1
Exhibit 99
NSC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
-------------------
1994 1993
------- -------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 8,818 $ 5,775
Accounts receivable, net............................................. 23,188 26,131
Costs and estimated earnings on contracts in process in excess of
billings.......................................................... 5,537 4,489
Inventories.......................................................... 1,735 2,151
Prepaid expenses and other current assets............................ 1,245 2,604
Refundable income taxes.............................................. 125 2,234
Deferred income taxes................................................ -- 1,492
------- -------
40,648 44,876
Property and equipment:
Land................................................................. 998 998
Buildings and improvements........................................... 5,591 5,624
Machinery and equipment.............................................. 12,137 12,006
Construction-in-process.............................................. -- 4
------- -------
18,726 18,632
Less accumulated depreciation........................................ (9,063) (7,396)
------- -------
9,663 11,236
Other noncurrent assets:
Goodwill, net of accumulated amortization of $4,721 and $3,654 in
1994 and 1993, respectively....................................... 37,938 39,005
Other assets......................................................... 38 52
------- -------
37,976 39,057
------- -------
Total Assets......................................................... $88,287 $95,169
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
2
NSC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
-------------------
1994 1993
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 2,901 $ 4,578
Billings in excess of costs and estimated earnings on contracts in
process........................................................... 4,987 5,458
Accrued compensation and related costs............................... 4,674 2,937
Federal, state and local taxes....................................... 477 183
Other accrued liabilities............................................ 2,263 6,265
Current portion of noncurrent liabilities............................ 3,203 3,187
------- -------
18,505 22,608
Noncurrent liabilities:
Long-term debt....................................................... 7,385 10,588
Deferred income taxes................................................ 4,335 4,981
Commitments and Contingencies -- Note 12
Stockholders' equity:
Preferred stock $.01 par value, 10,000,000 shares authorized, none
issued and outstanding............................................ -- --
Common stock $.01 par value, 20,000,000 shares authorized; 9,971,175
shares issued and outstanding in both 1994 and 1993............... 100 100
Additional paid-in capital........................................... 56,079 56,079
Retained earnings.................................................... 1,883 813
------- -------
58,062 56,992
------- -------
Total Liabilities and Stockholders' Equity........................... $88,287 $95,169
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
3
NSC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
-------- -------- -------
Gross revenues............................................ $132,218 $110,254 $62,220
Less direct subcontract costs............................. 23,672 23,751 14,987
-------- -------- -------
Net Revenues............................................ 108,546 86,503 47,233
Cost of services.......................................... 86,830 65,602 39,708
-------- -------- -------
Gross Profit............................................ 21,716 20,901 7,525
Selling, general and administrative expenses.............. 15,548 13,687 9,405
Goodwill amortization..................................... 1,067 858 540
-------- -------- -------
Operating Income (Loss)................................. 5,101 6,356 (2,420)
-------- -------- -------
Other:
Interest expense........................................ 804 807 831
Other................................................... (386) (397) (973)
-------- -------- -------
418 410 (142)
-------- -------- -------
Income (Loss) from Continuing Operations Before Income
Taxes (Benefit)...................................... 4,683 5,946 (2,278)
Income taxes (benefit).................................... 2,117 2,573 (674)
-------- -------- -------
Income (Loss) from Continuing Operations................ 2,566 3,373 (1,604)
-------- -------- -------
Discontinued operations, net of income tax effects:
Income from operations.................................. -- -- 174
Provision for loss on disposition....................... -- -- (600)
-------- -------- -------
Income (Loss) Before Cumulative Effect of Accounting
Change............................................... 2,566 3,373 (2,030)
Cumulative effect of accounting change.................. -- -- (1,000)
-------- -------- -------
Net Income (Loss)....................................... $ 2,566 $ 3,373 $(3,030)
======== ======== =======
Net income (loss) per share:
