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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 March 31, 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 April 30,
1995 was 16,649,265.
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OHM CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
PART I
FINANCIAL INFORMATION
Page
Number
------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1995 (Unaudited)
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income (Unaudited) for the Three Months
Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . 4
Independent Accountants' Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 9
PART II
OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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Item 1. FINANCIAL STATEMENTS
OHM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
March 31, December 31,
1995 1994
---------- ----------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,287 $ 4,930
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,569 86,663
Costs and estimated earnings on contracts in process in excess of billings . . 64,343 65,437
Materials and supply inventory, at cost . . . . . . . . . . . . . . . . . . . 10,670 10,099
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . 9,344 7,252
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,437 6,744
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 205
---------- ----------
181,787 181,330
-------- --------
Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,671 57,240
--------- ---------
Other Noncurrent Assets:
Deferred debt issuance and financing costs . . . . . . . . . . . . . . . . . . 2,344 2,381
Investments in affiliated company . . . . . . . . . . . . . . . . . . . . . . 23,435 23,352
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336 336
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,162 7,907
--------- ---------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,277 33,976
--------- ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $273,735 $272,546
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,110 $ 47,936
Billings on contracts in process in excess of costs and estimated earnings . . 579 40
Accrued compensation and related taxes . . . . . . . . . . . . . . . . . . . . 3,259 3,874
Federal, state and local taxes . . . . . . . . . . . . . . . . . . . . . . . . 56 102
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 9,880 9,652
Current portion of noncurrent liabilities . . . . . . . . . . . . . . . . . . 3,645 3,262
--------- ----------
60,529 64,866
-------- ---------
Noncurrent Liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,411 127,279
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 92
Pension agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912 906
---------- -----------
122,409 128,277
-------- --------
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,590 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 - 16,848,089; 1994 - 15,848,089 . . . . . . . . . . . 1,684 1,584
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 73,194 63,294
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,885 14,598
-------- ---------
90,763 79,476
Less Treasury Stock, 1995 - 211,624; 1994 - 211,624 . . . . . . . . . . . . . . . (2,556) (2,556)
--------- ----------
88,207 76,920
-------- ---------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . . . $273,735 $272,546
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
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OHM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
Three Months Ended
March 31,
--------------------
1995 1994
-------- --------
(Unaudited)
Gross Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,217 $75,031
Less direct subcontract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,668 23,220
------- -------
Net Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,549 51,811
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,639 41,427
------- -------
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,910 10,384
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . 7,681 7,287
------- --------
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,229 3,097
------- --------
Other (Income) Expenses:
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (10)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,239 1,784
Equity in net earnings of affiliate . . . . . . . . . . . . . . . . . . . . . . . . (83) (68)
Miscellaneous expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 84
--------- ---------
3,178 1,790
------- --------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,051 1,307
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764 502
--------- ---------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,287 $ 805
======== =======
Net Income Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.08 $ 0.05
======== =======
Weighted average number of common and
common equivalent shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 15,705 16,202
====== ======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
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OHM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
------------------
1995 1994
------- -------
(Unaudited)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,287 $ 805
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 1,762 1,536
Amortization of other noncurrent assets . . . . . . . . . . . . . . . . . . 693 589
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 502
Loss on sale of property and equipment . . . . . . . . . . . . . . . . . . . 1 148
Equity in net earnings of affiliate's continuing operations . . . . . . . . (83) (68)
Deferred translation adjustments and other . . . . . . . . . . . . . . . . . 25 5
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,906) 3,385
Costs and estimated earnings on contracts in process in excess of billings . 1,094 (20,984)
Materials and supply inventory . . . . . . . . . . . . . . . . . . . . . . . (571) (198)
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . (2,092) (909)
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 68 -
