 0 206,894 27,343 11,909 244,649 124,110 42,799 367,212 85,043 118,791 2,659 0 0 155,040 367,212 0 315,604 0 267,479 32,371 0 8,527 7,227 2,519 4,708 0 0 0 4,708 .22 .22
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