Continuing operations................................... $ 0.26 $ 0.40 $ (0.28)
Discontinued operations:
From operations...................................... -- -- 0.03
From disposition..................................... -- -- (0.10)
Cumulative effect of accounting change.................... -- -- (0.18)
-------- -------- -------
$ 0.26 $ 0.40 $ (0.53)
======== ======== =======
Weighted-average number of common and common-equivalent
shares outstanding...................................... 9,971 8,504 5,735
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
4
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK
---------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- --------- -------- ----------
Balance at January 1, 1992..... 5,735 $ 57 $29,114 $12,435 $ 41,606
Net loss....................... (3,030 ) (3,030)
Contingently issuable common
stock........................ 970 970
--------- -------- --------- -------- ----------
Balance at December 31, 1992... 5,735 57 30,084 9,405 39,546
Net income..................... 3,373 3,373
Cash dividend declared ($1.20
per share)................... (11,965 ) (11,965)
Issuance of common stock for
acquisition.................. 4,082 41 25,373 25,414
Stock options exercised........ 154 2 622 624
--------- -------- --------- -------- ----------
Balance at December 31, 1993... 9,971 100 56,079 813 56,992
Net income..................... 2,566 2,566
Cash dividend declared ($0.15
per share)................... (1,496 ) (1,496)
--------- -------- --------- -------- ----------
Balance at December 31, 1994... 9,971 $ 100 $56,079 $ 1,883 $ 58,062
========= ======== ========= ======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
5
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 2,566 $ 3,373 $ (3,030)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation....................................... 2,160 2,132 1,643
Goodwill amortization.............................. 1,067 858 540
Deferred income taxes.............................. 1,072 3,457 (1,966)
(Gain)/loss on disposition of property and
equipment....................................... (123) (5) 42
Provision for loss on disposition of discontinued
operations, including deferred income tax
benefit......................................... -- -- 600
Cumulative effect of accounting change............. -- -- 1,000
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS OF
ACQUIRED BUSINESS:
Accounts receivable, net................................ 2,943 15,912 (3,941)
Costs and estimated earnings on contracts in process in
excess of billings................................... (1,048) 188 1,234
Other current assets.................................... 3,884 (2,964) (3,316)
Accounts payable........................................ (1,677) (749) 422
Billings in excess of costs and estimated earnings on
contracts in process................................. (471) 3,827 135
Other current liabilities............................... (2,197) (1,284) 6,920
Other................................................... 14 6 (3)
------- -------- --------
Net cash provided by operating activities.......... 8,190 24,751 280
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (814) (891) (4,549)
Proceeds from sale of property and equipment............ 350 49 --
Purchase of Brand, net of cash acquired................. -- (767) --
Net investment in and advances to discontinued
operations........................................... -- (4,228) (12,086)
Net cash used in investing activities.............. (464) (5,837) (16,635)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to and from OHM Corporation......................... -- (14,850) 14,109
Proceeds from issuance of long-term debt................ -- 15,000 1,013
Payments on long-term debt.............................. (3,187) (2,223) (15)
Proceeds from issuance of common stock upon exercise of
stock options........................................ -- 624 --
Cash dividend paid...................................... (1,496) (11,965) --
------- -------- --------
Net cash provided by (used in) financing
activities...................................... (4,683) (13,414) 15,107
------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 3,043 5,500 (1,248)
Cash and cash equivalents at beginning of periods....... 5,775 275 1,523
------- -------- --------
Cash and cash equivalents at end of periods............. $ 8,818 $ 5,775 $ 275
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
6
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION The accompanying consolidated
financial statements include the accounts of NSC Corporation (the "Company") and
its wholly-owned subsidiaries, National Surface Cleaning, Inc. ("NSC") and
National Service Cleaning Corp. ("NSCC"), NSC Industrial Services Corp.
("Industrial") through May 4, 1993 (date of disposition); and since February 5,
1992 (date of acquisition) through May 4, 1993 (date of disposition), Combined
Plant Services Corp. and its affiliate, Gundersen/Viking (collectively, "CPS");
and since April 17, 1992 (date of acquisition) through May 4, 1993 (date of
disposition) Miami Valley Pressure Cleaning, Inc. and its affiliate, M.V.