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,826) (3,267)
Billings on contracts in process in excess of costs and estimated earnings . 539 (357)
Accrued compensation and related taxes . . . . . . . . . . . . . . . . . . . (615) 193
Federal, state and local income taxes . . . . . . . . . . . . . . . . . . . (46) (186)
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 228 1,050
-------- ---------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . (4,028) (17,756)
------- --------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . (2,227) (3,342)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . 46 60
Increase in other noncurrent assets . . . . . . . . . . . . . . . . . . . . (911) (490)
-------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (3,092) (3,772)
-------- ---------
Cash flows from financing activities:
Payments on long-term debt and capital leases . . . . . . . . . . . . . . . (805) (429)
Proceeds from borrowing under revolving credit agreement . . . . . . . . . . 26,700 34,800
Payments on revolving credit agreement . . . . . . . . . . . . . . . . . . . (31,400) (14,800)
Payments on pension agreement . . . . . . . . . . . . . . . . . . . . . . . (18) (26)
Proceeds from public offering of common stock . . . . . . . . . . . . . . . - 882
Proceeds from private placement of common stock . . . . . . . . . . . . . . 10,000 -
Reissuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . - 189
-------- ----------
Net cash provided by financing activities . . . . . . . . . . . . . . . . 4,477 20,616
-------- --------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . (2,643) (912)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 4,930 5,039
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 2,287 $ 4,127
======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
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OHM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 months ended March 31, 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 months ended March 31, 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 March 31, 1995, and for the three
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
Cash paid for interest was $1,785,000 and $585,000 and cash paid for income
taxes was $196,000 and $220,000 for the three months ended March 31, 1995 and
1994, respectively.
NOTE 3 - RECLASSIFICATIONS
Certain amounts presented for the three months ended March 31, 1994 have been
reclassified to conform to the March 31, 1995 presentation.
NOTE 4 - INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANY
The Company owns a 40% equity interest in NSC, a nationwide asbestos abatement
service company. The following summarizes the income statements of NSC for the
three months ended March 31, 1995 and 1994:
Three Months Ended
March 31,
-----------------------
1995 1994
---------- -------
(In Thousands)
Gross revenues . . . . . . . . . . . . . . . . . . . $29,544 $34,203
Gross profit . . . . . . . . . . . . . . . . . . . . 4,700 4,518
Operating income . . . . . . . . . . . . . . . . . . 548 379
Net income . . . . . . . . . . . . . . . . . . . . . 220 168
Company's interest in net income . . . . . . . . . . 83 68
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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
March 31,
-----------------------
1995 1994
---------- -------
Federal statutory rate . . . . . . . . . . . . . . 34.0 % 34.0 %
Add (deduct):
State income taxes, net of federal benefit . . . 4.4 % 4.3 %
Equity in net earnings of affiliate . . . . . . (1.1)% (1.4)%
Other, net . . . . . . . . . . . . . . . . . . . - 1.5 %
------- --------
37.3 % 38.4 %
======= =======
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
March 31, Dec. 31,
1995 1994
---------- ----------
(In Thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . $ 257 $ 257
Buildings and improvements . . . . . . . . . . . . . 17,188 17,179
Machinery and equipment . . . . . . . . . . . . . . 75,905 74,270
Construction in progress . . . . . . . . . . . . . . 4,371 4,190
--------- ---------
97,721 95,896
Less accumulated depreciation and amortization . . . (40,050) (38,656)
------- -------
$57,671 $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 were antidilutive in each of the periods presented and are
not considered to be common stock equivalents.
NOTE 8 - SEASONALITY
The timing of revenue recognition is dependent on the Company's backlog,
contract awards and the performance requirements of each contract. The
Company's 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 variability 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 - 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 10 - ACQUISITION
On December 5, 1994, the Company entered into a definitive agreement, which
was subsequently amended on May 4, 1995, to acquire substantially all of the
assets and certain liabilities of the hazardous and nuclear waste remediation
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services business 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 upon completion of the
transaction. 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
$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 transaction
is subject to the approval of the shareholders of the Company, which is
currently scheduled for late May 1995, with closing of the transaction shortly
thereafter.
NOTE 11 - LITIGATION AND CONTINGENCIES
The Company's accounts receivable at March 31, 1995 include a claim receivable
aggregating approximately $23,371,000 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 believes exceeded the scope of the existing
contract due to deficient project specifications provided by Citgo and
differing site conditions. In addition, at December 31, 1994, 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 judgement 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. In December,
1994 Citgo filed a motion to allow it to file, and in January 1995, Citgo
filed a third party complaint against Occidental Oil and Gas Corporation and
OXY USA, Inc. as third party defendants in such litigation because of their
prior involvement with the Citgo site and preparation of the contract
specifications.
