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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________________ to _________________
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)
Registrant's telephone number, including area code: (419) 423-3526
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
8% Convertible Subordinated Debentures due October 1, 2006
(Title of class)
Indicate by check mark 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 requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on February 28, 1997, was $216,369,920.
The number of shares of common stock outstanding on February 28, 1997,
was 27,046,240 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1997 Annual Meeting
of Shareholders to be held May 8, 1997 are incorporated by reference into Part
III.
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OHM CORPORATION
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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ITEM 1. Business.................................................................................... 1
ITEM 2. Properties.................................................................................. 9
ITEM 3. Legal Proceedings........................................................................... 9
ITEM 4. Submission of Matters to a Vote of Security Holders......................................... 10
ITEM 4A. Executive Officers of the Registrant........................................................ 10
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
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ITEM 5. Market for the Registrant's Common Stock and Related
Shareholder Matters......................................................................... 12
ITEM 6. Selected Financial Data..................................................................... 13
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 15
ITEM 8. Financial Statements and Supplementary Data................................................. 22
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures....................................................................... 39
PART III
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ITEM 10. Directors and Executive Officers of the Registrant.......................................... 40
ITEM 11. Executive Compensation...................................................................... 40
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.............................. 40
ITEM 13. Certain Relationships and Related Transactions.............................................. 40
PART IV
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ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............................. 40
SIGNATURES ............................................................................................ 46
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PART I
ITEM 1. BUSINESS
OVERVIEW
OHM Corporation, an Ohio corporation, and its predecessors (the
"Company"), is one of the largest providers of technology-based, on- site
hazardous waste remediation services in the United States. The Company has been
in the environmental services business since 1969. The Company has successfully
completed approximately 31,000 projects involving contaminated groundwater, soil
and facilities.
The Company provides a wide range of environmental services, primarily
to government agencies and to large chemical, petroleum, transportation and
industrial companies. The Company has worked for the United States Environmental
Protection Agency ("EPA"), the Department of Defense ("DOD") (including the U.S.
Army Corps of Engineers ("USACE") and the U.S. Departments of the Air Force,
Army and Navy), the Department of Energy ("DOE"), a number of state and local
governments and a majority of the Fortune 100 industrial and service companies.
In addition to its technology-based, on-site remediation services, the Company
also offers a broad range of other services, including site assessment,
engineering, remedial design and analytical testing. Service is provided through
30 regional offices, one fixed laboratory at its headquarters in Findlay, Ohio,
eight mobile laboratories, and approximately 2,800 pieces of mobile treatment
and related field equipment.
Since the disposition by the Company in early 1993 of its interest in
OHM Resource Recovery Corp., the operator of a hazardous waste treatment and
disposal facility, the Company does not own or operate any hazardous waste
disposal sites or other off-site waste treatment or disposal facilities. The
Company generally coordinates through licensed subcontractors the transportation
and disposal of any hazardous waste which is not remediated on-site.
On May 30, 1995, pursuant to an Agreement and Plan of Reorganization,
the Company through its wholly-owned subsidiary, OHM Remediation Services Corp.
("OHMR"), acquired (the "Acquisition") in exchange for 9,668,000 shares of
Common Stock of the Company, par value $.10 per share ("Common Stock"),
substantially all of the assets and certain liabilities of the environmental
remediation services business of Rust International Inc. ("Rust"), a
majority-owned subsidiary of WMX Technologies, Inc. ("WMX"). In connection with
the Acquisition, the Company and WMX entered into a Guarantee Agreement whereby
in exchange for a warrant exercisable for five years, to purchase 700,000 shares
of Common Stock at a price per share of $15.00, WMX agreed, until May 30, 2000,
to guarantee indebtedness of the Company in an amount not to exceed $62,000,000
which will increase proportionately up to $75,000,000 upon issuance of shares
under the warrant. In addition, the Company entered into a Standstill and
Non-competition Agreement (the "Standstill Agreement") with WMX and its
affiliates. As contemplated by the Standstill Agreement, three designees of WMX
were elected to the Board of Directors of the Company.
The Company also has an approximately 40% interest in NSC Corporation
("NSC"), a provider of asbestos abatement and specialty contracting services.