Industrial Services Inc. (collectively, "MVIS"). All intercompany transactions
have been eliminated in consolidation. The Company is a Delaware corporation and
was a seventy percent-owned subsidiary of OHM Corporation ("OHM") through May 3,
1993. On May 4, 1993, pursuant to a Purchase Agreement among the Company,
Industrial, OHM, The Brand Companies, Inc. ("Brand") and Waste Management, Inc.
("WMI"), now known as WMX Technologies, Inc., the Company acquired the asbestos
abatement division of Brand (the "Division") in exchange for 4,010,000 shares of
the Company's common stock and all the common stock of Industrial. As of
December 31, 1993 and 1994, OHM and Rust International Inc. (a successor company
to Brand and hereinafter referred to as "Rust") each owned approximately forty
percent of the Company's common stock.
REVENUE AND COST RECOGNITION The Company primarily derives its revenues
from providing asbestos abatement and related services under fixed price, time
and materials and unit price contracts. The Company recognizes revenues and
related income from its fixed and unit price contracts in process using the
percentage-of-completion method of accounting. Revenues from time and
material-type contracts are recorded based on cost incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Revenues are recognized for amounts under pending claims
when management believes it is probable the claim will result in additional
contract revenues and the amount can be reliably estimated. Contract costs
include all direct labor, material, per diem, subcontract and other direct and
indirect costs related to the contract performance. Selling, general and
administrative expenses are charged to expense as incurred. The asset, "costs
and estimated earnings on contracts in process in excess of billings,"
represents revenues recognized in excess of amounts billed. The liability,
"billings on contracts in process in excess of costs and estimated earnings,"
represents billings in excess of revenues recognized.
DIRECT SUBCONTRACT COSTS The Company incurs a substantial amount of direct
subcontract costs which are passed through to its clients. These costs result
from the use of subcontractors on projects for labor, transportation and
disposal of asbestos materials, analytical and restoration services, and other
removal-related services. The Company believes that net revenues, excluding
direct subcontract costs, more accurately reflect the amounts earned for
activities performed by the Company. Accordingly, the Company reports direct
subcontract costs as a reduction of gross revenues to arrive at net revenues.
INVENTORIES Inventories primarily are comprised of operating supplies and
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost.
Depreciation is provided over the estimated useful lives of the respective
assets using the straight-line method.
GOODWILL Goodwill is amortized over a 40-year life and is reviewed on an
ongoing basis by the Company's management based on several factors including,
among others, the Company's projection of future operations and their related
impact on cash flows. If an impairment of the carrying value were to be
indicated by this review, the Company would adjust the carrying value of
goodwill to its estimated fair value.
F-26
7
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
INCOME TAXES Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which changed its method of accounting for income taxes from the deferred
method to the liability method. The cumulative effect of the adoption of SFAS
No. 109 resulted in the recognition of a deferred tax liability of $1,000,000.
Under the liability method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
ALLOCATION OF CORPORATE EXPENSES Prior to May 4, 1993, the Company
received certain administrative and other services from OHM and its other
subsidiaries, which included financial, legal, certain senior executive
management, insurance, employee benefits, and other services. For such services,
the Company was charged a proportional share of the total costs. The Company
believes that such transactions with OHM and its affiliates were made on terms
no less favorable than could have been obtained in arms-length transactions with
independent third parties. A summary of significant transactions with affiliates
of the Company is presented in Note 10.
CASH EQUIVALENTS AND CASH FLOW INFORMATION The Company considers all
investments having a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents are stated at cost which approximates fair market
value. Cash paid for income taxes was $263,000, $1,063,000, and $1,597,000 for
1994, 1993, and 1992, respectively. Cash paid for interest was $802,000,
$945,000, and $1,886,000 for 1994, 1993, and 1992, respectively.
NET INCOME PER SHARE The net income (loss) per share amounts for 1994,
1993, and 1992, have been computed by dividing net income (loss) by the
weighted-average number of common and common equivalent shares, if dilutive,
outstanding during the respective periods.
RECLASSIFICATIONS Certain reclassifications have been made to prior year
financial statements to conform with the current year presentation.