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 March 31, 1995
include a claim receivable of $8,265,000 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 wastes 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
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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 future operations and financial condition of
the Company. In May 1994, the Company learned a criminal and civil
investigation has been commenced by the government relating to the Company's
billings to the EPA and USACE for its work at the Site. The Company believes
the investigation followed certain allegations made by the PRPs in defense of
the main cost recovery action. The Company is cooperating fully with the
investigation.
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.
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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 March 31, 1995, and the related consolidated statements
of income and cash flows for the three month periods ended March 31, 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
May 4, 1995
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company provides a broad range of environmental and hazardous
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 variability 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 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 December 5, 1994, the Company entered into a definitive agreement,
which was subsequently amended on May 4, 1995, to acquire substantially all of
the assets and certain liabilities of the hazardous and nuclear waste
remediation services business 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 upon completion of the
transaction. 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
$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 transaction
is subject to the approval of the shareholders of the Company, which is
currently scheduled for late May 1995, with closing of the transaction shortly
thereafter. The Company is currently evaluating whether it will incur any
significant costs for restructuring its organization and operations upon
consummation of the merger. Such costs would be recorded as a restructuring
charge and may include the costs of closing certain of the Company's offices
and other non-recurring expenses related to such restructuring.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 VERSUS
THREE MONTHS ENDED MARCH 31, 1994
GROSS REVENUES. The following table sets forth the Company's gross
revenues by client type for the three months ended March 31, 1995 and 1994 (in
thousands, except percentages):
1995 1994
--------------- ---------------
Government . . . . . . . . . . . . . . . $ 61,808 77% $ 41,761 56%
Industrial . . . . . . . . . . . . . . . 18,409 23% 33,270 44%
-------- ---- -------- ----
$ 80,217 100% $ 75,031 100%
======== ==== ======== ====
Total gross revenues for the three months ended March 31, 1995
increased 7% to $80,217,000 from $75,031,000 for the same period in 1994.
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 three
months ended March 31, 1995 increased 2% to $23,668,000 from $23,220,000 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
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Company. The increase in direct subcontract costs is primarily due to
the increase in gross revenues during the first quarter of 1995 as compared to
the same period in 1994, and increased use of subcontractors for projects
performed under the Company's government contracts. Direct subcontract costs
as a percentage of gross revenues were 30% for the three months ended March 31,
1995, compared to 31% 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 March 31, 1995 and 1994 (in
thousands, except percentages):
1995 1994
-------------- --------------
Government . . . . . . . . . . . . . . $42,490 75% $27,312 53%
Industrial . . . . . . . . . . . . . . 14,059 25% 24,499 47%
-------- ---- ------- ----
$56,549 100% $51,811 100%
======= ==== ======= ====
Net revenues from government agencies for the three months ended March
31, 1995 increased 56% to $42,490,000 from $27,312,000 for the same period in
1994. Such improvement resulted primarily from increased net revenues from
projects issued under term contracts with the U.S. Navy, the Environmental
Protection Agency ("EPA") and certain state and local governments. The Company
expects to experience a continued increase in net revenues from such contracts
for the balance of 1995 when compared to the same periods in 1994. In
addition, the Company continues to experience a significant amount of proposal
activity for new term contracts with the various Department of Defense
agencies.
The Company experienced a $10,440,000 or 43% decrease in net revenues
from industrial clients during the three months ended March 31, 1995 as
compared to the same period in 1994. The first quarter of 1994 included
significant net revenues from a project that was performed for Citgo Petroleum
Corporation ("Citgo") (see "Note 11 to the Consolidated Financial Statements")
that ended during the second quarter of 1994. The Company's industrial sector
revenues remain 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. Industrial sector net
revenues as a percentage of total net revenues decreased to 25% for the three
months ended March 31, 1995 from 47% for the same period in 1994.
The Company believes that its revenues will continue to be
predominately derived from the government sector for the foreseeable future in
light of the factors discussed above, combined with continued increased
spending by the federal government for environmental remediation.