OHM'S ENVIRONMENTAL REMEDIATION SERVICES
The Company assists its clients by providing comprehensive on-site
treatment of toxic materials and hazardous wastes. By applying a broad range of
biological, chemical, physical, soil vapor extraction and thermal treatment
technologies, the Company performs on-site treatment and remediation services
for the control, detoxification, decontamination, and volume reduction of
hazardous and toxic material. Accordingly, the Company has designed a wide range
of modular mobile treatment equipment, which can be used on-site, either
independently or in a system, for removing, detoxifying, reducing the volume of,
or stabilizing contaminants. This equipment includes thermal destruction units,
dewatering presses, filters, separators, ion exchangers, stripping systems and
mobile process equipment which apply various physical, chemical and biological
technologies to remediate contaminants. Since 1970, the Company has completed
approximately 31,000 projects throughout the United States, cleaning up
hazardous wastes, removing toxic chemicals from groundwater and cleaning
facilities of contaminants.
The Company endeavors to offer clients an increasingly broad array of
on-site treatment services, either on a planned or emergency basis, from its 30
regional offices located throughout the country. On-site environmental
remediation services provided by the Company include:
* Treatment, stabilization or removal of contaminants;
* Decontamination of industrial facilities;
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* Assessment, characterization and treatment of contaminated
soil and/or groundwater;
* Surface impoundment restoration, including volume reduction,
stabilization and closure of contaminated lagoons;
* Management of underground and above ground storage tanks;
* Design, engineering, fabrication, installation and operation
of on-site treatment equipment; and
* Emergency response to virtually any kind of industrial or
transportation-related accident involving hazardous waste or
materials.
The Company undertakes these projects on both a planned basis, which is
scheduled in advance, and an emergency basis, which is performed in direct
response to spills, fires and industrial accidents. The Company places its
emphasis upon planned work because of its more predictable resource
requirements, and because of its larger potential market. In 1996, planned
projects accounted for approximately 98% of the Company's revenue.
The Company believes that professional project management and cost
accounting systems are key factors in ensuring that projects are accurately and
successfully completed on time and within prescribed cost estimates. The
Company's project management structure combines the various functional areas
performing work at the project, including technical, engineering, administrative
and accounting specialists, into a coordinated team, reporting directly to the
project manager. The project manager's responsibility for scheduling and project
completion allows technical and operations specialists to operate efficiently
with fewer distractions.
The Company also believes that professional project management is a
critical element in limiting the significant risks and potential liabilities
involved in environmental remediation projects due to the presence of hazardous
and toxic substances. The Company has adopted a number of risk management
policies and practices including special employee training and health monitoring
programs. The Company's health and safety staff establish a safety plan for each
project prior to the initiation of work, monitor compliance with the plan and
administer the Company's medical monitoring program to staff involved. The
Company believes that it has an excellent overall health and safety record.
TREATMENT TECHNOLOGIES
Designing, developing and implementing solutions to environmental
hazards requires an interdisciplinary approach combining practical field
experience with remediation processes and technical skills in fields such as
chemistry, microbiology, hydrogeology, fluid mechanics, thermodynamics, and
geotechnical, biochemical and process engineering. The Company employs
scientific and engineering professionals in the environmental services field who
enhance the Company's ability to effectively participate in larger, more
technically complex remediation projects.
The Company has significant experience in the commercialization and
practical field application of new and existing technologies for the treatment
of hazardous wastes, with emphasis on the further development and application of
existing technologies. To provide direct support for its efforts to place
innovative technology in the field, in 1973, the Company built its own equipment
fabrication facility; in 1978, the Company built a laboratory dedicated to
developing commercial applications of biological treatment of hazardous wastes;
and in 1993, the Company built a treatability laboratory to support testing and
enhancement of a broad range of innovative technology applications. The Company
also provides technology development services under contract to its clients.
The following represent the principal technologies used by the Company
for remediation projects:
* BIOLOGICAL REMEDIATION: The Company's Bioremediation
Department designs and tests bioremediation techniques for
treating hazardous waste. Biological treatment technologies
generally utilize enhanced microbiological activity to
decompose and detoxify contaminants, often using a site's
natural flora to remediate a problem. The Company's biological
laboratories can "feed" the microorganisms, that destroy the
pollutant, so that they grow at a faster rate than would occur
in nature. The Company has developed considerable expertise in
transferring innovative bioremediation techniques from the
laboratory to the field. The Company utilizes the following
biological treatment technologies:
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Anaerobic Digestion Vessel -- degradation of organic
contaminants in the absence of air.
