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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
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
such filing requirement for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, par value $0.10 per share,
outstanding on April 30, 1996 was 26,745,668.
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OHM CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
PART I
FINANCIAL INFORMATION
Page
Number
------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 (Unaudited)
and December 31, 1995.......................................................................... 1
Consolidated Statements of Income (Unaudited) for the Three Months
Ended March 31, 1996 and 1995.................................................................. 2
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1996 and 1995.................................................................. 3
Notes to Consolidated Financial Statements (Unaudited)........................................... 4
Independent Accountants' Review Report........................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 8
PART II
OTHER INFORMATION
Item 1 Legal Proceedings................................................................................ 11
Item 6 Exhibits and Reports on Form 8-K................................................................. 11
Signatures................................................................................................ 12
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PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
OHM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
March 31, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents........................................................... $ 3,729 $ 11,205
Accounts receivable................................................................. 113,681 100,291
Costs and estimated earnings on contracts in process in excess of billings.......... 55,223 77,156
Materials and supply inventory, at cost............................................. 11,874 11,831
Receivable from affiliated company.................................................. -- 15,000
Prepaid expenses and other assets................................................... 7,354 7,621
Deferred income taxes............................................................... 16,313 16,600
Refundable income taxes............................................................. 359 401
---------- ---------
208,533 240,105
---------- ---------
Property and Equipment, net............................................................ 81,406 81,107
--------- --------
Other Noncurrent Assets:
Investments in affiliated company................................................... 23,263 23,038
Intangible assets relating to acquired businesses, net.............................. 21,619 21,613
Deferred debt issuance and financing costs.......................................... 1,712 1,779
Deferred income taxes............................................................... 1,283 1,440
Other assets........................................................................ 6,809 7,424
---------- ----------
54,686 55,294
---------- ---------
Total Assets.................................................................... $344,625 $376,506
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................... $ 46,856 $ 65,233
Billings on contracts in process in excess of costs and estimated earnings 2,078 1,387
Accrued compensation and related taxes.............................................. 5,651 6,174
Federal, state and local taxes...................................................... 57 200
Other accrued liabilities........................................................... 34,137 33,538
Current portion of noncurrent liabilities........................................... 4,098 4,417
---------- ---------
92,877 110,949
---------- ---------
Noncurrent Liabilities:
Long-term debt...................................................................... 88,458 104,111
Capital leases...................................................................... 47 53
Pension agreement................................................................... 888 901
---------- ----------
89,393 105,065
---------- ---------
Commitments and Contingencies
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: 1996 - 26,718,097; 1995 - 26,647,077............................. 2,671 2,664
Additional paid-in capital.......................................................... 136,955 136,428
Retained earnings................................................................... 22,729 21,400
--------- ---------
162,355 160,492
---------- ---------
Total Liabilities and Shareholders' Equity........................................ $344,625 $376,506
======== ========
<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,
---------
1996 1995
---- ----
(Unaudited)
Revenue............................................................................................. $118,963 $ 80,217
Cost of services ................................................................................ 103,933 67,307
--------- --------
Gross Profit ....................................................................................... 15,030 12,910
Selling, general and administrative expenses .................................................... 11,176 7,681
--------- --------
Operating Income ................................................................................... 3,854 5,229
--------- --------
Other (Income) Expenses:
Investment income ............................................................................... (11) (10)
Interest expense ................................................................................ 1,908 3,239
Equity in net earnings of affiliate ............................................................. (225) (83)
Miscellaneous expense, net ...................................................................... 229 32
--------- --------
1,901 3,178
--------- --------
Income Before Income Taxes ......................................................................... 1,953 2,051
Income taxes .................................................................................... 623 764
--------- --------
Net Income ......................................................................................... $ 1,330 $ 1,287
========= ========
Net Income Per Share................................................................................ $ 0.05 $ 0.08
========= ========
Weighted average number of common and
common equivalent shares outstanding ............................................................ 26,695 15,705
========= ========
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,
---------
1996 1995
---- ----
(Unaudited)
Cash flows from operating activities:
Net income .................................................................... $ 1,330 $ 1,287
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................................ 3,185 1,762
Amortization of other noncurrent assets .................................. 839 693
Deferred income taxes .................................................... 444 414
Loss on sale of property and equipment ................................... 16 1
