-----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, NelckIcYHU9wg2pS9df7/YZPAkodkbpRgAQqMGykpQ/nXXZvf4zxtRYOCi3PKfD3 grjBFkxE1F2jNkGj2JQsRg== 0000863210-98-000009.txt : 19981118 0000863210-98-000009.hdr.sgml : 19981118 ACCESSION NUMBER: 0000863210-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NSC CORP CENTRAL INDEX KEY: 0000863210 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 311295113 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18597 FILM NUMBER: 98751874 BUSINESS ADDRESS: STREET 1: 49 DANTON DR CITY: METHUEN STATE: MA ZIP: 01844 BUSINESS PHONE: 5086866417 10-Q 1 SEPTEMBER 30, 1998 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number: 018597 NSC CORPORATION State or other jurisdiction of (IRS Employer Incorporation or organization Identification Number) DELAWARE 31-1295113 49 DANTON DRIVE, METHUEN, MA 01844 (978) 557-7300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of Common Stock outstanding on November 12, 1998 was 9,971,175. The total number of sequentially numbered pages is 12. Page 1 of 12 NSC CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED September 30, 1998 PART I FINANCIAL INFORMATION Page Number Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets -As of September 30, 1998 and December 31, 1997 3 Consolidated Statements of Income -For the Three and Nine Months Ended September 30, 1998 and 1997 4 Consolidated Statements of Cash Flow -For the Nine Months Ended September 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Item 1. Legal Proceedings 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 Page 2 of 12 PART I - FINANCIAL INFORMATION Item 1. Financial Statements NSC Corporation Consolidated Balance Sheets (In thousands, except share and per-share data) (Unaudited)
September 30, December 31, 1998 1997 ---------- --------- ASSETS Current assets: Cash and cash equivalents $ 4,659 $ 8,781 Accounts receivable, net 24,967 20,590 Costs and estimated earnings on contracts in process in excess of billings 7,653 1,969 Inventories 1,328 1,157 Prepaid expenses and other current assets 2,027 1,565 ---------- --------- 40,634 34,062 Property and equipment, net 2,414 2,755 Other non-current assets: Assets held for sale 313 1,653 Goodwill, net of accumulated amortization 34,350 35,175 Other assets 150 - ---------- --------- Total assets $ 77,861 $ 73,645 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,599 $ 4,942 Billings in excess of costs and estimated earnings on contracts in process 9,178 3,274 Accrued compensation and related costs 2,413 1,760 Federal, state and local taxes (1,153) (571) Other accrued liabilities 637 1,428 Reserve for self-insurance claims and other contingencies 5,105 6,403 ---------- --------- 19,779 17,236 Non-current liabilities: Payable to affiliate 4,520 4,520 Deferred income taxes 1,732 733 Stockholders' equity: Preferred stock $.01 par value, 10,000,000 shares authorized, none issued and outstanding - - Common stock $.01 par value, 20,000,000 shares authorized, 9,971,175 issued and outstanding in 1998 and 1997 100 100 Additional paid-in capital 56,079 56,079 Accumulated deficit (4,349) (5,023) ---------- --------- 51,830 51,156 ---------- --------- Total liabilities and stockholders' equity $ 77,861 $ 73,645 ========== =========
Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying notes are an integral part of these consolidated financial statements. Page 3 of 12 NSC Corporation Consolidated Statements of Income (In thousands, except per-share data) (Unaudited)
Three Months Nine Months Ended Ended September 30, September 30, ----------------- ---------------- 1998 1997 1998 1997 -------- -------- ------- -------- Revenue $28,017 $30,643 $74,077 $91,540 Cost of services 23,755 30,156 61,954 82,219 -------- -------- ------- -------- Gross profit 4,262 487 12,123 9,321 Selling, general and administrative expenses 3,540 4,147 10,356 11,713 Other operating income 163 568 144 642 Goodwill amortization 275 275 825 825 -------- -------- ------- -------- 610 (3,367) 1,086 (2,575) -------- -------- ------- -------- Other income 46 69 142 198 -------- -------- ------- -------- Income (loss) before income taxes 656 (3,298) 1,228 (2,377) Income tax expense (benefit) 384 (1,179) 554 (718) ======== ======== ======= ======== Net income (loss) $ 272 $(2,119) $ 674 $(1,659) ======== ======== ======= ======== Net income (loss) per share $ 0.03 $ (0.21) $ 0.07 $ (0.17) ======== ======== ======= ======== Weighted-average number of common shares outstanding 9,971 9,971 9,971 9,971 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 4 of 12 NSC Corporation Consolidated Statements of Cash Flow (In thousands) (Unaudited)