Trickling Filters -- secondary treatment on
large-scale treatment applications to enhance the
oxygenation process.
Activated Sludge Reactor -- treatment utilizing
holding tanks to enhance biological degradation.
Submerged Fixed Reactor Vessel -- combines a
trickling filter and an activated sludge reactor for
more efficient degradation of contaminants.
Aeration Lagoons -- secondary or tertiary treatment
to remove carbon, nitrogen or phosphorous.
* CHEMICAL TREATMENT: The Company's mobile chemical treatment
equipment utilizes the following technologies:
Carbon Adsorption -- passage of a liquid or vapor
discharge stream through a bed of activated carbon
which adsorbs certain contaminants.
Oxidation/Reduction -- conversion of complex
components of the wastestream into simpler, less
toxic materials through addition of oxidizing or
reducing agents such as ozone, hydrogen peroxide and
sodium bisulfate.
Clarification/Flocculation -- addition of chemicals
which bond or interact with suspended solids and
dissolved contaminants to form a flocculated product
which can be separated through settling or filtration
techniques.
Ion-Exchange -- ion-exchange resins used for the
selective removal of heavy metals and hazardous ions.
Ultraviolet Treatment -- use of ultraviolet light to
kill pathogens and convert or degrade some organic
chemicals, especially when combined with the use of
oxidants.
* PHYSICAL TREATMENT: The Company's physical treatment
technologies generally involve removal of contaminants through
osmosis, settlement or filtration. The Company's mobile
physical treatment equipment utilizes the following
technologies:
Heated Volatile Stripping -- removal of contaminants
with low boiling points by passage of air under
pressure through the wastestream.
Fume Scrubbing -- passage of a vaporized stream
through an aerosol spray to remove contaminant
particles from the vapor stream.
Immiscible Fraction Separation -- removal of a
component of a wastestream which is immiscible in
water through settling techniques.
Mixed Media Filtration -- removal of suspended
particles by passage through selected filter media.
* SOIL VAPOR EXTRACTION AND SOIL FLUSHING: The Company has
applied several innovative technologies, known generally as
soil vapor extraction and soil flushing, based on a patent
granted in 1984 for a portable method of soil decontamination
above or below the groundwater table. The technologies
generally involve the use of a system of pressurized injection
and vacuum extraction wells to induce a pressure gradient and
a fluid flow to extract contaminants and treat them in-situ or
in an aboveground system. The technologies can be used to
remove contaminants in soils and groundwater, in-situ or
ex-situ, and can be combined with bioremediation to treat
mixtures of volatile and non-volatile contaminants.
* THERMAL TREATMENT: The Company's thermal treatment
technologies include infrared incineration, rotary kiln
technology and thermal desorption. Infrared incineration uses
electric powered resistance heaters as a source of radiant
heat for removal and destruction of hazardous organic
contaminants. Rotary kiln incineration is the traditional
incineration process for destroying organic hazardous waste
constituents in a refractory lined rotating
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kiln. Thermal desorption is a thermal treatment technology
which uses heat to remove volatile compounds from a waste
without oxidation of the compounds. The Company has
established a thermal treatment engineering group to assess,
develop and commercialize thermal technologies for on-site
remediation.
FOCUS ON LARGER PROJECTS AND GOVERNMENT CONTRACTS
The Company pursues larger projects and term contracts as a method to
achieve more predictable revenue, more consistent utilization of equipment and
personnel, and greater leverage of sales and marketing costs. Historically, the
Company relied most heavily on private sector remediation projects in the
Northeast and Midwest that typically involved planned cleanups of sites that
were contaminated in the normal course of manufacturing activity and emergency
cleanups of oil or chemical spills. Contract values typically were less than $1
million in size and less than one year in duration. The Company now targets more
complex, multi-million dollar, multi-year private sector and government
site-specific and term contracts. As a result of its shift in project focus,
since the beginning of 1991 the Company has been awarded a large number of
multi-million dollar government term contracts which, in some cases, may require
several years to complete. Although the Company still performs private sector
remediation projects, the Company currently derives a majority of its revenue
from government term contracts and these larger projects. Larger site-specific
projects impose heightened risks of loss in the event that actual costs are
higher than those estimated at the time of bid due to unanticipated problems,
inefficient project management, or disputes over the terms and specifications of
the contracted performance.