NOTE 2 -- ACQUISITION OF THE DIVISION
On December 23, 1992, the Company entered into a Purchase Agreement among
the Company, Industrial, OHM, Brand and WMI, pursuant to which the Company
purchased, on May 4, 1993, the Division in exchange for 4,010,000 shares of the
Company's common stock and the capital stock of Industrial. The acquisition of
the Division has been accounted for using the purchase method and, accordingly,
the acquired assets and assumed liabilities have been recorded at their
estimated fair values as of May 4, 1993. The accompanying consolidated financial
statements include the results of operations for the Division since May 4, 1993.
Pursuant to the Purchase Agreement, Brand guaranteed to the Company that, except
for certain contracts, the contracts assumed by the Company from Brand to
provide asbestos abatement and other related services would yield certain
minimum gross margins depending on the type of contract. Gross margin is defined
as revenues derived from these contracts less certain specified costs of
performing such contracts divided by such revenues. Brand paid the Company
$3,775,000 pursuant to this provision of the Purchase Agreement for the year
ended December 31, 1993. In addition, pursuant to the Purchase Agreement, Brand
guaranteed the collection of the full amount of all the Division's billed and
unbilled accounts receivables which were acquired by the Company. Pursuant to
this provision of the Purchase Agreement, Brand paid the Company $7,620,000
during the year ended December 31, 1993. As a condition of the Purchase
Agreement, on May 4, 1993, the Company entered into a $50,000,000 revolving
credit facility (see Note 7 - Long-Term Debt), repaid all of its indebtedness to
OHM, and terminated the Cash Management Agreement and Management Services
Agreement with OHM.
F-27
8
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table sets forth the unaudited combined pro forma results of
operations for the years ended December 31, 1993 and 1992, using the purchase
method of accounting as if such transaction had occurred on January 1, 1992:
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Gross revenues.......................................... $141,669 $187,981
Net revenues............................................ 113,656 158,462
Operating income (loss)................................. 7,511 (3,785)
Income (loss) from continuing operations................ 3,546 (3,288)
Income (loss) per share from continuing operation....... 0.42 (0.34)
The pro forma combined results of operations for the years ended December
31, 1993 and 1992, are based upon certain assumptions and estimates which the
Company believes are reasonable. These pro forma combined results of operations
do not include the benefits of the synergies related to combining the two
companies. The pro forma combined results of operations for the year ended
December 31, 1992, exclude the impact of certain special charges aggregating
$12,203,000, net of income tax effects, recorded by the Division during 1992.
The pro forma combined results of operations for the years ended December 31,
1993 and 1992, may not be indicative of the operating results that actually
would have been reported had the transactions been consummated on January 1,
1992, nor are they necessarily indicative of the results which will be reported
in the future.
NOTE 3 -- DISCONTINUED OPERATIONS
On May 4, 1993, the Company exchanged the capital stock of Industrial (the
Company's environmental cleaning and industrial maintenance services business)
together with 4,010,000 shares of its common stock to Brand for the assets and
liabilities of the Division pursuant to a Purchase Agreement among the Company,
Industrial, Brand, and WMI. Therefore, Industrial is being accounted for as
discontinued operations for the years ended December 31, 1993 and 1992.
The provision for loss on disposition recorded in 1992, consisted of
estimated costs associated with the disposal and expected operating losses
through the date of disposition of the Company's environmental cleaning and
industrial maintenance services business. Gross revenues from CPS and MVIS for
the years ended December 31, 1993 and 1992, were $5,121,000 and $12,627,000,
respectively. The income from operations and provision for loss on disposition
of discontinued operations, which have been reflected in the consolidated
statement of operations for the year ended December 31, 1992, are presented net
of income taxes of $188,000 and an income tax benefit of $400,000, respectively.
Interest expense has been allocated to discontinued operations based on the
funds advanced to the Company by OHM for the acquisitions of CPS and MVIS.
Interest expense allocated to discontinued operations during the years ended
December 31, 1993 and 1992, amounted to $241,000 and $542,000, respectively.