Nine Months Ended September 30, -------------------- 1998 1997 -------- -------- Cash flow from operating activities: Net income (loss) $ 674 $(1,659) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 693 1,055 Goodwill amortization 825 825 Deferred income taxes 1,130 19 Gain on disposition of property and equipment (6) (21) Adjustment of impairment write down (158) - Changes in current assets and liabilities: Accounts receivable (4,377) 295 Costs and estimated earnings on contracts in process in excess of billings (5,684) 1,745 Other current assets (618) 626 Accounts payable (1,343) 1,080 Billings in excess of costs and estimated earnings on contracts in process 5,904 (307) Other current liabilities (850) (2,124) Reserve for self insurance claims and other contingencies (1,298) (2,008) -------- -------- Net cash used in operating activities (5,108) (474) Cash flow from investing activities: Purchases of property and equipment (408) (731) Proceeds from the sale of property and equipment 1,544 72 Other (150) - -------- -------- Net cash provided by (used in) investing activities 986 (659) Cash flow from financing activities: Net cash used in financing activities - - -------- -------- Net decrease in cash and cash equivalents (4,122) (1,133) Cash and cash equivalents at beginning of periods 8,781 3,975 ======== ======== Cash and cash equivalents at end of periods $ 4,659 $ 2,842 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 5 of 12 Notes to Consolidated Financial Statements For the Quarter Ended September 30, 1998 (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared by NSC Corporation (the "Company") and reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of financial position at September 30, 1998 and results of operations for the three and nine month periods ended September 30, 1998 and 1997, 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 audited financial statements 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 Stockholders on Form 10-K for the year ended December 31, 1997. The results of operations for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the results for the full year. The accompanying interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company is a Delaware corporation and is owned approximately 54% by Waste Management, Inc. Revenue and operating results of asbestos-abatement activities may be affected by the timing of some contracts. Because of this change in demand, the Company's quarterly revenues can fluctuate, especially if all or a substantial part of the performance of such contracts occurs within one or two quarters. Fluctuations in the price of scrap metals may affect the revenue and operating results of the demolition and dismantling activities. Accordingly, quarterly or other interim results should not be considered indicative of results to be expected for any other quarter or for the full fiscal year. Page 6 of 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In accordance with the Private Securities Litigation Reform Act of 1995, the Company notes that statements that look forward in time, which include everything other than historical information, involve risks and uncertainties that may affect the Company's actual results of operation. Factors which could cause actual results to differ materially include the following (among others): regulatory changes, technological advances, labor shortages and disputes, technical problems, time extensions and/or delays in projects caused by external sources, weather conditions, the condition of the U.S economy, and other factors listed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this report. Results of Operations Three Months Ended September 30, 1998 Versus Three Months Ended September 30, 1997 Revenue. Revenue for the three months ended September 30, 1998 decreased 9% to $28,017,000 from $30,643,000 for the same period in 1997 due to a decrease in demolition related revenue. The decrease in demolition related revenue was the combined result of competitive pricing pressures in the bidding process resulting in the Company's decreased success in securing new work. The third quarter results are not indicative of results to be expected for any upcoming quarter. Gross Profit. Gross profit for the three months ended September 30, 1998 increased to $4,262,000 from $487,000 for the same period in 1997. Gross profit as a percentage of revenue increased for the three months ended September 30, 1998 to 15% from 2% for the same period in 1997. The gross profit margin percentage increase is due to improved productivity and greater selectivity when bidding and accepting new awards despite downward margin adjustments on certain demolition projects. Furthermore, the 1997 gross profit margin percentage was particularly low due to losses incurred on certain projects and a downward adjustment to the scrap value of process equipment removed from certain demolition projects. Selling, General and Administrative Expenses. Selling, general and administrative expenses (SG&A) for the three months ended September 30, 1998 decreased 15% to $3,540,000 from $4,147,000 for the same period in 1997. The decrease in SG&A expenses is primarily the result of a reduction in administrative personnel. The SG&A expenses, as a percentage of revenue, for the three months ended September 30, 1998 were 13% compared to 14% for the same period in 1997. Other Operating Income. Olshan Demolishing Management, Inc. (ODMI), a wholly owned subsidiary of the Company, has entered into a management agreement with an affiliate of Waste Management Inc. whereby ODMI manages the operations of Olshan Demolishing Company (ODC). Pursuant to this arrangement, the Company and the Waste affiliate share the profits and operating losses of ODC. For the three month period ended September 30, 1998, the amount due from the Waste affiliate was $163,000 compared to $568,000 for the same period in 1997. Other Income. Other income consists primarily of interest