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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, 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 July 31, 1996 was 26,830,218.
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OHM CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
PART I
FINANCIAL INFORMATION
Page
Number
------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 (Unaudited)
and December 31, 1995.......................................................................... 1
Consolidated Statements of Income (Unaudited) for the Three and Six Months
Ended June 30, 1996 and 1995................................................................... 2
Consolidated Statements of Cash Flows (Unaudited) for the Six Months
Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders.............................................. 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)
June 30, December 31,
1996 1995
---------- -----------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents........................................................... $ 4,413 $ 11,205
Accounts receivable................................................................. 88,863 100,291
Costs and estimated earnings on contracts in process in excess of billings.......... 71,828 77,156
Materials and supply inventory, at cost............................................. 12,304 11,831
Receivable from affiliated company.................................................. -- 15,000
Prepaid expenses and other assets................................................... 7,174 7,621
Deferred income taxes............................................................... 15,526 16,600
Refundable income taxes............................................................. 352 401
-------- --------
200,460 240,105
-------- --------
Property and Equipment, net............................................................ 79,021 81,107
-------- --------
Other Noncurrent Assets:
Investments in affiliated company................................................... 23,487 23,038
Intangible assets relating to acquired businesses, net.............................. 34,029 21,613
Deferred debt issuance and financing costs.......................................... 1,644 1,779
Deferred income taxes............................................................... 1,337 1,440
Other assets........................................................................ 6,705 7,424
-------- --------
67,202 55,294
-------- --------
Total Assets.................................................................... $346,683 $376,506
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................... $ 49,077 $ 65,233
Billings on contracts in process in excess of costs and estimated earnings.......... 562 1,387
Accrued compensation and related taxes.............................................. 7,590 6,174
Federal, state and local taxes...................................................... 23 200
Other accrued liabilities........................................................... 31,821 33,538
Current portion of noncurrent liabilities........................................... 4,174 4,417
-------- --------
93,247 110,949
-------- --------
Noncurrent Liabilities:
Long-term debt...................................................................... 87,097 104,111
Capital leases...................................................................... 45 53
Pension agreement................................................................... 884 901
-------- --------
88,026 105,065
-------- --------
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 - 26,804,569; 1995 - 26,647,077............................. 2,680 2,664
Additional paid-in capital.......................................................... 137,622 136,428
Retained earnings................................................................... 25,108 21,400
-------- --------
165,410 160,492
-------- --------
Total Liabilities and Shareholders' Equity........................................ $346,683 $376,506
======== ========
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,
----------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
Revenue....................................................... $129,177 $ 99,501 $248,140 $179,718
Cost of services .......................................... 111,617 83,357 215,550 150,664
-------- -------- -------- --------
Gross Profit.................................................. 17,560 16,144 32,590 29,054
Selling, general and administrative expenses............. 11,943 13,285 23,119 20,966
-------- -------- -------- --------
Operating Income.............................................. 5,617 2,859 9,471 8,088
-------- -------- -------- --------
Other (Income) Expenses:
Investment income.......................................... (4) (13) (15) (23)
Interest expense........................................... 1,970 2,832 3,878 6,071
Equity in net earnings of affiliate........................ (224) (198) (449) (281)
Miscellaneous expense, net................................. 314 7 543 39
-------- -------- -------- --------
2,056 2,628 3,957 5,806
-------- -------- -------- --------
Income Before Income Taxes (Benefit).......................... 3,561 231 5,514 2,282
Income taxes (benefit)..................................... 1,182 (3) 1,805 761
-------- -------- -------- --------
Net Income.................................................... $ 2,379 $ 234 $ 3,709 $ 1,521
======== ======== ======== ========
Net Income Per Share.......................................... $ 0.09 $ 0.01 $ 0.14 $ 0.08
======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding....................... 26,830 20,593 26,757 18,135
======== ======== ======== ========
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,
-----------------------
1996 1995
--------- --------
(Unaudited)
Cash flows from operating activities:
Net income............................................................................. $ 3,709 $ 1,521
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization..................................................... 8,016 3,780
Amortization of other noncurrent assets........................................... 1,699 1,400
Deferred income taxes............................................................. 1,177 (239)
Loss/(gain) on sale of property and equipment..................................... 296 (22)
Equity in net earnings of affiliate............................................... (449) (281)
Deferred translation adjustments and other........................................ 49 59
Changes in current assets and liabilities:
Accounts receivable............................................................... 10,879 (10,905)
Costs and estimated earnings on contracts in process in excess of billings........ 475 7,209
Materials and supply inventory, at cost........................................... (473) (1,698)
Prepaid expenses and other assets................................................. 447 (48)
Refundable income taxes and other adjustments..................................... 49 68
Accounts payable.................................................................. (16,156) (14,161)
Billings on contracts in process in excess of costs and estimated earnings........ (825) 2,376
Accrued compensation and related taxes............................................ 550 (148)
Federal, state and local income taxes............................................. (177) 159
Other accrued liabilities......................................................... (5,222) (748)
-------- ---------
Net cash flows provided by/(used in) operating activities....................... 4,044 (11,678)
-------- ----------
Cash flows from investing activities:
Purchases of property and equipment............................................... (11,221) (7,148)
Proceeds from sale of property and equipment...................................... 2,075 872
Increase in other noncurrent assets............................................... (562) (1,144)
Decrease in receivable from related party......................................... 15,000 --
Cash acquired from purchase of business, net of acquisition cost.................. -- 13,527
-------- --------
Net cash provided by investing activities....................................... 5,292 6,107
-------- --------
Cash flows from financing activities:
Increase in long term debt........................................................ -- 1,945
Payments on long-term debt and capital leases..................................... (2,372) (1,646)
Proceeds from borrowing under revolving credit agreement.......................... 105,400 73,800
Payments on revolving credit agreement............................................ (120,300) (77,900)
Payments on pension agreement..................................................... (66) (55)
Common stock issued for 401k funding and stock options........................... 1,210 --
Proceeds from private placement of common stock................................... -- 10,000
Reissuance of treasury stock...................................................... -- 1,425
-------- --------
Net cash (used in)/provided by financing activities............................. (16,128) 7,569
-------- --------
Net (decrease)/increase in cash and cash equivalents............................ (6,792) 1,998
Cash and cash equivalents at beginning of period....................................... 11,205 4,930
-------- --------
Cash and cash equivalents at end of period............................................. $ 4,413 $ 6,928
======== ========
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, 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 and six months ended June 30,
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 and six months ended June 30, 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 June 30, 1996, 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
Cash paid for interest was $4,222,000 and $5,952,000 and cash paid for income
taxes was $327,000 and $330,000 for the six months ended June 30, 1996 and 1995,
respectively.
NOTE 3 -- 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 the 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 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 their
subsidiaries. In addition to the net assets of the Division, the Company
received $16,636,000 in cash pursuant to provisions of the Reorganization
Agreement that provided for an adjustment based on the average share price of
the Company's common stock for a 20 trading day period prior to closing. Also,
under terms of the Reorganization Agreement, as amended on March 22, 1996, the
Company received an additional $15,000,000 on March 25, 1996. For purposes of
calculating 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
40% discount for the restricted nature of the common stock issued. Consideration
for the Division aggregated $65,259,000.
The acquisition of the Division has been accounted for using the purchase method
and, accordingly, the acquired assets and assumed liabilities, including
goodwill of $34,183,000, have been recorded at their estimated fair values as of
May 30, 1995. The acquired operations of the Division included contracts in
process for which the Company recognizes revenue using the percentage of
completion method of accounting. The valuation of the contracts in process
require estimates relating to the costs to complete certain large contracts in
process which require provisions for losses. The Company has estimated the fair
value of contracts acquired at amounts which will allow the Company to achieve
reasonable operating margins on the effort it expends to complete these
contracts. The Company's consolidated financial statements for the year ended
December 31, 1995, include the results of operations for the Division since May
30, 1995.
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The estimated fair value of the assets acquired and liabilities assumed at the
date of acquisition are as follows (in thousands):
Current assets.........................................................$59,805
Property and equipment..................................................21,523
Goodwill................................................................34,183
Current liabilities.....................................................50,252
NOTE 4 -- 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,
------------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
Federal statutory rate........................... 34.0 % 34.0 % 34.0 % 34.0 %
Add (deduct):
State income taxes, net of federal benefit.. 4.7 % 1.7 % 4.7 % 4.5 %
Equity in net earnings of affiliate......... (1.7)% (23.3)% (2.2)% (3.3)%
Other, net.................................. (3.8)% (13.7)% (3.8)% (1.9)%
---- ----- ---- ----
33.2 % (1.3)% 32.7 % 33.3 %
==== ===== ==== ====
NOTE 5 -- 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.
NOTE 6 -- LITIGATION AND CONTINGENCIES
The Company's accounts receivable at June 30, 1996 include a claim receivable
aggregating approximately $26,438,000 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 June
30, 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 June 30, 1996 include
a claim receivable of $8,562,000 in direct and other costs relating to this
project. The litigation arises from an October 1993
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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 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 has been approved 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 June 30, 1996, and the related consolidated statements of
income for the three and six month periods ended June 30, 1996 and 1995 and the
consolidated statements of cash flows for the six month periods ended June 30,
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
July 26, 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. The Company's consolidated statements
of income include the results of 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 or $2,312,000
after-tax, 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
REVENUE. The following table sets forth the Company's revenue by client
type for the three and six months ended June 30, 1996 and 1995 (in thousands,
except percentages):
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------------
1996 1995 1996 1995
------------- --------------- --------------- ---------------
Federal, State, and Local Government $ 96,802 75% $ 75,907 76% $187,374 76% $137,715 77%
Industrial 32,375 25% 23,594 24% 60,766 24% 42,003 23%
-------- --- -------- --- -------- --- --------- ---
Total Revenue $129,177 100% $ 99,501 100% $248,140 100% $179,718 100%
======== === ======== === ======== === ======== ===
Revenue increased during the three and six months ended June 30, 1996
by $29,676,000 or 30% and $68,422,000 or 38%, respectively, when compared to the
same periods in 1995. Such improvement resulted primarily from increased revenue
from federal government agencies and the acquisition of the Division, of which
only one month's results were included in the Company's consolidated statements
of income during the three and six month periods in 1995.