F-28
9
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
Accounts billed and due currently......................... $20,381 $23,150
Retained.................................................. 3,589 4,146
------- -------
23,970 27,296
Allowance for uncollectible accounts...................... (782) (1,165)
------- -------
$23,188 $26,131
======= =======
The retained receivables at December 31, 1994, are expected to be collected
within one year.
NOTE 5 -- COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS
The consolidated balance sheets include the following amounts:
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
Costs incurred on contracts in process.................... $85,822 $58,631
Estimated earnings........................................ 17,138 14,662
------- -------
102,960 73,293
Less billing to date...................................... 102,410 74,262
------- -------
$ 550 $ (969)
======= =======
Costs and estimated earnings on contracts in process in
excess of billings...................................... $ 5,537 $ 4,489
Billings on contracts in process in excess of costs and
estimated earnings...................................... (4,987) (5,458)
------- -------
$ 550 $ (969)
======= =======
Costs and estimated earnings on contract in process in excess of billings
included reserves for contract revenue adjustments of $530,000 and $1,546,000 at
December 31, 1994 and 1993, respectively.
NOTE 6 -- INCOME TAXES
Effective January 1, 1992, the Company elected to adopt SFAS No. 109. The
cumulative effect of adopting SFAS No. 109 as of January 1, 1992, decreased net
income by $1,000,000, or $0.18 per share.
At December 31, 1994, the Company has an alternative minimum tax ("AMT")
credit carryforward of $573,000. This carryforward resulted from the Company
generating AMT in 1990.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-29
10
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1994 and 1993, are as follows:
DECEMBER 31,
-----------------
1994 1993
------ ------
(IN THOUSANDS)
Deferred tax assets:
AMT credit carryforward................................... $ 573 $ 148
Other accrued liabilities................................. 533 2,521
Allowance for uncollectible accounts...................... 313 718
State net operating loss carryforward..................... -- 108
------ ------
Total deferred tax assets.............................. 1,419 3,495
Deferred tax liabilities:
Tax over book depreciation................................ 1,041 1,497
Goodwill.................................................. 3,391 3,235
Contract revenue recognition.............................. 574 1,406
Prepaid expenses and other assets......................... 498 837
Other, net................................................ 476 9
------ ------
Total deferred tax liabilities......................... 5,980 6,984
------ ------
Net deferred tax liabilities......................... $4,561 $3,489
====== ======
Significant components of the provision for income taxes (benefit) are as
follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------ ------ -------
(IN THOUSANDS)
-----------------------------
Current:
Federal......................................... $ 768 $ (685) $ 1,001
State........................................... 277 (199) 291
------ ------ -------
Total current................................ 1,045 (884) 1,292
------ ------ -------
Deferred:
Federal......................................... 831 2,678 (1,521)
State........................................... 241 779 (445)
------ ------ -------
Total deferred............................... 1,072 3,457 (1,966)
------ ------ -------
$2,117 $2,573 $ (674)
====== ====== =======
In 1992, a tax benefit of $212,000 was recorded as a component of the
results of discontinued operations.
The reasons for differences between income taxes (benefits) attributable to
continuing operations and the amount computed by applying the federal statutory
tax rate (34% is the statutory tax rate for companies that
F-30
11
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
have less than $10 million of taxable income) to income (loss) from continuing
operations before income taxes are:
YEARS ENDED DECEMBER 31,
------------------------
LIABILITY METHOD
------------------------
1994 1993 1992
---- ---- ------
(IN THOUSANDS)
------------------------
Federal statutory rate.............................. 34.0% 34.0% (34.0)%
Add (deduct):
State income taxes, net of federal tax benefit.... 7.1 6.5 (5.9)
Goodwill amortization............................. 3.9 3.0 8.1
Other............................................. 0.2 (0.2) 2.2
---- ---- ------
45.2% 43.3% (29.6)%
==== ==== ======
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
7.36% notes, due 1997..................................... $ 207 $ 272
8.21% notes, due 1997..................................... 431 553
Variable-rate revolving credit facility................... 9,950 12,950
------- -------
10,588 13,775
Less current portion...................................... 3,203 3,187
------- -------
$ 7,385 $10,588
======= =======
The Company has a $50,000,000 revolving credit facility (the "Facility"),
with two banks that expires on June 5, 1996. Under the terms of the Facility,
the Company may borrow up to $15,000,000 on a term loan basis, up to $8,000,000
on a revolving basis, and the remaining unused balance is available for letters
of credit. Amounts outstanding under the Facility bear interest at 150 to 225
basis points above LIBOR and are secured by substantially all the Company's
assets. In addition, the Facility contains current ratio, leverage and interest
coverage covenants.