income and gains/losses on sales of fixed assets. For the three months ended September 30, 1998 other income was $46,000 compared to $69,000 for the same period in 1997. This decrease is primarily due to assets sold below their carrying value in the current year versus in the same period in 1997. Net Income (Loss). Net income for the three months ended September 30, 1998 increased to $272,000 from a net loss of $(2,119,000) for the same period in 1997 due to increased gross profit, decreased operating and overhead costs. As a percentage of revenue, net income increased to 1% for the three months ended September 30, 1998 from (7%) for the same period in 1997. Page 7 of 12 Nine Months Ended September 30, 1998 Versus Nine Months Ended September 30, 1997 Revenue. Revenue for the nine months ended September 30, 1998 decreased 19% to $74,077,000 from $91,540,000 for the same period in 1997. The decrease in revenue was due to a $11,559,000 decrease in asbestos-abatement related revenue and a $5,904,000 decrease in demolition related revenue. This decrease was the combined result of competitive pricing pressures in the bidding process resulting in the Company's decreased success in being awarded new work and normal fluctuations in demand. Quarterly or other interim results should not be considered indicative of results to be expected for any upcoming quarter or for the full fiscal year. Gross Profit. Gross profit for the nine months ended September 30, 1998 increased 30% to $12,123,000 from $9,321,000 for the same period in 1997. Gross profit as a percentage of revenue increased for the nine months ended September 30, 1998 to 16% from 10% for the same period in 1997. The increased gross profit margin percentage for the current year is mainly due to improved productivity and greater selectivity when bidding and accepting new awards. Furthermore, the settlement of a disputed contract for an amount in excess of its carrying value and workers' compensation premium refunds resulting from an improved safety record also contributed to the increased gross profit margin despite downward margin adjustments on certain demolition projects. However, the 1997 gross profit margin percentage was particularly low due to losses incurred on certain projects and a downward adjustment to the scrap value of process equipment removed from certain demolition projects. Selling, General and Administrative Expenses. Selling, general and administrative expenses (SG&A) for the nine months ended September 30, 1998 decreased 12% to $10,356,000 from $11,713,000 for the same period in 1997. The decrease in SG&A costs is mainly due to a reduction in administrative personnel, reduced consulting services associated with the Year 2000 project compliance and reduced legal costs. The SG&A expenses, as a percentage of revenue, for the nine months ended September 30, 1998 were 14% compared to 13% for the same period in 1997 due to the decrease of revenue. Other Operating Income. For the nine month period ended September 30, 1998, the amount due to the Waste affiliate as a result of the operations of ODMI was $14,000 compared to an amount due from the Waste affiliate of $642,000 for the same period in 1997. The current year amount is offset by an adjustment of impairment write-down associated with the sale of certain real estate property. Other Income. Other income for the nine months ended September 30, 1998 was $142,000 compared to $198,000 for the same period in 1997. This decrease is mainly due to reduced interest income resulting from lower bank cash balances and a change in the bank service fee arrangement. This decrease is partially offset by increased gains on sales of fixed assets in the current year. Net Income (Loss). Net income for the nine months ended September 30, 1998 increased to $674,000 from a net loss of $(1,659,000) for the same period in 1997 due to increased gross profit, a reduction of overhead costs and the recognition of a tax benefit associated with the refunds of taxes paid in prior years. As a percentage of revenue, net income increased to 1% for the nine months ended September 30, 1998 from (2%) for the same period in 1997. Page 8 of 12 Liquidity and Capital Resources. Working capital at September 30, 1998 was $20,855,000 compared to $16,826,000 at December 31, 1997. The current ratio was 2.1/1 at September 30, 1998 compared to 2/1 at December 31, 1997. Cash used in operating activities was $5,108,000 for the nine month period ended September 30, 1998 compared to $474,000 for the same period in 1997. The increase in cash used in operations is due to the timing of billings on work performed and the payment of a general liability claim. During the first nine months of 1998, cash of $408,000 was used for purchases of property and equipment and proceeds of $1,447,000 were received in conjunction with the sale of the Methuen property. The Company continues to occupy the Methuen property pending the relocation of the corporate office to a new site. The Company believes that its cash flows from operations and funds available under the existing senior revolving credit facilities, as amended on December 22, 1997, will be sufficient throughout the next twelve months to finance its working capital needs and planned capital expenditures. While the Company's Board of Directors has not