COST OF SERVICES AND GROSS PROFIT. Cost of services for the three
months ended March 31, 1995 increased 5% to $43,639,000 from $41,427,000 for
the same period in 1994 primarily due to the increase in net revenues. Cost of
services as a percentage of net revenues was 77% and 80% for the three months
ended March 31, 1995 and 1994, respectively. Cost of services as a percentage
of net revenues was negatively impacted during the first quarter of 1994 by
contract claims arising out of the Company's project with Citgo, which were
recorded without gross profit margin. Gross profit for the three months ended
March 31, 1995 increased 24% to $12,910,000 from $10,384,000 for the same
period in 1994 as a result of factors discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SGA") expenses for the three months ended March 31, 1995
increased 5% to $7,681,000 from $7,287,000 for the same period in 1994. The
increase in SGA expense was primarily as a result of the net revenue growth
discussed above. SGA expense as a percentage of net revenues was 14% for both
the first quarter of 1995 and 1994.
OPERATING INCOME. Operating income for the three months ended March
31, 1995 increased 69% to $5,229,000 from $3,097,000 for the same period in
1994. The increase is primarily due to increased net revenues from projects
and other factors discussed above.
OTHER (INCOME) EXPENSES. Other (income) expenses, excluding the
Company's equity in net earnings of NSC, increased $1,403,000 to $3,261,000 for
the three months ended March 31, 1995 from $1,858,000 for the same period in
1994. Interest expense for the three months ended March 31, 1995 increased
$1,455,000 to $3,239,000 from $1,784,000 for the same period in 1994 . Such
increase was due to additional borrowings as a result of the increased working
capital requirements of certain large remediation projects and government
contracts as well as an increase in the interest rates charged under the
Company's revolving credit facility.
EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in
NSC's net earnings for the three
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months ended March 31, 1995 was $83,000 compared to $68,000 for the same period
in 1994. 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 March 31, 1995 was
$1,287,000 or $0.08 per share compared to $805,000 or $0.05 per share for the
same period in 1994. The effective income tax rate was 37% for the three
months ended March 31, 1995, compared to 38% 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 contacts and
unfilled orders, and (ii) the Company's term contracts, defined as the
potential value of government term contracts (in thousands):
March 31, December 31,
1995 1994
------------ ------------
Backlog . . . . . . . . . . . . . . . . . $ 272,000 $ 255,000
Term contracts . . . . . . . . . . . . . . 1,478,000 1,498,000
-------------- -------------
Total contract backlog . . . . . . . $ 1,750,000 $ 1,753,000
============== =============
BACKLOG. The Company received more new awards from clients or delivery
orders issued under the Company's term contracts in the first quarter of 1995
than was recorded as revenue, which resulted in the increase in backlog at
March 31, 1995 when compared to December 31, 1994. 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 has not historically experienced any
material contract terminations and generally experiences favorable changes in
contract scope. The Company estimates that approximately 60% of the backlog at
March 31, 1995 will be realized within the next year.
TERM CONTRACTS. 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 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
the timing thereof.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a party to a $135,000,000 revolving credit facility (as
amended January 18, 1995) to provide letters of credit and cash borrowings,
which has a three year term and is scheduled to expire on May 11, 1996. Under
the terms of the agreement, cash borrowings may not exceed $95,000,000 and bear
interest at either the prime rate plus a percentage ranging from .75% to 1.875%
or, at the Company's option, the Eurodollar market rate plus a percentage
ranging from 1.75% to 2.875%. The percentage over the prime rate or the
Eurodollar market rate is based on the aggregate amount borrowed under the
facility as well as the Company's financial performance as measured by an
interest coverage ratio and a total funded debt ratio. The agreement provides
the participating banks a security interest in the Company's equipment,
inventories, accounts receivable, general intangibles and in the Company's
investment in the common stock of NSC as well as its other subsidiaries. The
agreement also imposes, among other covenants, a minimum tangible net worth
covenant and a restriction on all of the Company's retained earnings which
precludes the declaration and payment of cash dividends. The amounts
outstanding for cash borrowings under the revolving credit facility at March
31, 1995 and December 31, 1994 were $53,000,000 and $57,700,000, respectively,
and aggregate standby letters of credit outstanding at March 31, 1995 and
December 31, 1994 were $29,043,000 and $34,771,000, respectively.
Capital expenditures for the three months ended March 31, 1995 and 1994
were $2,227,000 and $3,342,000, 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.
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Capital expenditures for 1995 are expected to range between $12,000,000
and $15,000,000. 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 quarter of 1995, the Company derived 77% 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.
As a result of these factors, the Company believes it will be required to
supplement its cash flows from continuing operations with additional external
sources to finance its short- and long-term capital expenditure and working
capital needs.
The Company believes it will be able to finance the funds needed for
working capital and capital expenditure requirements in the short term through
a combination of cash flows from continuing operations, borrowings under its
revolving credit facility, proceeds from permitted asset sales and other
external sources. In addition, the terms of the agreement for the Company's
pending acquisition of Rust's hazardous and nuclear waste remediation business
provide that Rust's parent company, 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 outstanding
during the five years following the closing of the transaction. Such
guarantees should expand the Company's borrowing capacity and lower its cost of
capital after the completion of the acquisition.
The Company's identified long-term capital needs consist of payments
upon the maturity of the Company's revolving credit facility in 1996 and
sinking fund payments commencing in 1996 as well as payments upon maturity of
its Convertible Debentures in 2006. The Company expects that it will be able
to refinance this indebtedness as necessary. The Company is currently actively
negotiating a new credit facility with a group of banks which it expects to
become effective shortly after the consummation of the acquisition of Rust's
hazardous and nuclear waste remediation business units.
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 11 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 from future
government contracting, could have a material adverse effect on the Company's
business.
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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, 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's accounts receivable as
of March 31, 1995 reflect a claim receivable and other accounts receivable
relating to performance of the Citgo project aggregating approximately
$28,752,000. The Company's answer to the declaratory judgement action was
filed on July 29, 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, which the Company believes approximates the amount of
disputed accounts receivable that Citgo is currently withholding. In
December 1994, Citgo filed a motion to allow it to file, and in January
1995 Citgo filed, a third party complaint against Occidental Oil and Gas
Corporation and OXY USA, Inc., asserting various claims relating to their
prior involvement with the Citgo site and its contract specifications.
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 wastes 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. In May 1994, the Company learned a criminal and
civil investigation has been commenced by the government relating to the
Company's billings to the EPA and USACE for its work at the Site. The
Company believes the investigation followed certain allegations made by
the PRPs in defense of the main cost recovery action. The Company is
cooperating fully with the investigation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2 Amendment dated as of May 4, 1995 to the Agreement and
Plan of Reorganization dated as of 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(a) Stock Purchase Agreement by and between Huizenga Family
Foundation, Inc. and OHM Corporation dated as of March 28,
1995
10(b) Stock Purchase Agreement by and between H. Wayne Huizenga
and OHM Corporation dated as of March 28, 1995
11 Statement Re Computation of Per Share Earnings
15 Letter Re Unaudited Financial Information
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OHM CORPORATION
Date: May 15, 1995 By /s/ HAROLD W. INGALLS
--------------------------
Harold W. Ingalls
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 1995 By /s/ KRIS E. HANSEL
--------------------------
Kris E. Hansel
Vice President and Controller
(Principal Accounting Officer)
(Duly Authorized Officer)
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COMMISSION FILE NUMBER 1-9654
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED
MARCH 31, 1995
___________________________________________
OHM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
__________
EXHIBITS
__________
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EXHIBIT INDEX
Exhibit Exhibit
Number Description
- ------ -----------
2 Amendment dated as of May 4, 1995 to the Agreement and Plan of
Reorganization dated as of 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(a) Stock Purchase Agreement by and between Huizenga Family Foundation,
Inc. and OHM Corporation dated as of March 28, 1995
10(b) Stock Purchase Agreement by and between H. Wayne Huizenga and OHM
Corporation dated as of March 28, 1995
11 Statement Re Computation of Per Share Earnings
15 Letter Re Unaudited Financial Information
27 Financial Data Schedule