Equity in net earnings of affiliate ...................................... (225) (83)
Deferred translation adjustments and other ............................... 24 25
Changes in current assets and liabilities:
Accounts receivable ...................................................... (13,390) (1,906)
Costs and estimated earnings on contracts in process in excess of billings 21,933 1,094
Materials and supply inventory, at cost .................................. (43) (571)
Prepaid expenses and other assets ........................................ 267 (2,092)
Refundable income taxes and other adjustments ............................ 42 68
Accounts payable ......................................................... (18,377) (4,826)
Billings on contracts in process in excess of costs and estimated earnings 691 539
Accrued compensation and related taxes ................................... (523) (615)
Federal, state and local income taxes .................................... (143) (46)
Other accrued liabilities ................................................ 599 228
-------- --------
Net cash flows used in operating activities ............................ (3,331) (4,028)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ...................................... (4,542) (2,227)
Proceeds from sale of property and equipment ............................. 1,042 46
Decrease in receivable from affiliated company ........................... 15,000 --
Increase in other noncurrent assets ..................................... (164) (911)
-------- --------
Net cash provided by (used in) investing activities .................... 11,336 (3,092)
-------- --------
Cash flows from financing activities:
Payments on long-term debt and capital leases ............................ (1,378) (805)
Proceeds from borrowing under revolving credit agreement ................. 51,900 26,700
Payments on revolving credit agreement ................................... (66,500) (31,400)
Payments on pension agreement ............................................ (37) (18)
Common stock issued for 401k funding and stock options ................... 534 --
Proceeds from private placement of common stock .......................... -- 10,000
-------- --------
Net cash provided by (used in) financing activities .................... (15,481) 4,477
-------- --------
Net decrease in cash and cash equivalents .............................. (7,476) (2,643)
Cash and cash equivalents at beginning of period .............................. 11,205 4,930
-------- --------
Cash and cash equivalents at end of period .................................... $ 3,729 $ 2,287
======== ========
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, 1996
(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, 1996 and
1995, 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 on Form 10-K for the year ended December 31, 1995.
The results of operations for the three months ended March 31, 1996 and 1995 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, 1996, 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 $1,240,000 and $1,785,000 and cash paid for income
taxes was $193,000 and $196,000 for the three months ended March 31, 1996 and
1995, respectively.
NOTE 3 - 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,
---------
1996 1995
---- ----
Federal statutory rate......................................... 34.0 % 34.0 %
Add (deduct):
State income taxes, net of federal benefit 4.5 4.4
Equity in net earnings of affiliate.......................... ( 3.1) (1.1)
Other, net................................................... (3.5) -
-------- -----
31.9 % 37.3 %
======== =====
NOTE 4 - 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
revenue 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 revenue can fluctuate, and
revenue 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 revenue 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.
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NOTE 5 - LITIGATION AND CONTINGENCIES
The Company's accounts receivable at March 31, 1996 include a claim receivable
aggregating approximately $26,193,000 in direct and other 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 and other 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
March 31, 1996, 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, Citgo filed an action in the U.S. District Court for the Western District
of Louisiana seeking a declaratory judgment that the Company is not entitled to
additional compensation under the contract and certain other relief. The
Company's answer to the declaratory judgment action was filed in July 1994,
together with counterclaims against Citgo for negligent misrepresentation,
breach of contract and quantum meruit seeking damages in excess of $35,000,000.
In August 1994, Citgo amended its complaint seeking damages under the contract
for production shortfalls, which Citgo has asserted in answer to the Company's
interrogatories to be approximately $27,600,000. The Company believes that such
assertion of damages is totally without merit since the contract expressly
provides that Citgo's sole remedy for production shortfalls by the Company is
liquidated damages not to exceed $500,000. In January 1995, Citgo filed a third
party complaint against Occidental Oil and Gas Corporation and Oxy in such
litigation because of their prior involvement with the Citgo site and
preparation of the contract specifications. Additionally, in July 1995, the
Company also filed a third party 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, 1996 include
a claim receivable of $8,539,000 in direct and other 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.
Management believes that it has established adequate reserves should the
resolution of the above 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 (the "U.S. District Court"). This litigation (the "Cost Recovery
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 ("Fike")
in Nitro, West Virginia (the "Site"). 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 allegedly negligent conduct, grossly negligent conduct or intentional
misconduct. The third party complaint seeks to recover clean-up costs 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, has notified its contractors pollution liability insurance carrier and
has impleaded the United States. Those PRP's also filed a suit in the U.S.
District Court against the Company on behalf of the United States under the QUI
TAM provisions of the False Claims Act (the "QUI TAM suit") and caused the
United States to conduct an investigation of the accuracy of the Company's
billings to the EPA. The Company cooperated fully with the investigation and has
been informed that the government will not be proceeding
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criminally against the Company. The Company signed a Settlement Agreement,
pursuant to which the Company agreed to pay $589,000, disposing of any civil
liability relating to the QUI TAM suit and the government investigation with
respect to Fike. The Settlement Agreement is subject to approval by the U.S.
District Court. The Company also executed a Consent Decree settling the Cost
Recovery Litigation without any costs to the Company. The Consent Decree is
subject to U.S. District Court approval.
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, 1996, and the related consolidated statements
of income and cash flows for the three month periods ended March 31, 1996 and
1995. 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, 1995, 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 13, 1996, except for Notes 2
and 10, as to which the date is March 25, 1996, 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, 1995, 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
April 30, 1996
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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 revenue is dependent on its backlog, contract awards and
the performance requirements of each contract. The Company's revenue is 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 revenue can fluctuate, and revenue 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 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"),
provides 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. As such, the Company's consolidated
statement of income does not include the results of operations for the Division
for the three months ended March 31, 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 VERSUS
THREE MONTHS ENDED MARCH 31, 1995
REVENUE. The following table sets forth the Company's revenue by client
type for the three months ended March 31, 1996 and 1995 (in thousands, except
percentages):
1996 1995
---------------------------- -------------------------
Federal, State, and Local Government $ 90,572 76% $ 61,808 77%
Industrial 28,391 24% 18,409 23%
---------- --- -------- ---
Total Revenue $118,963 100% $ 80,217 100%
======== === ========= ===
Total revenue for the three months ended March 31, 1996, increased 48%
to $118,963,000 from $80,217,000 for the same period in 1995. Such improvement
resulted primarily from increased revenue from federal government agencies and
the acquisition of the Division, which was not included in the Company's results
of operations during the first quarter of 1995.
Revenue from government agencies for the three months ended March 31,
1996 increased $28,764,000 or 47% compared to the same period in 1995. This
improvement resulted primarily from an increase in revenue from the Company's
term contracts with the United States Navy, the United States Army Corps of
Engineers ("USACE") and the United States Air Force. Such increases were
partially offset by a decrease in revenue from state and local governments and
the Environmental Protection Agency ("EPA") during the first quarter of 1996
when compared to the same period in 1995. Revenue from the EPA was negatively
impacted by the federal government shutdown during the first quarter of 1996.
The federal government shutdown also delayed new contract awards and delivery
orders issued under the Company's existing federal term contracts. The Company
expects to receive funding under its federal contracts into the foreseeable
future and is experiencing a significant amount of proposal activity for new
contracts with the various Department of Defense agencies, as well as the
Department of Energy. However, reductions by Congress in future environmental
remediation budgets of government agencies may have a material adverse impact
upon future revenue from such agencies and the funding of the Company's
government term contracts included in contract backlog.
The Company experienced a $9,982,000 or 54% increase in revenue from
industrial clients for the three months
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ended March 31, 1996 as compared to the same period in 1995. Such increase is
primarily a result of the acquisition of the Division during May 1995. The
Company believes that revenue from the industrial sector has been negatively
impacted due to anticipated changes in the Superfund law pending its
reauthorization as well as current economic conditions in certain industry and
geographic sectors. Although 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 a material 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 these regulations. In
addition, demand for the Company's services from the industrial sector will also
remain dependant on general economic conditions.
COST OF SERVICES AND GROSS PROFIT. Cost of services for the three
months ended March 31, 1996 increased 54% to $103,933,000 from $67,307,000 for
the same period in 1995 primarily due to increased revenue. Cost of services as
a percentage of revenue increased to 87% for the three months ended March 31,
1996 from 84% for the same period in 1995. Gross profit increased 16% to
$15,030,000 for the three months ended March 31, 1996 from $12,910,000 for the
same period in 1995. The increase in gross profit is primarily due to the
increase in revenue. Gross profit as a percent of revenue decreased to 13% for
the three months ended March 31, 1996 from 16% during the same period in 1995.
The Company's gross profit on its fixed-price contracts was negatively impacted
by the severe winter weather in the midwest and northeast regions of the
country. In addition, the Company has experienced a decrease in the overall
gross margin it has received on its government projects than it has historically
experienced. Such decrease is due to the nature of the projects that have been
awarded to the Company under its term contracts which has required an increase
in the use of subcontracted services and materials over levels historically
experienced. Under the terms of such contracts, the Company receives minimal
markups on such subcontracted services and materials.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SGA") expenses for the three months ended March 31, 1996
increased 46% to $11,176,000 from $7,681,000 for the same period in 1995. The
increase in SGA expenses was primarily as a result of the acquisition of the
Division and increased revenue. In addition, the Company has made a substantial
investment in personnel and systems in support of its government contracts and
the related compliance issues. SGA expense as a percent of revenue was 9% and
10% for the three months ended March 31, 1996 and 1995, respectively.
OPERATING INCOME. Operating income for the three months ended March 31,
1996 decreased 26% to $3,854,000 from $5,229,000 for the same period in 1995 as
a result of factors discussed above.
OTHER (INCOME) EXPENSES. Other (income) expenses, excluding the
Company's equity in net earnings of affiliate, decreased $1,135,000 to
$2,126,000 for the three months ended March 31, 1996 compared to $3,261,000 for
the same period in 1995. Interest expense decreased 41% to $1,908,000 for the
three months ended March 31, 1996 from $3,239,000 for the same period in 1995.