In connection with the acquisition of the Division, Rust (successor to
Brand) has provided the Company with a $25 million revolving credit facility.
Under this revolving credit agreement, Rust will make available revolving loans
to the Company until May 3, 1996, in amounts not to exceed $25 million. Such
loans will be subordinate to the senior bank financing described above, be
unsecured, bear interest at the prime rate as announced by a certain bank plus
1%, and be utilized for working capital purposes. Interest on such loans will be
payable on a quarterly basis, and the aggregate principal amount of such loans
will mature on May 31, 1996. No amounts were outstanding under this revolving
credit agreement at December 31, 1994 or 1993.
The aggregate amounts of long-term debt maturing in the three years
following December 31, 1994 are: $3,203,000 in 1995; $7,169,000 in 1996; and
$216,000 in 1997.
F-31
12
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 10,000,000 shares of preferred stock, $0.01 par value,
without any further vote or action by the stockholders. As of December 31, 1994,
no preferred stock has been issued.
Pursuant to an agreement among the Company, Rust and OHM dated May 4, 1993,
each of Rust and OHM has the right to demand registration, at their own expense,
of all or a portion of the common stock of the Company held by it. In the event
either Rust or OHM demands such registration, the other entity has the right to
participate. This agreement is subject to certain conditions and limitations,
including limitations as to the frequency of exercise and Rust's and OHM's right
to participate in other registrations of the Company.
NOTE 9 -- STOCK OPTION PLAN
The Company has a stock option plan (the "1990 Plan") which provides for
the granting of options to acquire up to 860,000 shares of the Company's common
stock. The options are issuable to directors, officers, and key employees at an
exercise price not less than the fair market value of the Company's common stock
on the date of grant. The stock options granted under the 1990 Plan are
exercisable in either cumulative annual installments ranging up to 25% or
immediately commencing on the date of grant and expire ten years thereafter. At
December 31, 1994, 478,680 shares were available for grants of additional stock
options under the 1990 Plan.
The following summarizes stock option activity during 1994, 1993 and 1992:
1990 PLAN
--------------------------------
NUMBER OF OPTION PRICE RANGE
OPTIONS PER SHARE
--------- ------------------
Outstanding at January 1, 1992.................... 580,920 $ 4.00 - $6.00
Granted......................................... 153,500 5.75 - 9.00
Canceled........................................ (23,000) 4.00 - 6.00
--------- ------------------
Outstanding at December 31, 1992.................. 711,420 $ 4.00 - $9.00
Granted......................................... 10,000 4.50
Exercised....................................... (156,000) 4.00
Canceled........................................ (116,000) 4.00 - 9.00
--------- ------------------
Outstanding at December 31, 1993.................. 449,420 $ 4.00 - $8.75
Canceled........................................ (224,100) 4.00 - 8.75
--------- ------------------
Outstanding at December 31, 1994.................. 225,320 $ 4.00 - $8.75
--------- ------------------
Exercisable at December 31, 1994.................. 221,070 $ 4.00 - $8.75
--------- ------------------
NOTE 10 -- TRANSACTIONS WITH AFFILIATES
The Company has, from time to time, provided asbestos abatement and related
services to affiliates of OHM on a subcontract basis. Revenues recognized from
these affiliates for such services were $1,377,000, $3,469,000, and $2,090,000
for 1994, 1993, and 1992, respectively. In addition, the Company also provided
environmental cleaning and industrial maintenance services to a subsidiary of
OHM during 1992. Revenues recognized from this affiliate were $1,871,000 and are
included in discontinued operations in the accompanying 1992 consolidated
statement of operations.