established a policy concerning payment of regular dividends, it intends to review annually the feasibility of declaring additional dividends depending upon the results of operations, financial condition and cash needs of the Company. The nature and scope of the Company's business bring it into regular contact with the general public, a variety of businesses and government agencies. Such activities inherently subject the Company to the hazards of litigation, which are defended in the normal course of business. Management has recorded an estimate of any losses it expects to incur in connection with the resolution of any claims. While the outcome of all claims is not clearly determinable at the present time, management has recorded an estimate of any losses it expects to incur in connection with the resolution of the claims at September 30, 1998 of $5,105,000 and at December 31, 1997 of $6,403,000. Year 2000. In 1996, the Company began upgrading its financial and decision support systems to, in part, comply with Year 2000 requirements. This process is now complete and the Company believes that such systems are Year 2000 compliant. In addition to $675,000 of capital costs for new hardware and software incurred project-to-date, consulting and training expenses of $130,000, $223,000 and $135,000 were incurred with respect to system upgrades, including Year 2000 compliance, in 1998 1997 and 1996 respectively. The Company anticipates spending another $30,000 for training and consulting services by year-end and believes that these expenditures will adequately address any Year 2000 issues associated with the Company's operations. The Company has been in contact with its bank and several of its more significant customers and vendors to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remedy their own Year 2000 issues. There is no guarantee that the systems of other companies on which the Company's systems rely will be converted. Even assuming that such conversions do not occur, the Company does not believe that any such third party system failures will have a material adverse effect on the Company given the nature of the Company's business which is not computer dependent in any material aspect. Page 9 of 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings On or about September4, 1998 the Company became aware of certain issues relating to state licensing for its employees at an asbestos abatement project in South Carolina. The Company has brought the matter to the attention of the South Carolina Department of Health and Environmental Control. The Company is cooperating with such agency. No civil or criminal charges have been filed against the Company in this matter. In addition to the above matter, the Company is subject to certain legal proceedings, including those relating to regulatory compliance, in the ordinary course of business. Management believes that such proceedings are either adequately covered by insurance or if uninsured, will not, in the aggregate, have a material adverse effect upon the Company. Item 5. Other Information On October 19, 1998, the Company received a letter (the "NASDAQ Letter") from the NASDAQ National Market expressing a concern regarding the continued listing of the Company's common stock for trading on the NASDAQ National Market. According to the NASDAQ Letter, the Company's common stock did not maintain a market value of public float greater than or equal to $5,000,000 for a specified period in accordance with applicable rules. The NASDAQ Letter also indicated that if the Company is unable to demonstrate compliance with the foregoing requirement on or before January 19, 1999, the Company's common stock will be delisted at the opening of business on January 21, 1999. The Company has contacted the NASDAQ National Market to discuss this matter and was advised that it may appeal the findings reflected in the NASDAQ Letter by means of certain formal procedures available to the Company. At the present time, the Company has not determined whether to pursue an appeal. If the Company does not pursue such an appeal or if such an appeal is pursued but is unsuccessful, the Company's common stock may be delisted from the NASDAQ National Market potentially as early as January 21, 1999. In such an event, it is likely that the marketability of the Company's common stock would be materially and adversely affected. The Investment Banking Firm of BT Alex. Brown continues its review of strategic alternatives for the Company. Item 6. Exhibits and Reports on Form 8-K (b.) Forms 8-K No reports were filed on Form 8-K during the quarter ended September 30, 1998. Page 10 of 12 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 there unto duly authorized. NSC CORPORATION Date: November 13, 1998 By /s/ Efstathios A. Kouninis Efstathios A. Kouninis Vice President of Finance, Corporate Controller, Secretary and Treasurer Signing on behalf of the registrant and as principal financial and accounting officer. Page 11 of 12 EX-27 2 ART. 5 FDS FOR SEPTEMBER 30, 1998 10Q WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1000 3-mos DEC-31-1998 SEP-30-1998 4659 0 25,508 541 1328 40,634 7513 5099 77,861 19,779 0 0 0 100 51,730 77,861 26,299 28,017 23,755 27,407 (46) 0 0 656 384 272 0 0 0 272 .03 .03
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