The decrease in interest expense was a result of a decrease in the average
borrowings outstanding, as well as interest rates charged, under the Company's
revolving credit agreement during the first quarter of 1996 when compared to the
same period in 1995. The decrease in interest rates charged under the revolving
credit agreement is a result of the WMX guarantee of the Company's debt in
exchange for the warrant described above.
EQUITY IN NET EARNINGS OF AFFILIATE. The Company's equity interest in
NSC's net earnings increased $142,000 to $225,000 for the three months ended
March 31, 1996 from $83,000 for the same period in 1995.
NET INCOME. Net income for the three months ended March 31, 1996 was
$1,330,000 or $0.05 per share compared to $1,287,000 or $0.08 per share for the
same period in 1995.
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. Under the
terms of the agreement the entire credit facility can be used for either cash
borrowings or letters of credit. Cash borrowings bear interest at either the
prime rate plus a percentage up to 0.625% or, at the Company's option, the
Eurodollar market rate plus a percentage ranging from 0.325% to 1.625%. The
percentage over the prime rate or the Eurodollar market rate is based on the
aggregate amount borrowed under the facility, the presence of the guarantee, 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
receivable, general intangibles and in the Company's investment in the common
stock of NSC as well as the Company's other subsidiaries. The agreement also
imposes, among other covenants, a minimum tangible net worth covenant, a
restriction on all of the Company's retained earnings including the declaration
and payment of cash dividends and a restriction on the ratio of total funded
debt
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to earnings before income taxes, depreciation and amortization. The amounts
outstanding for cash borrowing under the revolving credit facility at March 31,
1996 and December 31, 1995 were $27,500,000 and $42,100,000, respectively, and
aggregate letters of credit outstanding at March 31, 1996 and December 31, 1995
were $14,823,000 and $14,655,000, respectively.
Capital expenditures for the three months ended March 31, 1996 and
1995, were $4,542,000 and $2,227,000, 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 1996 are expected to range
between $15,000,000 and $18,000,000. The Company's long-term capital expenditure
requirements are dependent upon the type and size of future remediation projects
awarded to the Company.
The Company believes that the government sector will continue to be its
primary source of revenue for the foreseeable future in light of its contract
backlog with federal government agencies. Revenue from government agencies
historically has required greater working capital, the major component of which
is accounts receivable, than revenue 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 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 of 7.5% of the principal amount as well
as payments due upon maturity of its 8% Subordinated Convertible Debentures in
2006. The Company purchased and retired $5,000,000 of the outstanding 8%
Subordinated Convertible Debentures during October 1995, sufficient to meet its
first annual sinking fund obligation due October 1, 1996. The Company believes
that it will be able to refinance the remaining indebtedness as necessary.
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. 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.
10
13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
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 (the "U.S. District Court"). This litigation (the "Cost Recovery
Litigation") arises out of claims made against several potentially responsible
parties ("PRPs") by the 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 ("Fike") in Nitro, West Virginia (the
"Site"). The Company was retained as a response action contractor for the site
under contracts with the 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 allegedly negligent conduct, grossly negligent conduct or
intentional misconduct. The third party complaint seeks to recover clean-up
costs 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, has notified its contractors pollution liability
insurance carrier and has impleaded the United States. Those PRP's also filed a
suit in the U.S. District Court against the Company on behalf of the United
States under the QUI TAM provisions of the False Claims Act (the "QUI TAM suit")
and caused the United States to conduct an investigation of the accuracy of the
Company's billings to the EPA. The Company cooperated fully with the
investigation and has been informed that the government will not be proceeding
criminally against the Company. The Company signed a Settlement Agreement,
pursuant to which the Company agreed to pay $589,000, disposing of any civil
liability relating to the QUI TAM suit and the government investigation with
respect to Fike. The Settlement Agreement is subject to approval by the U.S.
District Court. The Company also executed a Consent Decree settling the Cost
Recovery Litigation without any costs to the Company. The Consent Decree is
subject to U.S. District Court approval.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.4 Specimen Common Stock Certificate
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, 1996.
11
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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, 1996 By /s/ James L. Kirk
--------------------------------------
James L. Kirk
Chairman of the Board
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 15, 1996 By /s/ Kris E. Hansel
--------------------------------------
Kris E. Hansel
Vice President and Controller
(Principal Accounting Officer)
12
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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, 1996
----------------------
OHM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------
EXHIBITS
----------------------
16
EXHIBIT INDEX
Exhibit Exhibit
Number Description
- ------ -----------
4.4 Specimen Common Stock Certificate
11 Statement Re Computation of Per Share Earnings
15 Letter Re Unaudited Financial Information
27 Financial Data Schedule