Revenue from government agencies for the three and six months ended
June 30, 1996 increased $20,895,000 or 28% and $49,659,000 or 36%, respectively,
when compared to the same periods 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 1996 when compared to the same periods in 1995. The federal
government shutdown during the first quarter of 1996 negatively impacted the
Company's revenue from the EPA and delayed 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.
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The Company experienced a $8,781,000 or 37% increase in revenue from
industrial clients for the three months ended June 30, 1996 when compared to the
same period in 1995. For the six months ended June 30, 1996, revenue from
industrial clients increased $18,763,000 or 45% when compared to the same period
in 1995. Such increases are 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 and market
conditions.
COST OF SERVICES AND GROSS PROFIT. Cost of services and gross profit
for the three and six months ended June 30, 1996 increased when compared to the
same periods in 1995 primarily as a result of increased revenue. Gross profit as
a percent of revenue for the three and six months ended June 30, 1996 decreased
to 14% and 13%, respectively, from 16% in each of the same periods in 1995. The
Company's gross profit on its fixed-price contracts has been negatively impacted
by competitive market conditions and, during the first quarter of 1996, 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 and six months ended June 30, 1995
included a charge for integration expenses of $3,854,000 related to the
acquisition of the Division. Without such charge, SGA expenses would have
increased 26% and 35% during the three and six months ended June 30, 1996,
respectively, when compared to the same periods in 1995. Such 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 related
compliance issues. SGA expense as a percent of revenue, excluding the
aforementioned charge, was 9% and 10% for the three months ended June 30, 1996
and 1995, respectively. For the six months ended June 30, 1996 and 1995, SGA
expense as a percent of revenue was 9% and 10%, respectively, exclusive of the
intergration expense charge.
INTEREST EXPENSE. Interest expense decreased 30% and 36% during the
three and six months ended June 30, 1996 when compared to the same periods 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 1996 when compared to the same periods 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 $26,000 and $168,000 for the three and six months
ended June 30, 1996, respectively, when compared to the same periods in 1995.
NET INCOME. Net income for the three months ended June 30, 1996 was
$2,379,000 or $0.09 per share compared to $234,000 or $0.01 per share for the
same period in 1995. For the six months ended June 30, 1996, net income was
$3,709,000 or $0.14 per share compared to $1,521,000 or $0.08 per share for the
same period in 1995. Net income increased primarily as a result of the charge
for integration expenses recorded in the second quarter of 1995, as well as
other factors described above.
The effective income tax rate was 33% and (1)% for the three months
ended June 30, 1996 and 1995, respectively. For each six month period ending
June 30, 1996 and 1995, the effective income tax rate was 33%. See "Note 4 to
the Consolidated Financial Statements" for a reconciliation of the statutory
federal income tax rate to the effective income tax rate.
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
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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 to earnings before
income taxes, depreciation and amortization. The amounts outstanding for cash
borrowing under the revolving credit facility at June 30, 1996 and December 31,
1995 were $27,200,000 and $42,100,000, respectively, and aggregate letters of
credit outstanding at June 30, 1996 and December 31, 1995 were $14,823,000 and
$14,655,000, respectively.
Capital expenditures for the six months ended June 30, 1996 and 1995,
were $11,221,000 and $7,148,000, respectively. The Company's capital
expenditures are primarily related to the installation of computer systems and
related equipment, 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, in connection with the acquisition of the
Division, 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.
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PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of the Company's shareholders was held on
May 9, 1996. 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
Victor J. Barnhart 25,751,170 414,996
Herbert A. Getz 25,760,949 405,217
Ivan W. Gorr 25,779,188 386,978
Charles D. Hollister 25,776,698 389,468
James L. Kirk 25,774,445 391,721
Joseph R. Kirk 25,773,792 392,374
James E. Koenig 25,768,236 397,930
Richard W. Pogue 25,774,350 391,816
Charles W. Schmidt 25,776,492 389,674
(b) A proposal to increase the number of shares available under
the Company's 1986 Stock Option Plan was approved by 89.8% of
the Company's Common Stock present and voting at the meeting.
The results of the vote on the proposal were:
For 23,498,305
Against 2,574,867
Abstain 92,994
The total number of shares of the Registrant's Common Stock
outstanding as of March 19, 1996, the record date for the
Annual Meeting, was 26,718,097.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.33* OHM Corporation Retirement and Incentive Compensation
Plan
10.34* OHM Corporation Incentive Stock Plan
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
June 30, 1996.
- --------------------------------------------------------------------------------
*Indicates a management contract or compensatory plan or arrangement required to
filed pursuant to Item 6 of Form 10Q.
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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, 1996 By /s/ James L. Kirk
----------------------------------------
James L. Kirk
Chairman of the Board
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 14, 1996 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
- ------ -----------
10.33 Retirement and Incentive Compensation Plan
10.34 Incentive Stock Plan
11 Statement Re Computation of Per Share Earnings
15 Letter Re Unaudited Financial Information
27 Financial Data Schedule