In addition, the Company has, from time to time, provided asbestos
abatement and related services to Rust and certain of their affiliates on a
subcontract basis. Revenues recognized for such services were $4,509,000 and
$1,751,000 for the years ended December 31, 1994 and 1993, respectively. Also,
Rust and
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13
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
certain of its affiliates provided scaffolding, disposal, demolition, and other
related services to the Company on a subcontract basis. The cost for such
services provided by Rust was $530,000 and $2,525,000 for the years ended
December 31, 1994 and 1993, respectively.
From time to time in the normal course of business, the Company will seek
to recover amounts from customers in excess of the agreed-upon contract price,
based on customer-caused delays, errors in specifications and changes in design,
among other items. Revenues are recognized for amounts under pending claims when
management believes it is probable the claim will result in additional contract
revenues and the amount can be reliably estimated. At December 31, 1994, the
Company has a claim of $3.2 million outstanding against Rust on which it has
recognized a portion of the amount as revenue, based on management's anticipated
settlement.
During the years ended December 31, 1994, 1993, and 1992, OHM charged the
Company $363,000, $93,000, and $475,000, respectively, for general liability and
other insurance coverages. The Company's employees were eligible to participate
in OHM's group insurance and other employee benefit plans prior to the Company's
acquisition in 1993 of the asbestos abatement division of Brand. The costs
charged to the Company by OHM for these employee benefits were $242,000 and
$540,000 for the years ended December 31, 1993, and 1992, respectively.
Prior to the termination of the Cash Management Agreement with OHM on May
4, 1993, the Company advanced its excess cash to OHM and borrowed from OHM to
finance the expansion of its business. The Company was charged interest of
$591,000 and $1,384,000, for 1993, and 1992, respectively. The Company had
interest income of $316,000 and $1,074,000, for 1993, and 1992, respectively.
OHM and its other subsidiaries also furnished to the Company financial,
administrative, legal and certain other staff functions and services prior to
the termination of the Management Services Agreement with OHM on May 4, 1993.
The Company believes that the charges for such services were made on a
reasonable basis and approximated what it would have incurred to obtain such
services on its own. The Company was charged $149,000, and $281,000 by OHM for
such services during the years ended December 31, 1993, and 1992, respectively.
In addition, the Company has reimbursed OHM for certain third-party charges paid
by OHM on the Company's behalf, such as letter of credit fees, insurance and
bonding costs, and legal fees.
NOTE 11 -- EMPLOYEE BENEFIT PLANS
Effective October 1, 1992, the Company adopted the NSC Corporation
Retirement Savings Plan (the "Plan"). The Plan allows eligible employees to make
contributions, up to a certain limit, to a trust, on a tax-deferred basis under
Section 401(k) of the Internal Revenue Code. The Company may, at its discretion,
make profit-sharing contributions to the Plan out of its profits for the plan
years. Prior to October 1, 1992, the Company was a participating employer in the
OHM Corporation Retirement Savings Plan. The Company made matching contributions
of $21,000, and $28,000 to the plans described above during 1993, and 1992.
During 1994, no contributions were made.
The Company's subsidiary, NSC, has certain union employees which are
covered by union-sponsored, collectively bargained, multi-employer retirement
plans. Contributions to the plans were $2,379,000, $1,500,000, and $1,002,000
for 1994, 1993, and 1992 respectively.
NOTE 12 -- LITIGATION, COMMITMENTS AND CONTINGENCIES
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. While the
outcomes of all claims are 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.
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14
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Effective November 1, 1992, the Company's primary auto liability,
commercial general liability, and, in most states, its workers' compensation
liability insurance coverages were issued under an arrangement with an insurance
carrier pursuant to which the Company effectively self-insures such primary
coverages. Above the respective primary policy limits, the Company has obtained
commercial excess/umbrella and excess workers' compensation liability stop loss
coverages on a fully insured basis. Prior to November 1, 1992, the Company
obtained insurance coverages through its participation in OHM's general
insurance program pursuant to the Management Services Agreement (see Note 10-
Transactions with Affiliates), with OHM dated May 1, 1990, and through other
external sources. The Company has recorded an estimate of the loss it expects to
ultimately incur under its insurance arrangements.