Since the beginning of 1991, the Company has been awarded 30 government
term contracts, and several large projects, including those acquired by the
Company in connection with the Acquisition, with potential values ranging from
$10 million to $250 million and terms ranging from one to ten years. Such
government term contracts typically are performed by completing remediation work
under delivery orders, issued by the contracting government entity, for a large
number of small-to-medium-sized projects throughout the geographic area covered
by the contract. Such government term contracts do not represent commitments
with respect to the amount, if any, that will actually be expended pursuant to
such contracts, may generally be canceled, delayed or modified at the sole
option of the government, and 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;
therefore, no assurance can be provided that such amounts, if any, will be
actually spent on any projects, or of the timing thereof.
For the fiscal year ended December 31, 1996, 77% of the Company's
revenue was derived from federal, state and local government contracts. The
Company expects that the percentage of its revenue attributable to such
government clients will continue to represent a significant portion of its
revenue. In addition to its dependence on government contracts, the Company also
faces the risks associated with such contracting, which could include
substantial civil and criminal fines and penalties. As a result of its
government contracting business, the Company is, has been and may in the future
be subject to audits and investigations by government agencies. In addition to
potential damage to the Company's business reputation, the failure by the
Company to comply with the terms of any of its government contracts could also
result in the Company's suspension or debarment from future government contracts
for a significant period of time. The fines and penalties which could result
from noncompliance with appropriate standards and regulations, or the Company's
suspension or debarment, could have a material adverse effect on the Company's
business, particularly in light of the increasing importance to the Company of
work for various government agencies.
ENVIRONMENTAL CONTRACTOR RISKS
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 or
radioactive 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 violation of environmental laws and regulations, and liabilities
to customers and to third parties, including governmental agencies, for damages
arising from performing services for clients, which could have a material
adverse effect on the Company.
Potential Liabilities Arising Out of Environmental Laws and
Regulations. All facets of the Company's business are conducted in the context
of a developing and changing statutory and regulatory framework. The Company's
operations and services are affected by and subject to regulation by a number of
federal agencies, including the EPA, the Occupational Safety
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and Health Administration ("OSHA"), and in limited occasions, the Nuclear
Regulatory Commission, as well as applicable state and local regulatory
agencies. For a description of certain applicable laws and regulations, see
"Regulation."
Potential Liabilities Involving Clients and Third Parties. In
performing services for its clients, the Company could potentially be liable for
breach of contract, personal injury, property damage and negligence, including
claims for lack of timely performance and/or for failure to deliver the service
promised (including improper or negligent performance or design, failure to meet
specifications and breaches of express or implied warranties). The damages
available to a client, should it prevail in its claims, are potentially large
and could include consequential damages.
Environmental contractors, in connection with work performed for
clients, also potentially face liabilities to third parties from various claims,
including claims for property damage or personal injury stemming from a release
of hazardous substances or otherwise. Claims for damage to third parties could
arise in a number of ways, including through a sudden and accidental release or
discharge of contaminants or pollutants during the performance of services,
through the inability--despite reasonable care--of a remedial plan to contain or
correct an ongoing seepage or release of pollutants, through the inadvertent
exacerbation of an existing contamination problem, or through reliance on
reports prepared by the Company. Personal injury claims could arise
contemporaneously with performance of the work or long after completion of the
project as a result of alleged exposure to toxic substances. In addition,
increasing numbers of claimants assert that companies performing environmental
remediation should be held strictly liable (i.e., liable for damages regardless
of whether its services were performed using reasonable care) on the grounds
that such services involved "abnormally dangerous activities."
Clients frequently attempt to shift various liabilities arising out of
remediation of their own environmental problems to contractors through
contractual indemnities. Such provisions seek to require the Company to assume
liabilities for damage or injury to third parties and property and for
environmental fines and penalties. The Company has adopted risk management
policies designed to address these problems, but cannot assure their adequacy.
In addition, the Company generally coordinates through subcontractors the
transportation of any hazardous waste which is not remediated on-site to a
licensed hazardous waste disposal or incineration facility.
Moreover, during the past several years, the EPA and other governmental
agencies have constricted significantly the circumstances under which they will
indemnify contractors against liabilities incurred in connection with
remediation projects undertaken by contractors under contract with such
governmental agencies.
DEPENDENCE ON ENVIRONMENTAL REGULATION
Much of the Company's business is generated either directly or
indirectly as a result of federal and state laws, regulations and programs
related to environmental issues. Accordingly, a reduction in the number or scope
of these laws, regulations and programs, or changes in government policies
regarding the funding, implementation or enforcement of such laws, regulations
and programs, could have a material adverse effect on the Company's business.
See "Regulation."
MARKETS AND CUSTOMERS
The Company provides its services to a broad base of clients in both
the private and government sectors. Its private sector clients include large
chemical, petroleum, manufacturing, transportation, real estate, electronics,
automotive, aerospace and other industrial companies, as well as engineering and
consulting firms. The Company has worked for a majority of the Fortune 100
industrial companies. Historically, the majority of the Company's private sector
revenue was derived from projects with values typically less than $1 million in
size and less than one year in duration. Revenue from industrial clients for
1996 was $124.7 million and constituted 23% of the Company's revenue.
In the government sector, the market for the Company's services
primarily consists of federal government agencies. The Company has been a prime
contractor to the EPA since 1984 under Emergency Response Cleanup Services
("ERCS") contracts administered under the Superfund Removal Program. In
addition, through site specific and term contracts, the Company provides its
services to the DOD, including USACE, the U.S. Departments of the Navy, Air
Force and Army, at DOE facilities and to state and local governments. Revenue
from government agencies in 1996 aggregated $426.3 million and accounted for 77%
of revenue, of which the Department of the Navy and the USACE accounted for
approximately $167.7 million or 30% and $127.1 million or 23% of revenue,
respectively.
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SEASONALITY AND FLUCTUATION IN QUARTERLY RESULTS
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 has historically been
lower than for 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
interim results should not be considered indicative of results to be expected
for any quarter or for the full year.
COMPETITION
The environmental services industry is highly competitive with numerous
companies of various size, geographic presence and capabilities participating.
The Company believes that it has approximately a dozen principal competitors in
the environmental remediation sector of the environmental services industry and
numerous smaller competitors. The Company believes that the principal
competitive factors in its business are operational experience, technical
proficiency, breadth of services offered, local presence and price. In certain
aspects of the Company's environmental remediation business, substantial capital
investment is required for equipment. Certain of the Company's competitors have
greater financial resources, which could allow for greater investment in
equipment and provide better access to bonding and insurance markets to provide
the financial assurance instruments which are often required by clients.
Additionally, the relatively recent entry of several aerospace and defense
contractors, as well as large construction and engineering firms, into the
environmental services industry has increased the level of competition. The
Company believes that the demand for environmental services is still developing
and expanding and, as a result, many small and large firms will continue to be
attracted to the industry.
INSURANCE
The Company maintains a comprehensive liability insurance program that
is structured to provide coverage for major and catastrophic losses while
essentially self-insuring losses that may occur in the ordinary course of
business. The Company contracts with primary and excess insurance carriers and
generally retains $250,000 to $500,000 of liability per occurrence through
deductible programs, self-insured retentions or through reinsurance provided by
a wholly-owned insurance captive which reinsures some of the Company's workers'
compensation risks.
Although the Company believes its insurance program to be appropriate
for the management of its risks, its insurance policies may not fully cover
risks arising from the Company's operations. Policy coverage exclusions,
retaining risks through deductible and self-insured retention programs, or
losses in excess of the coverage may cause all or a portion of one or more
losses not to be covered by such insurance.
EMPLOYEES
The Company had approximately 3,100 employees at December 31, 1996.
Approximately 30 employees of the Company were covered by collective bargaining
agreements. The Company considers relations with its employees to be
satisfactory.
PATENTS
The Company currently owns two patents covering certain design features
of equipment employed in its on-site remediation business. The first relates to
a filtration system developed and used by the Company to remove pollutants from
flowing creeks and streams and the second, known as a Portable Method for
Decontaminating Earth, relates to a decontamination system used by the Company
to remove contaminants from the soil through a process, commonly known as soil
vapor extraction. The Company utilizes X*TRAX(R) and LT*X(R) to perform thermal
desorption services. The X*TRAX(R) and LT*X(R) systems are waste treatment
processes that thermally separate organic contaminants from soils or solids with
subsequent treatment of the organic vapor stream. Although the Company considers
its patents to be important, they are not a material factor in its business.
REGULATION
The environmental services business, including the remediation services
segment of the industry, has benefited from extensive federal and state
regulation of environmental matters. On the other hand, the Company's
environmental services are also
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subject to extensive federal and state legislation as well as regulation by the
EPA, the OSHA and applicable state and local regulatory agencies. All facets of
the Company's business are conducted in the context of a rapidly developing and
changing statutory and regulatory framework and an aggressive enforcement and
regulatory posture. The full impact of these laws and regulations, and the
enforcement thereof, on the Company's business is difficult to predict,
principally due to the complexity of the relatively new legislation, new and
changing regulations, and the impact of political and economic pressures. 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.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") addresses cleanup of sites at which there has been a
release or threatened release of hazardous substances or contaminants, including
certain radioactive substances, into the environment. CERCLA assigns liability
for costs of cleanup of such sites and for damage to natural resources to any
person who, currently or at the time of disposal of a hazardous substance, owned
or operated any facility at which hazardous substances were disposed of; and to
any person who by agreement or otherwise arranged for disposal or treatment, or
arranged with a transporter for transport for disposal or treatment of hazardous
substances owned or possessed by such person for disposal or treatment by
others; and to any person who accepted hazardous substances for transport to
disposal or treatment facilities or sites selected by such persons from which
there is a release or threatened release of hazardous substances. CERCLA
authorizes the federal government both to clean up these sites itself and to
order persons responsible for the situation to do so. In addition, under the
authority of Superfund and its implementing regulations, detailed requirements
apply to the manner and degree of remediation of facilities and sites where
hazardous substances have been or are threatened to be released into the
environment. CERCLA created the Superfund to be used by the federal government
to pay for the cleanup efforts. Where the federal government expends money for
remedial activities, it may seek reimbursement from the "potentially responsible
parties." CERCLA imposes strict, joint and several retroactive liability upon
such parties. Increasingly, there are efforts to expand the reach of CERCLA to
make environmental contractors responsible for cleanup costs by claiming that
environmental contractors are owners or operators of hazardous waste facilities
or that they arranged for treatment, transportation or disposal of hazardous
substances. Several recent court decisions have accepted these claims. Should
the Company be held responsible under CERCLA for damages caused while performing
services or otherwise, it may be forced to bear such liability by itself,
notwithstanding the potential availability of contribution or indemnity from
other parties.
The statutory funding mechanism of CERCLA is comprised of contributions
from the general revenue and tax on petrochemical feedstocks. The CERCLA tax
expired December 31, 1995. However, an additional $1.4 billion was appropriated
for fiscal year 1997 and the authority to tax and use the funds has been
extended through September 30, 1997. Additionally, EPA has a large amount of
appropriated, unobligated funds which are projected by the Congressional Budget
Office to be sufficient for EPA to continue operating at current levels for
approximately two years, should there be a lapse in the CERCLA tax after
September 30, 1997.
The leadership of both the House of Representatives and the Senate have
stressed that reauthorization of Superfund is one of their top priorities for
1997. A bill to reauthorize Superfund has been introduced to the Senate and the
introduction of a House bill is pending. The Senate bill would maintain historic
levels of funding for a period of five years beginning in fiscal year 1998.
Support for environmental programs also remains strong in the Executive Branch.
President Clinton's fiscal year 1998 budget included increases in funding for
all EPA, Department of Defense and Department of Energy environmental programs.
Despite the priority given to reauthorization of Superfund, and the
history of Congress never to allow an actual lapse in the tax, the perceived
potential for this occurrence adversely impacts the environmental industry due
to resultant funding uncertainties. