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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 June 30, 1995
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9654
OHM CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-1503050
(State of Incorporation) (I.R.S. Employer Identification Number)
16406 U.S. ROUTE 224 EAST, FINDLAY, OH. 45840
(Address of principal executive offices) (Zip Code)
(419) 423-3529
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing such
requirement for the past 90 days. Yes X No _____
The number of shares of Common Stock outstanding on July 31, 1995
was 26,539,960.
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OHM CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
PART I
FINANCIAL INFORMATION
Page
Number
------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1995 (Unaudited)
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income (Unaudited) for the Three and Six Months
Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows (Unaudited) for the Six Months
Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . 4
Independent Accountants' Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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Item 1. FINANCIAL STATEMENTS
OHM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
1995 1994
---------- ----------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,928 $ 4,930
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,318 86,663
Costs and estimated earnings on contracts in process in excess of billings . . 60,785 65,437
Materials and supply inventory, at cost . . . . . . . . . . . . . . . . . . . 11,797 10,099
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . 14,463 7,252
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,612 6,744
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 205
-------- --------
237,040 181,330
-------- --------
Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,347 57,240
-------- ---------
Other Noncurrent Assets:
Deferred debt issuance and financing costs . . . . . . . . . . . . . . . . . . 1,906 2,381
Investment in affiliated company . . . . . . . . . . . . . . . . . . . . . . . 23,633 23,352
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336 336
Intangible assets relating to acquired businesses, net . . . . . . . . . . . . 3,725 370
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,192 7,537
-------- ---------
41,792 33,976
-------- ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $363,179 $272,546
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,051 $ 47,936
Billings on contracts in process in excess of costs and estimated earnings . . 4,782 40
Accrued compensation and related taxes . . . . . . . . . . . . . . . . . . . . 5,877 3,874
Federal, state and local taxes . . . . . . . . . . . . . . . . . . . . . . . . 261 102
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 17,822 9,652
Current portion of noncurrent liabilities . . . . . . . . . . . . . . . . . . 4,284 3,262
-------- --------
79,077 64,866
-------- --------
Noncurrent Liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,508 127,279
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 92
Pension agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899 906
-------- --------
123,477 128,277
-------- --------
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,112 2,483
-------- --------
Shareholders' Equity:
Preferred stock, $10.00 par value, 2,000,000 shares
authorized; none issued and outstanding . . . . . . . . . . . . . . . . . . - -
Common stock, $.10 par value, 50,000,000 shares authorized;
Shares issued: 1995 - 26,516,379; 1994 - 15,848,089 . . . . . . . . . . . 2,651 1,584
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 138,046 63,294
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,129 14,598
-------- --------
156,826 79,476
Less treasury stock, 1995 - 25,994; 1994 - 211,624 . . . . . . . . . . . . . . . (313) (2,556)
-------- --------
156,513 76,920
-------- --------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . . . $363,179 $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 Six Months Ended
June 30, June 30,
------------------------ ----------------------
1995 1994 1995 1994
------- ------ -------- --------
(Unaudited) (Unaudited)
Gross Revenues . . . . . . . . . . . . . . . . . . . . . $99,501 $94,686 $179,718 $169,717
Less direct subcontract costs . . . . . . . . . . . . 28,887 29,659 52,555 52,879
Net Revenues . . . . . . . . . . . . . . . . . . . . . . 70,614 65,027 127,163 116,838
Cost of services . . . . . . . . . . . . . . . . . . 54,470 51,336 98,109 92,763
------- ------- -------- --------
Gross Profit . . . . . . . . . . . . . . . . . . . . . . 16,144 13,691 29,054 24,075
Selling, general and administrative expenses . . . . . 13,285 8,316 20,966 15,603
------- ------- -------- --------
Operating Income . . . . . . . . . . . . . . . . . . . . 2,859 5,375 8,088 8,472
------- ------- -------- --------
Other (Income) Expenses:
Investment income . . . . . . . . . . . . . . . . . . (13) (6) (23) (16)
Interest expense . . . . . . . . . . . . . . . . . . . 2,832 2,185 6,071 3,969
Equity in net earnings of affiliate . . . . . . . . . (198) (293) (281) (361)
Miscellaneous expense, net . . . . . . . . . . . . . . 7 199 39 283
------- ------- -------- --------
2,628 2,085 5,806 3,875
------- ------- -------- --------
Income Before Income Taxes (Benefit) . . . . . . . . . . 231 3,290 2,282 4,597
Income taxes (benefit) . . . . . . . . . . . . . . . . (3) 1,221 761 1,723
------- ------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 234 $ 2,069 $ 1,521 $ 2,874
======= ======= ======== ========
Net Income Per Share . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.13 $ 0.08 $ 0.18
======= ======= ======== ========
Weighted average number of common and
common equivalent shares outstanding . . . . . . . . . 20,593 16,212 18,135 16,207
======= ======= ======== ========
<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)
Six Months Ended
June 30,
----------------------------
1995 1994
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,521 $ 2,874
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 3,780 3,154
Amortization of other noncurrent assets . . . . . . . . . . . . . . . . . . 1,400 1,215
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (239) 1,573
Loss (gain) on sale of property and equipment . . . . . . . . . . . . . . . (22) 213
Equity in net earnings of affiliate's continuing operations . . . . . . . . . (281) (361)
Deferred translation adjustments and other . . . . . . . . . . . . . . . . . 59 31
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,905) (34,154)
Costs and estimated earnings on contracts in process in excess of billings . 7,209 (4,977)
Materials and supply inventory . . . . . . . . . . . . . . . . . . . . . . . (1,698) (574)
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . (3,191) (858)
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 68 -
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,161) 7,313
Billings on contracts in process in excess of costs and estimated earnings . 2,376 (252)
Accrued compensation and related taxes . . . . . . . . . . . . . . . . . . . (148) 532
Federal, state and local income taxes . . . . . . . . . . . . . . . . . . . 159 (162)
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (748) (1,654)
-------- --------
Net cash flow used in operating activities . . . . . . . . . . . . . . . . (14,821) (26,087)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . (7,148) (6,365)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . 872 1,742
Increase in other noncurrent assets . . . . . . . . . . . . . . . . . . . . (1,144) (947)
Cash acquired from purchase of business . . . . . . . . . . . . . . . . . . 16,670 -
-------- --------
Net cash provided by (used in) investing activities . . . . . . . . . . . 9,250 (5,570)
-------- --------
Cash flows from financing activities:
Increase in long term debt . . . . . . . . . . . . . . . . . . . . . . . . . 1,945 -
Payments on long-term debt and capital leases . . . . . . . . . . . . . . . (1,646) (807)
Proceeds from borrowing under revolving credit and term loan . . . . . . . . 73,800 73,900
Payments on revolving credit agreement . . . . . . . . . . . . . . . . . . . (77,900) (42,600)
Payments on pension agreement . . . . . . . . . . . . . . . . . . . . . . . (55) (54)
Proceeds from public offering of common stock . . . . . . . . . . . . . . . . - 863
Proceeds from private placement of common stock . . . . . . . . . . . . . . 10,000 -
Reissuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . 1,425 402
-------- --------
Net cash provided by financing activities . . . . . . . . . . . . . . . . 7,569 31,704
-------- --------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 1,998 47
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 4,930 5,039
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 6,928 $ 5,086
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
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OHM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by OHM Corporation (the "Company") and reflect all adjustments of a normal
recurring nature which are, in the opinion of management, necessary for a fair
presentation of financial results for the three and six months ended June 30,
1995 and 1994, in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to Article 10 of Regulation S-X.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
interim consolidated financial statements should be read in conjunction with
the Company's Annual Report to Shareholders for the year ended December 31,
1994. The results of operations for the three and six months ended June 30,
1995 and 1994, are not necessarily indicative of the results for the full year.
The unaudited consolidated financial statements include the accounts of the
Company and its subsidiaries. The Company's 40% owned asbestos abatement
affiliate, NSC Corporation ("NSC"), has been accounted for using the equity
method. All material intercompany transactions and balances have been
eliminated in consolidation.
The consolidated financial statements at June 30, 1995, and for the three and
six months then ended have been reviewed, prior to filing, by Ernst & Young
LLP, the Company's independent accountants, and their report is included
herein.
NOTE 2 - SUPPLEMENTARY CASH FLOW INFORMATION
As supplemental information related to the consolidated statements of cash
flows, cash paid for interest was $5,952,000 and $3,946,000 and cash paid for
income taxes was $330,000 and $293,000 for the six months ended June 30, 1995
and 1994, respectively.
NOTE 3 - RECLASSIFICATIONS
Certain amounts presented for the three and six months ended June 30, 1994 have
been reclassified to conform to the June 30, 1995 presentation.
NOTE 4 - INVESTMENTS IN AFFILIATED COMPANY
The Company owns a 40% equity interest in NSC, a nationwide asbestos abatement
services company, which has been included in the Company's financial statements
using the equity method. The following summarizes the income statements of NSC
for the three and six months ended June 30, 1995 and 1994:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
(In Thousands) (In Thousands)
Gross revenues . . . . . . . . . . . . . $31,966 $35,150 $61,510 $69,353
Gross profit . . . . . . . . . . . . . . 5,203 5,382 9,903 9,900
Operating income . . . . . . . . . . . . 1,075 1,494 1,623 1,873
Net income . . . . . . . . . . . . . . . 493 731 713 899
Company's interest in net income . . . . 198 293 281 361
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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 Six Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
Federal statutory rate . . . . . . . . . . . . . . . 34.0 % 34.0 % 34.0 % 34.0 %
Add (deduct):
State income taxes, net of federal benefit . . . 1.7 % 4.1 % 4.5 % 4.2 %
Equity in net earnings of affiliate . . . . . . (23.3)% (2.4)% (3.3)% (2.1)%
Other, net . . . . . . . . . . . . . . . . . . . (13.7)% 1.4 % (1.9)% 1.4 %
---- ---- ---- ----
(1.3)% 37.1 % 33.3% 37.5 %
==== ==== ==== ====
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
June 30, Dec. 31,
1995 1994
---------- ----------
(In Thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 374 $ 257
Buildings and improvements . . . . . . . . . . . . . . . . . 17,734 17,179
Machinery and equipment . . . . . . . . . . . . . . . . . . 95,226 74,270
Construction in progress . . . . . . . . . . . . . . . . . . 12,385 4,190
-------- --------
125,719 95,896
Less accumulated depreciation and amortization . . . . . . . (41,372) (38,656)
-------- --------
$ 84,347 $ 57,240
======== ========
NOTE 7 - NET INCOME PER SHARE INFORMATION
Net income per share amounts are based on the weighted average number of common
and common equivalent shares outstanding during the respective periods. Shares
of common stock issuable upon conversion of the 8% Convertible Subordinated
Debentures due 2006 are not considered to be common stock equivalents and were
antidilutive in each of the periods presented.
NOTE 8 - SEASONALITY
The timing of revenues is dependent on the Company's backlog, contract awards
and the performance requirements of each contract. The Company's revenues are
also affected by the timing of its clients' planned remediation work which
generally increases during the third and fourth quarters. Because of this
change in demand, the Company's quarterly revenues can fluctuate, and revenues
for the first and second quarters of each year can normally be expected to be
lower than the third and fourth quarters. Although the Company believes that
the historical trend in quarterly revenues for the third and fourth quarters of
each year are generally higher than the first and second quarters, there can be
no assurance that this will occur in future periods. Accordingly, quarterly or
other interim results should not be considered indicative of results to be
expected for any quarter or for the full year.
NOTE 9 - ACQUISITION
On May 30, 1995, the Company completed the acquisition of substantially all of
the assets and certain liabilities of the hazardous and nuclear waste
remediation service business (the "Division") of Rust International Inc.
("Rust") in exchange for 9,668,000 shares of common stock of the Company, or
approximately 37% of the outstanding shares of the Company's common stock.
Such shares issued to Rust are subject to a number of restrictions set forth in
a Standstill and Non-Competition Agreement that was entered into pursuant to
the Agreement and Plan of Reorganization dated December 5, 1994, as amended
(the "Reorganization Agreement"), among the Company, Rust and certain of its
subsidiaries. In addition to the net assets of the division, the Company
received $16,670,000 in cash pursuant to provisions of the Reorganization
Agreement that provided for an adjustment based on the average per share price
of the Company's common stock for a 20 trading day period prior to closing.
For purposes of calculating
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the consideration given by the Company for the Division, such 20 trading day
average per share price of $11.25 was used, adjusted to reflect a discount for
the restricted nature of the common stock issued. In exchange for a warrant to
purchase up to 700,000 shares of the Company's common stock at an exercise
price of $15.00 per share during the five years following the closing date,
Rust's parent company, WMX Technologies, Inc. ("WMX"), will provide the Company
with a credit enhancement in the form of guarantees, issued from time to time
upon request of the Company, of up to $62,000,000 of the Company's
indebtedness, which will increase proportionately up to $75,000,000 upon
issuance of shares under the warrant.
The acquisition of the Division has been accounted for using the purchase
method and, accordingly, the acquired assets and assumed liabilities, including
goodwill, have been recorded at their estimated fair values as of May 30, 1995.
The Company's consolidated financial statements for the three and six month
periods ended June 30, 1995, include the results of operations for the Division
since May 30, 1995. The following table sets forth the unaudited combined pro
forma results of operations for the six months ended June 30, 1995 and 1994,
giving effect to the acquisition of the Division as if such acquisition had
occurred on January 1, 1994.
Pro Forma
Six Months Ended
June 30,
------------------------
1995 1994
---------- ----------
(In Thousands, Except Per Share Data)
Gross revenue . . . . . . . . . . . . . . . . . . . . . . . $242,258 $276,015
Net income . . . . . . . . . . . . . . . . . . . . . . . . . 2,851 5,076
Net income per share . . . . . . . . . . . . . . . . . . . . $0.11 $0.20
The actual purchase accounting adjustments to reflect the fair value of assets
and liabilities acquired have not been finalized and, as a result, the
accompanying consolidated financial statements and combined pro forma results
of operations have been prepared on the basis of preliminary estimates of such
adjustments. The combined pro forma results of operations for the six months
ended June 30, 1995 are based upon certain assumptions and estimates which the
Company believes are reasonable. The combined pro forma results of operations
may not be indicative of the operating results that actually would have been
reported had the transaction been consummated on January 1, 1994, nor are they
necessarily indicative of results which will be reported in the future.
NOTE 10 - CAPITAL STOCK
On March 28, 1995, the Company sold to H. Wayne Huizenga and an affiliated
family foundation 1,000,000 shares of its common stock and options for an
aggregate purchase price of $10,000,000. The options are exercisable over five
years for the purchase of 620,000 shares of common stock upon payment of $10.00
per share and 380,000 shares of common stock upon payment of $12.00 per share.
NOTE 11 - CREDIT AGREEMENT
On May 31, 1995, the Company entered into a $150,000,000 revolving credit
agreement with a group of banks (the "Bank Group") to provide letters of credit
and cash borrowings. The agreement has a five year term and is scheduled to
expire on May 30, 2000. WMX has issued a guarantee of up to $62,000,000
outstanding under the credit agreement in favor of the Bank Group (See Note 9 -
Acquisition). Under the terms of the agreement the entire credit facility can
be used for either cash borrowings or letters of credit subject to certain
covenants. Cash borrowings bear interest at either the prime rate plus a
percentage up to 0.625% or, at the Company's option, the Eurodollar market rate
plus a percentage ranging from 0.325% to 1.625%. The percentage over the prime
rate or the Eurodollar market is based on the aggregate amount borrowed under
the facility, the presence of the WMX guarantee, and the Company's financial
performance as measured by an interest coverage ratio and a total funded debt
ratio. The arrangement provides the participating banks and WMX with a
security interest in the Company's equipment, inventories, accounts
receivables, general intangibles and in the Company's investment in the common
stock of NSC as well as the Company's other subsidiaries. The agreement also
imposes, among other covenants, a minimum tangible net worth covenant and a
restriction on all of the Company's retained earnings including the declaration
and payment of cash dividends.
The Company had $23,357,000 and $34,771,000 of letters of credit and
$53,600,000 and $57,700,000 of cash borrowings outstanding under its revolving
credit facility at June 30, 1995 and December 31, 1994, respectively.
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NOTE 12 - LITIGATION AND CONTINGENCIES
The Company's accounts receivable at June 30, 1995 include a claim receivable
aggregating approximately $24,391,000 in direct costs relating to a major
remediation project which was performed by the Company for Citgo Petroleum
Corporation ("Citgo") at its Lake Charles, Louisiana refinery during 1993 and
1994. This claim receivable represents direct costs to date for activities
which the Company's management believed exceeded the scope of the existing
contract due to deficient project specifications provided by Citgo and Oxy USA,
Inc. ("Oxy") as well as differing site conditions. In addition, at June 30,
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 judgment action was filed in
July 1994, together with counterclaims against Citgo for negligent
misrepresentation, breach of contract and quantum meruit seeking damages in
excess of $35,000,000. In August 1994, Citgo amended its complaint seeking
damages under the contract. In January 1995, Citgo filed a third party
complaint against Occidental Oil and Gas Corporation and Oxy as third party
defendants in such litigation because of their prior involvement with the Citgo
site and preparation of the contract specifications. Additionally, in July
1995, the Company filed a complaint against Oxy for negligent misrepresentation
as a result of its involvement with the development of sampling and analytical
data relied upon by the Company in preparation of its bid and cost estimates
for work at the site.
The Company has also become involved in litigation with Occidental Chemical
Corporation ("Occidental") relating to a separate project performed in 1993 and
1994 for Occidental. The Company's accounts receivable at March 31, 1995
include a claim receivable of $8,297,000 in direct costs relating to this
project. The litigation arises from an October 1993 contract between the
Company and Occidental for work at a contaminated site in North Tonawanda, New
York. The Company's work was substantially delayed and its costs of performance
were substantially increased as a result of conditions at the site which the
Company's management believes were materially different than as represented by
Occidental. The Company believes that Occidental has implicitly acknowledged
the existence of differing conditions at the site through its previous
execution and partial payment of a change order relating to the Company's
position. In October 1994, Occidental issued a deductive change order deleting
substantially all remaining work from the contract. On December 30, 1994,
while the Company was in the process of developing a comprehensive request for
equitable adjustment, Occidental filed suit against the Company in U.S.
District Court for the Western District of New York alleging damages in excess
of $50,000, the jurisdictional minimum. On March 3, 1995, Occidental filed an
amended complaint seeking $8,806,000 in damages primarily for alleged costs
incurred as a result of project delays and added volumes of incinerated wastes.
On April 6, 1995, the Company filed its answer and counterclaim denying any
liability to Occidental and seeking an amount in excess of $9,200,000 for
damages arising from Occidental's breach of contract, misrepresentation and
failure to pay outstanding contract amounts.
During the fourth quarter of 1994, the Company recorded a $25,000,000 pre-tax
charge, $15,000,000 after-tax or $0.96 per share, to establish a reserve for
accounts receivable, primarily where such accounts are in litigation.
Management believes that it has established adequate reserves should the
resolution of such accounts receivable be lower than the amounts recorded and
such resolution should not have a material adverse impact upon the Company's
consolidated results of future operations or financial condition.
The Company was named in April 1994 as one of 33 third party defendants in a
case titled United States of America v. American Cyanamid Company, Inc., et
al., pending in the United States District Court for the Southern District of
West Virginia. This litigation arises out of claims made against several
potentially responsible parties ("PRPs") by the Environmental Protection Agency
("EPA") for amounts in excess of $24,000,000 for response costs arising out of
releases and threatened releases of hazardous waste at the Fike Chemical, Inc.
Superfund site (the "Site") in Nitro, West Virginia. The Company was retained
as a response action contractor for the site under contracts with the United
States Army Corps of Engineers ("USACE") and the EPA. The third party
complaint alleges that the Company was an operator of the Site during the
remediation and that the Company caused releases or threatened releases of
hazardous substances at the Site as a result of its negligent conduct, grossly
negligent conduct or intentional misconduct. The third party complaint seeks
damages and contribution from the Company and the other third party defendants.
The Company has submitted claims for indemnification related to the lawsuit
under its contract with the USACE and the EPA and has notified its contractors
pollution liability insurance carrier. The Company believes the lawsuit is
without merit, intends to vigorously defend against it and does not believe
that it will have a material adverse effect on the results of future operations
and financial condition of the Company. The Company has also been subject to
an investigation by the government relating to the Company's billings to the
EPA for its work at the Site.
7
10
The investigation was prompted by allegations made by certain of the PRPs in
defense of the main cost recovery action. Those PRPs have also filed a qui tam
suit against the Company under seal. The Company cooperated fully with the
investigation and has been informed that the government will not be proceeding
criminally against the Company. The Company is in the process of discussing
with the government the potential disposition of any civil or administrative
action by the government, including the qui tam suit.
In addition to the above, the Company is subject to a number of claims and
lawsuits in the ordinary course of its business. In the opinion of management,
the outcome of these actions, which are not clearly determinable at the present
time, are either adequately covered by insurance, or if not insured, will not,
in the aggregate, have a material adverse impact upon the Company's
consolidated financial position or the results of future operations.
NOTE 13 - INTEGRATION EXPENSES
The Company's consolidated statements of income for the three and six months
ended June 30, 1995, include expenses aggregating $2,428,000 (net of
$1,426,000 income tax benefit) or $0.12 per share, for integration costs
related to the acquisition of the Division. The costs were recorded in
selling, general and administrative expenses and were primarily for severance
and relocation costs for certain of the Company's personnel and the closing of
certain of the Company's offices as a result of combining the operations of the
Division and the Company.
8
11
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
OHM Corporation
We have reviewed the accompanying consolidated balance sheet of OHM Corporation
and subsidiaries as of June 30, 1995, and the related consolidated statements
of income for the three and six month periods ended June 30, 1995 and 1994 and
the consolidated statements of cash flows for the six month periods ended June
30, 1995 and 1994. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of OHM Corporation and subsidiaries
as of December 31, 1994, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for the year then ended (not
present herein) and in our report dated February 1, 1995, except for Note 19,
as to which the date is May 4, 1995, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 1994,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ERNST & YOUNG LLP
Columbus, Ohio
August 10, 1995
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12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company provides a broad range of environmental, hazardous and
nuclear waste remediation services to its clients located primarily in the
United States. The timing of the Company's revenues is dependent on its
backlog, contract awards and the performance requirements of each contract.
The Company's revenues are also affected by the timing of its clients' planned
remediation activities which generally increase during the third and fourth
quarters. Because of this change in demand, the Company's quarterly revenues
can fluctuate, and revenues for the first and second quarters of each year have
historically been lower than for the third and fourth quarters, although there
can be no assurance that this will occur in this year or future years.
Accordingly, quarterly or other interim results should not be considered
indicative of results to be expected for any quarter or full fiscal year.
On March 28, 1995, the Company sold to H. Wayne Huizenga and an
affiliated family foundation 1,000,000 shares of its common stock and options
for an aggregate purchase price of $10,000,000. The options are exercisable
over five years for the purchase of 620,000 shares of common stock upon payment
of $10.00 per share and 380,000 shares of common stock upon payment of $12.00
per share.
On May 30, 1995, the Company completed the acquisition of
substantially all of the assets and certain liabilities of the hazardous and
nuclear waste remediation service business (the "Division") of Rust
International Inc. ("Rust") in exchange for 9,668,000 shares of common stock
of the Company, or approximately 37% of the outstanding shares of the Company's
common stock. In exchange for a warrant to purchase up to 700,000 shares of
the Company's common stock at an exercise price of $15.00 per share during the
five years following the closing date, Rust's parent company, WMX Technologies,
Inc. ("WMX"), will provide the Company with a credit enhancement in the form of
guarantees, issued from time to time upon request of the Company, of up to
$62,000,000 of the Company's indebtedness, which will increase proportionately
up to $75,000,000 upon issuance of shares under the warrant. The acquisition
of the Division has been accounted for using the purchase method and,
accordingly, the acquired assets and assumed liabilities, including goodwill,
have been recorded at their estimated fair values as of May 30, 1995. The
Company's consolidated financial statements for the three and six month periods
ended June 30, 1995, include the results of operation for the Division since
May 30, 1995.
The Company's consolidated statements of income for the three and six
months ended June 30, 1995, include expenses of $3,854,000 pre- tax, $2,428,000
after-tax or $0.12 per share, for integration costs related to the acquisition
of the Division. The costs were recorded in selling, general and
administrative expenses and were primarily for severance and relocation costs
for certain of the Company's personnel and the closing of certain of the
Company's offices as a result of combining the operations of the Division and
the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 VERSUS
THREE MONTHS ENDED JUNE 30, 1994
GROSS REVENUES. The following table sets forth the Company's gross
revenues by client type for the three months ended June 30, 1995 and 1994 (in
thousands, except percentages):
1995 1994
-------------------- --------------------
Government . . . . . . . . . . . . . . . . . . . $75,907 76% $47,669 50%
Industrial . . . . . . . . . . . . . . . . . . . 23,594 24% 47,017 50%
-------- -- -------- ---
$99,501 100% $94,686 100%
======== === ======= ===
Total gross revenues increased by $4,815,000 to $99,501,000 for the
three months ended June 30, 1995 from $94,686,000 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.
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DIRECT SUBCONTRACT COSTS. Direct subcontract costs for the three
months ended June 30, 1995 decreased 3% to $28,887,000 from $29,659,000 for the
same period in 1994. Increases or decreases in direct subcontract costs
generally result from varying requirements for the use of subcontractors in the
projects performed by the Company. Direct subcontract costs as a percentage of
gross revenues were 29% for the three months ended June 30, 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 June 30, 1995 and 1994 (in
thousands, except percentages):
1995 1994
-------------------- --------------------
Government . . . . . . . . . . . . . . . . . . . $52,203 74% $32,163 49%
Industrial . . . . . . . . . . . . . . . . . . . 18,411 26% 32,864 51%
-------- -- -------- ---
$70,614 100% $65,027 100%
======== === ======= ===
Net revenues for the three months ended June 30, 1995 increased 9% to
$70,614,000 from $65,027,000 for the same period in 1994 and were positively
impacted by the inclusion of net revenues for the month of June from the
Division acquired on May 30, 1995.
Net revenues from government agencies for the three months ended June
30, 1995 increased 62% to $52,203,000 from $32,163,000 for the same period in
1994. Such improvement resulted primarily from increased net revenues from the
Company's term contracts with the U.S. Navy, the Environmental Protection
Agency and the Air Force, as well as increased revenues from other government
agencies 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 and the Company
continues to experience a significant amount of proposal activity with the
various Department of Defense agencies. However, further reductions by
Congress in future environmental remediation budgets of government agencies may
adversely impact future revenues from such agencies and the funding of the
Company's government term contracts included in contract backlog.
The Company experienced a $14,453,000 or 44% decrease in net revenues
from industrial clients during the three months ended June 30, 1995 as compared
to the same period in 1994. The second quarter of 1994 included significant
net revenues from a project that was performed for Citgo Petroleum Corporation
("Citgo") (see "Note 12 to the Consolidated Financial Statements") that ended
during June 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. The Company cannot predict the impact upon the
environmental industry of the failure of Congress to reauthorize the Superfund
law. Further delays in Superfund reauthorization may have an adverse impact
upon the demand for the Company's services in the form of project delays as
clients and potential clients wait for and anticipate changes in the
regulations. Demand for the Company's services from the private sector will
remain dependant on general economic conditions and the outcome of the proposed
changes to the Superfund regulations. Industrial sector net revenues as a
percentage of total net revenues decreased to 26% for the three months ended
June 30, 1995 from 51% for the same period in 1994.
COST OF SERVICES AND GROSS PROFIT. Cost of services for the three
months ended June 30, 1995 increased 6% to $54,470,000 from $51,336,000 for the
same period in 1994 primarily due to increased net revenues. Cost of services
as a percentage of net revenues was 77% and 79% for the three months ended June
30, 1995 and 1994, respectively. Cost of services as a percentage of net
revenues was negatively impacted during the second quarter of 1994 by contract
claims arising out of the Company's project with Citgo, which was recorded
without gross profit margin. Gross profit for the three months ended June 30,
1995 increased 18% to $16,144,000 from $13,691,000 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 June 30, 1995
increased 60% to $13,285,000 from $8,316,000 for the same period in 1994.
Selling, general and administrative expenses for the three months ended June
30, 1995, include expenses of $3,854,000 for integration costs related to the
acquisition of the Division. The expenses were primarily for severance and
relocation costs for certain of the Company's personnel and the closing of
certain of the Company's offices as a result of combining the operations of the
Division and the Company. SGA expense as a percentage of net revenues
increased to 19% for the first quarter of 1995 from 13% in the same period in
1994.
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14
OPERATING INCOME. Operating income for the three months ended June
30, 1995 decreased 47% to $2,859,000 from $5,375,000 for the same period in
1994. The decrease is primarily due to the integration expenses discussed
above. Without such expenses, operating income would have been $6,713,000
during the second quarter of 1995 and would have reflected a 25% increase from
the same period in 1994.
OTHER (INCOME) EXPENSES. Other (income) expenses, excluding the
Company's equity in net earnings of NSC, increased $448,000 to $2,826,000 from
$2,378,000 for the three months ended June 30, 1995 when compared to the same
period in 1994. Such increase is primarily due to the increase in interest
expense for the three months ended June 30, 1995 of $647,000 to $2,832,000 from
$2,185,000 for the same period in 1994. The increased interest expense was
primarily due to additional borrowing under the Company's credit facility as a
result of the increased working capital requirements of certain large
remediation projects and government contracts.
EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in
NSC's net earnings for the three months ended June 30, 1995 was $198,000
compared to $293,000 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 June 30, 1995 was
$234,000 or $0.01 per share compared to $2,069,000 or $0.13 per share for the
same period in 1994. The effective income tax rate was (1.3)% for the three
months ended June 30, 1995, compared to 37% for the same period in 1994. See
"Note 5 to the Consolidated Financial Statements" for a reconciliation of the
statutory federal income tax rate to the effective income tax rate.
SIX MONTHS ENDED JUNE 30, 1995 VERSUS
SIX MONTHS ENDED JUNE 30, 1994
GROSS REVENUES. The following table sets forth the Company's gross
revenues by client type for the six months ended June 30, 1995 and 1994 (in
thousands, except percentages):
1995 1994
-------------------- --------------------
Government . . . . . . . . . . . . . . . . . . . $137,715 77% $ 89,434 53%
Industrial . . . . . . . . . . . . . . . . . . . 42,003 23% 80,283 47%
--------- -- --------- --
$179,718 100% $169,717 100%
======== === ======== ===
Total gross revenues increased by $10,001,000 to $179,718,000 for the
six months ended June 30, 1995 from $169,717,000 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 six months
ended June 30, 1995 decreased 1% to $52,555,000 from $52,879,000 for the same
period in 1994. Increases or decreases in direct subcontract costs generally
result from varying requirements for the use of subcontractors in the projects
performed by the Company. Direct subcontract costs as a percentage of gross
revenues were 29% for the six months ended June 30, 1995, compared to 31% for
the same period in 1994.
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15
NET REVENUES. The following table sets forth the Company's net
revenues by client type for the six months ended June 30, 1995 and 1994 (in
thousands, except percentages):
1995 1994
-------------------- --------------------
Government . . . . . . . . . . . . . . . . . . . $ 94,693 74% $ 59,481 51%
Industrial . . . . . . . . . . . . . . . . . . . 32,470 26% 57,357 49%
--------- --- --------- ---
$127,163 100% $116,838 100%
======== === ======== ===
Net revenues for the six months ended June 30, 1995 increased 9% to
$127,163,000 from $116,838,000 for the same period in 1994 and were positively
impacted by the inclusion of net revenues for the month of June from the
Division acquired on May 30, 1995.
Net revenues from government agencies for the six months ended June
30, 1995 increased 59% to $94,693,000 from $59,481,000 for the same period in
1994. Such improvement resulted primarily from increased net revenues from the
Company's term contracts with the U.S. Navy, the Environmental Protection
Agency and the Air Force, as well as increased revenues from other government
agencies and certain state and local governments. The Company expects to
experience a continued increase in net revenue from such contracts for the
balance of 1995 when compared to the same periods in 1994 and the Company
continues to experience a significant amount of proposal activity with the
various Department of Defense agencies. However, further reductions by Congress
in future environmental remediation budgets of government agencies may
adversely impact future revenues from such agencies and the funding of the
Company's government term contracts included in contract backlog.
The Company experienced a $24,887,000 or 43% decrease in net revenues
from industrial clients during the six months ended June 30, 1995 as compared
to the same period in 1994. The first half of 1994 included significant net
revenues from a project that was performed for Citgo Petroleum Corporation
("Citgo") (see "Note 12 to the Consolidated Financial Statements") that ended
during June 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. The Company cannot predict the impact upon the
environmental industry of the failure of Congress to reauthorize the Superfund
law. Further delays in Superfund reauthorization may have an adverse impact
upon the demand for the Company's services in the form of project delays as
clients and potential clients wait for and anticipate changes in the
regulations. Demand for the Company's services from the private sector will
remain dependant on general economic conditions and the outcome of the proposed
changes to the Superfund regulations. Industrial sector net revenues as a
percentage of total net revenues decreased to 26% for the six months ended June
30, 1995 from 49% for the same period in 1994.
COST OF SERVICES AND GROSS PROFIT. Cost of services for the six
months ended June 30, 1995 increased 6% to $98,109,000 from $92,763,000 for the
same period in 1994 primarily due to increased net revenues. Cost of services
as a percentage of net revenues was 77% and 79% for the six months ended June
30, 1995 and 1994, respectively. Cost of services as a percentage of net
revenues was negatively impacted during the first half of 1994 by contract
claims arising out of the Company's project with Citgo, which was recorded
without gross profit margin. Gross profit for the six months ended June 30,
1995 increased 21% to $29,054,000 from $24,075,000 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 six months ended June 30, 1995
increased 34% to $20,966,000 from $15,603,000 for the same period in 1994.
Selling, general and administrative expenses for the six months ended June 30,
1995, include expenses of $3,854,000 for integration costs related to the
acquisition of the Division. The expenses were primarily for severance and
relocation costs for certain of the Company's personnel and the closing of
certain of the Company's offices as a result of combining the operations of the
Company and the Division acquired in May 1995. SGA expense as a percentage of
net revenues increased to 17% for the first six months of 1995 from 13% in the
same period in 1994.
OPERATING INCOME. Operating income for the six months ended June 30,
1995 decreased 5% to $8,088,000 from $8,472,000 for the same period in 1994.
The decrease is primarily due to the integration expenses incurred during the
second quarter of 1995 related to combining the operations of the Company and
the Division acquired.
13
16
OTHER (INCOME) EXPENSES. Other (income) expenses, excluding the
Company's equity in net earnings of NSC, increased $1,851,000 to $6,087,000
from $4,236,000 for the six months ended June 30, 1995 when compared to the
same period in 1994. Such increase is primarily due to the increase in
interest expense for the six months ended June 30, 1995 of $2,102,000 to
$6,071,000 from $3,969,000 for the same period in 1994. Such increase was due
to additional borrowing under the Company's credit facility as a result of the
increased working capital requirements of certain large remediation projects
and government contracts.
EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in
NSC's net earnings for the six months ended June 30, 1995 was $281,000 compared
to $361,000 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 six months ended June 30, 1995 was
$1,521,000 or $0.08 per share compared to $2,874,000 or $0.18 per share for the
same period in 1994. The decrease in net income is primarily due to the
integration expenses incurred during the second quarter of 1995 related to
combining the operations of the Company and the Division acquired in May 1995.
The effective income tax rate was 33% for the six months ended June 30, 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):
June 30, December 31,
1995 1994
------------ ------------
Backlog . . . . . . . . . . . . . . . . . . . . . . $ 381,000 $ 255,000
Term contracts . . . . . . . . . . . . . . . . . . . 1,627,000 1,498,000
--------- -----------
Total contract backlog . . . . . . . . . . . . . $ 2,008,000 $ 1,753,000
=========== ===========
The Company received more new awards from clients or delivery orders
issued under the Company's term contracts in the first half of 1995 than was
recorded as revenue, which resulted in the increase in backlog at June 30,
1995. In accordance with industry practice, substantially all of the Company's
contracts in backlog may be terminated at the convenience of the client. In
addition, the amount of the Company's backlog is subject to changes in the
scope of services to be provided under any given contract. The Company
estimates that approximately 60% of the backlog at June 30, 1995 will be
realized within the next year.
Term contracts are typically performed under delivery orders, issued
by the contracting government entity, for a large number of small- to
medium-sized remediation projects throughout the geographic area covered by the
contract. The Company's government term contracts generally may be canceled,
delayed or modified at the sole option of the government, and typically are
subject to annual funding limitations and public sector budget constraints.
Accordingly, such government contracts represent the potential dollar value
that may be expended under such contracts, but there is no assurance that such
amounts, if any, will be actually spent on any projects or of the timing
thereof. In addition, further reductions by Congress in future environmental
remediation budgets of government agencies may adversely impact future revenues
from such agencies and the funding of the Company's government term contracts
included in contract backlog.
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LIQUIDITY AND CAPITAL RESOURCES
On May 31, 1995, the Company entered into a $150,000,000 revolving
credit agreement with a group of banks (the "Bank Group") to provide letters of
credit and cash borrowings. The agreement has a five year term and is
scheduled to expire on May 30, 2000. WMX has issued a guarantee of up to
$62,000,000 outstanding under the credit agreement in favor of the Bank Group
(See Note 9 - Acquisition). Under the terms of the agreement the entire credit
facility can be used for either cash borrowings or letters of credit subject to
certain covenants. Cash borrowings bear interest at either the prime rate plus
a percentage up to 0.625% or, at the Company's option, the Eurodollar market
rate plus a percentage ranging from 0.325% to 1.625%. The percentage over the
prime rate or the Eurodollar market is based on the aggregate amount borrowed
under the facility, the presence of the guaranty, and the Company's financial
performance as measured by an interest coverage ratio and a total funded debt
ratio. The agreement provides the participating banks with a security interest
in the Company's equipment, inventories, accounts receivables, general
intangibles and in the Company's investment in the common stock of NSC as well
as the Company's other subsidiaries. The agreement also imposes, among other
covenants, a minimum tangible net worth covenant and a restriction on all of
the Company's retained earnings including the declaration and payment of cash
dividends. The Company had $23,357,000 and $34,771,000 of letters of credit and
$53,600,000 and $57,700,000 of cash borrowings outstanding under its revolving
credit facility at June 30, 1995 and December 31, 1994, respectively.
Capital expenditures for the six months ended June 30, 1995 and 1994
were $7,148,000 and $6,365,000, respectively. The Company's capital
expenditures are primarily related to the purchase of heavy equipment and the
fabrication of custom equipment by the Company for the execution of remediation
projects. Capital expenditures for fiscal year 1995 are expected to range
between $15,000,000 and $20,000,000. 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 six months of 1995, the Company derived 77% of its
gross revenues from government agencies compared to 53% during the same period
in 1994. Revenues from government agencies historically have required greater
working capital, the major component of which is accounts receivable, than
revenues from industrial sector clients. In addition, the Company is bidding
on a number of large, long-term contract opportunities which, if awarded to the
Company, would also increase working capital needs and capital expenditures.
The Company believes it will be able to finance its increased working capital
needs and capital expenditures in the short term through a combination of cash
flows from continuing operations, borrowing under its Revolving Credit
Facility, proceeds from permitted asset sales and other external sources. In
addition, under the terms of its recently completed acquisition of Rust's
hazardous and nuclear waste remediation business, Rust's parent company, WMX,
has provided the Company with a credit guarantee of up to $62,000,000 of the
Company's indebtedness outstanding until May 30, 2000. Such credit guarantee
has allowed the Company to expand its borrowing capacity and lower its cost of
capital under its new credit facility entered into on May 31, 1995.
The Company's identified long-term capital needs consist of payments
due upon the maturity of the Company's Revolving Credit Facility in 2000 and
sinking fund payments commencing in 1996 as well as payments due upon maturity
of its Convertible Debentures in 2006. The Company believes that it will be
able to refinance this indebtedness as necessary.
ENVIRONMENTAL MATTERS AND GOVERNMENT CONTRACTING
Although the Company believes that it generally benefits from
increased environmental regulations and from enforcement of those regulations,
increased regulation and enforcement also create significant risks for the
Company. The assessment, remediation, analysis, handling and management of
hazardous substances necessarily involve significant risks, including the
possibility of damages or injuries caused by the escape of hazardous materials
into the environment, and the possibility of fines, penalties or other
regulatory action. These risks include potentially large civil and criminal
liabilities for violations of environmental laws and regulations, and
liabilities to customers and to third parties for damages arising from
performing services for clients, which could have a material adverse effect on
the Company.
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18
The Company does not believe there are currently any material
environmental liabilities which should be recorded or disclosed in its
financial statements. The Company anticipates that its compliance with various
laws and regulations relating to the protection of the environment will not
have a material effect on its capital expenditures, future earnings or
competitive position.
Because of its dependence on government contracts, the Company also
faces the risks associated with such contracting, which could include civil and
criminal fines and penalties. As a result of its government contracting
business, the Company has been, is, and may in the future be subject to audits
and investigations by government agencies. See "Note 12 to the Consolidated
Financial Statements." The fines and penalties which could result from
noncompliance with the Company's government contracts or appropriate standards
and regulations, or the Company's suspension or debarment for future government
contracting, could have a material adverse effect on the Company's business.
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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 and Oxy USA, Inc. ("Oxy"),
the Company bid and was awarded a contract for approximately $28,600,000.
During April 1994, the Company submitted to Citgo a request for a
substantial equitable adjustment to the contract as a result of deficient
project specifications provided by Citgo as well as other unplanned events
controlled by Citgo. On April 29, 1994, Citgo filed a declaratory
judgment action in the United States District Court for the Western
District of Louisiana requesting a declaratory judgement that the Company
is not entitled to additional compensation and requesting an order for
specific performance requiring the Company to perform the contract. The
Company accounts receivable as of June 30, 1995 reflect a claim receivable
and other accounts receivable relating to performance of the Citgo project
aggregating approximately $24,391,000. The Company's answer to the
declaratory judgement action was filed on July 28, 1994, together with
counterclaims against Citgo for negligent misrepresentation, breach of
contract and quantum meruit seeking damages in excess of $35,000,000.
Subsequent to filing of the Company's answer and counterclaim, Citgo
amended its complaint seeking damages under the contract, which the
Company believes approximates the amount of disputed accounts receivable
that Citgo is currently withholding. In January 1995, Citgo filed a third
party complaint against Occidental Oil and Gas Corporation and Oxy
asserting various claims relating to their prior involvement with the
Citgo site and its contract specifications. Additionally, in July 1995,
the Company filed a complaint against Oxy for negligent misrepresentation
as a result of its involvement with the development of sampling and
analytical data relied upon by the Company in preparation of its bid and
cost estimates for work at the site.
The Company was named in April 1994 as one of 33 third party defendants in
a case titled United States of America v. American Cyanamid Company, Inc.,
et al., pending in the United States District Court for the Southern
District of West Virginia. This litigation arises out of Superfund cost
recovery claims made against several potentially responsible parties
("PRPs") by the Environmental Protection Agency ("EPA") for amounts in
excess of $24,000,000 for response costs arising out of releases and
threatened releases of hazardous waste at the Fike Chemical, Inc.
Superfund site (the "Site") in Nitro, West Virginia. The Company was
retained as a response action contractor for the Site under contracts with
the United States Army Corps of Engineers ("USACE") and the EPA. The
third party complaint alleges that the Company was an operator of the Site
during the remediation and that the Company caused releases or threatened
releases of hazardous substances at the Site as a result of its negligent
conduct, grossly negligent conduct or intentional misconduct. The third
party complaint seeks damages and contribution from the Company and the
other third party defendants. The Company has submitted claims for
indemnification related to this lawsuit under its contract with the USACE
and the EPA and has notified its contractors pollution liability insurance
carrier. The Company believes the lawsuit is without merit, intends to
vigorously defend against it and does not believe that it will have a
material adverse effect on the results of operations and financial
condition of the Company. The Company has also been subject to an
investigation by the government relating to the Company's billings to the
EPA for its work at the Site. The investigation was prompted by
allegations made by certain of the PRPs in defense of the main cost
recovery action. Those PRPs also filed a qui tam suit against the Company
under seal. The Company cooperated fully with the investigation and has
been informed that the government will not be proceeding criminally
against the Company. The Company is in the process of discussing with the
government the potential disposition of any civil or administrative action
by the government, including the qui tam suit.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Company's shareholders was held on May
23, 1995.
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(b)(1) At the Annual Meeting, the following persons were elected as
directors of the Company, to serve until the next Annual Meeting
of Shareholders, with the votes for and withheld with respect to
each person, respectively, set forth after such name:
For Withheld
------------- --------
Ivan W. Gorr . . . . . . . . . . . . 10,042,228 54,342
Charles D. Hollister . . . . . . . . 10,042,228 54,342
James L. Kirk . . . . . . . . . . . . 10,041,763 54,807
Joseph R. Kirk . . . . . . . . . . . 10,041,928 54,642
Richard W. Pogue . . . . . . . . . . 10,042,228 54,342
Charles W. Schmidt . . . . . . . . . 10,041,528 55,042
Subsequently, on June 1, 1995, pursuant to the Reorganization
Agreement, the Board of Directors increased the number of
directors to nine and elected Herbert A. Getz, Rodney C. Gilbert
and James E. Koenig to the Board of Directors.
(b)(2) A proposal to issue (i) an aggregate of 9,668,000 shares of the
Company's common stock (the "Common Stock"), to subsidiaries of
Rust in connection with the merger of a wholly-owned subsidiary
of Rust with and into OHM Remediation Services Corp., a wholly-
owned subsidiary of the Company, pursuant to the Reorganization
Agreement, and (ii) a warrant, exercisable for five years, to
purchase 700,000 shares of Common Stock at $15.00 per share to
WMX in connection with a Guarantee Agreement between the Company
and WMX to be entered into in connection with the Reorganization
Agreement, was approved by 94.8% of the Company's common stock
present and voting at the meeting. The results of the vote on
the proposal were:
For 9,223,675
Against 5,888
Abstain 496,086
(b)(3) A proposal to approve the Company's Directors' Deferred Fee Plan
was approved by 98.67% of the Company's Common Stock present and
voting at the meeting. The results of the vote on the proposal
were:
For 9,869,429
Against 11,728
Abstain 21,213
The total number of shares of the Registrant's Common Stock
outstanding as of March 31, 1995, the record date for the Annual
Meeting, was 16,636,465.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Amendment No. 1 to OHM Corporation Retirement Savings
Plan, as amended and restated as of January 1, 1994
10(b) Amendment No. 1 to OHM Corporation Directors'
Deferred Fee Plan
10(c) Standstill and Non-Competition Agreement by and among
the Company, WMX Technologies, Inc., and Rust
International Inc., dated May 30, 1995
10(d) Warrant Agreement by and between WMX Technologies,
Inc., and the Company, dated May 30, 1995
10(e) Revolving Credit Agreement dated as of May 31, 1995
among OHM Corporation and OHM Remediation Services
Corp., and the banks named therein, Citicorp USA,
Inc., as Administrative Agent and Bank of America
Illinois, as Issuing and Paying Agent and Co-Agent
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10(f) First Amendment dated as of May 31, 1995 to Pledge
Agreement dated as of May 11, 1993 by and between the
Company and Bank of America Illinois as Issuing and
Paying Agent
10(g) Second Amendment dated as of May 31, 1995 to Security
Agreement dated as of May 11, 1993 by and among the
Company, OHM Remediation Services Corp., and Bank of
America Illinois as Issuing and Paying Agent
10(h) Intercreditor Agreement dated May 31, 1995 by and
among Citicorp USA, Inc., as Administrative Agent,
Bank of America Illinois, as Issuing and Paying Agent
and WMX Technologies, Inc.
10(i) Guarantee Agreement by and among the Company and WMX
Technologies, Inc., dated May 30, 1995
10(j) Reimbursement Agreement dated as of May 31, 1995
among the Company, OHM Remediation Services Corp. and
WMX Technologies, Inc.
10(k) Security Agreement dated as of May 31, 1995 by and
between the Company, OHM Remediation Services Corp.,
and WMX Technologies, Inc.
10(l) Pledge Agreement dated as of May 31, 1995 by and
between the Company and WMX Technologies, Inc.
11 Statement Re Computation of Per Share Earnings
15 Letter Re Unaudited Financial Information
27 Financial Data Schedule
(b) Reports on Form 8-K.
On June 13, 1995, the Company filed a Current Report on Form
8-K with respect to the consummation, on May 30, 1995, of the
transactions contemplated by an Agreement and Plan of
Reorganization dated December 5, 1995, as amended, by and
among the Company, Rust Remedial Services Inc., Enclean
Environmental Services Group, Inc., Rust Environmental, Inc.
and Rust International Inc. ("Rust"), pursuant to which the
Company acquired the hazardous and nuclear waste remediation
services businesses of Rust. The following financial
statements and pro forma financial information were filed as
part of such Form 8- K by incorporation by reference to the
Registrant's definitive Proxy Statement, dated May 10, 1995
for its 1995 Annual Meeting of Shareholders.
Audited financial statements of the Business Acquired.
Unaudited Pro Forma consolidated balance sheet and
consolidated statement of income of the Company for the
year ended December 31, 1994 that gives effect to the
acquisition as if the transaction had taken place on
January 1, 1994.
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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: August 14, 1995 By /s/ JAMES L. KIRK
---------------------------------
James L. Kirk
Chairman of the Board
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 14, 1995 By /s/ Harold W. Ingalls
---------------------------------
Harold W. Ingalls
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 1995 By /s/ KRIS E. HANSEL
---------------------------------
Kris E. Hansel
Vice President and Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit Exhibit
Number Description
------ -----------
10(a) Amendment No. 1 to OHM Corporation Retirement Savings Plan, as amended and restated as of January 1, 1994
10(b) Amendment No. 1 to OHM Corporation Directors' Deferred Fee Plan
10(c) Standstill and Non-Competition Agreement by and among the Registrant, WMX Technologies, Inc., and Rust International
Inc., dated May 30, 1995
10(d) Warrant Agreement by and between WMX Technologies, Inc., and the Registrant, dated May 30, 1995
10(e) Revolving Credit Agreement dated as of May 31, 1995 among OHM Corporation and OHM Remediation Services Corp., and the
banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America Illinois, as Issuing and Paying
Agent and Co-Agent
10(f) First Amendment dated as of May 31, 1995 to Pledge Agreement dated as of May 11, 1993 by and between the Registrant and
Bank of America Illinois as Issuing and Paying Agent
10(g) Second Amendment dated as of May 31, 1995 to Security Agreement dated as of May 11, 1993 by and between the Registrant,
OHM Remediation Services Corp., and Bank of America Illinois as Issuing and Paying Agent
10(h) Intercreditor Agreement dated May 31, 1995 by and among Citicorp USA, Inc., as administrative agent, Bank of America
Illinois, as issuing and paying agent and WMX Technologies, Inc.
10(i) Guarantee Agreement by and among the Registrant and WMX Technologies, Inc., dated May 30, 1995
10(j) Reimbursement Agreement dated as of May 31, 1995 among WMX Technologies, Inc., OHM Corporation, and OHM Remediation
Services Corp.
10(k) Security Agreement dated as of May 31, 1995 by and between the Registrant, OHM Remediation Services Corp., and WMX
Technologies, Inc.
10(l) Pledge Agreement dated as of May 31, 1995 by and between the Registrant and WMX Technologies, Inc.
11 Statement Re Computation of Per Share Earnings
15 Letter Re Unaudited Financial Information
27 Financial Data Schedule