The Company occupies office space and utilizes equipment in various
locations under operating leases. Rental expense under operating leases amounted
to $730,000, $455,000, and $193,000 for 1994, 1993, and 1992, respectively. The
lease agreements generally contain renewal provisions and escalation clauses.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1994 are: 1995, $505,000; 1996, $186,000; 1997, $58,000; and 1998,
$9,000.
The Company had $19,017,000 and $18,267,000 letters of credit outstanding
at December 31, 1994 and 1993, respectively. These letters of credit were issued
primarily in support of the Company's insurance programs.
NOTE 13 -- MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During 1994 and 1993, no single customer accounted for more than 10% of the
Company's consolidated gross revenues. During 1992, the Company performed
various projects for Swig, Weiler & Arnow Management Co., Inc. which accounted
for approximately 14% of the Company's consolidated gross revenues.
The Company provides asbestos abatement and related services to commercial,
institutional, and industrial clients with properties located throughout the
United States. The Company's commercial, institutional, and industrial clients
constituted 48%, 22%, and 30% of gross revenues as of December 31, 1994. The
Company generally invoices its customers as the work is being performed and does
not require collateral.
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15
NSC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is an analysis of certain items in the consolidated
statements of operations by quarter for 1994 and 1993:
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross revenues....................... $34,203 $35,150 $32,076 $30,789
Net revenues......................... 27,638 29,252 26,579 25,077
Gross profit......................... 4,518 5,382 6,075 5,741
Operating income..................... 379 1,494 1,764 1,464
Net income........................... 168 731 892 775
Net income per share................. 0.02 0.07 0.09 0.08
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross revenues....................... $14,135 $26,156 $35,047 $34,916
Net revenues......................... 9,654 20,650 27,539 28,660
Gross profit......................... 3,104 4,946 6,833 6,018
Operating income..................... 1,135 1,438 2,147 1,636
Net income........................... 583 803 1,153 834
Net income per share................. 0.10 0.10 0.12 0.08
F-35
16
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
NSC Corporation
We have audited the accompanying consolidated balance sheets of NSC
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also include the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NSC Corporation and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 6 to the financial statements, in 1992 the Company
changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Boston, Massachusetts
February 1, 1995
F-20
17
NSC CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Description Balance at Charged to
Beginning Costs and Deductions Balance at End
of Period Expenses (2) Describe (1) of Period
---------- ------------ ------------ --------------
Year Ended December 31, 1994
Deducted from assets accounts:
Allowance for uncollectible accounts $ 1,165 $ 390 $ 773 $ 782
Reserve for contract revenue adjustments 1,546 332 1,348 530
------- ------- ------- -------
Total $ 2,711 $ 772 $ 2,121 $ 1,312
------- ------- ------- -------
Year Ended December 31, 1993
Deducted from assets accounts:
Allowance for uncollectible accounts $ 700 $ 500 $ 35 $ 1,165
Reserve for contract revenue adjustments 700 2,831 (3) 1,985 (4) 1,546
------- ------- ------- -------
Total $ 1,400 $ 3,331 $ 2,020 $ 2,711
------- ------- ------- -------
Year Ended December 31, 1992
Deducted from assets accounts:
Allowance for uncollectible accounts $ 215 $ 757 $ 272 $ 700
Reserve for contract revenue adjustments 227 759 286 700
------- ------- ------- -------
Total $ 442 $ 1,516 $ 558 $ 1,400
------- ------- ------- -------
(1) Uncollectible accounts written off and adjustments to
unbilled revenues on contracts in process.
(2) Reduction of revenues on contracts in process and amounts
charged to bad debt expense.
(3) Approximately $2,000,000 represents reserves for contract
revenue adjustments established in conjunction with the
Company's acquisition of the asbestos division of Brand.
Goodwill was increased by $2,000,000 as a result of such
reserves.
(4) Approximately $1,239,000 represents charges against the
reserves described in Note 3 above.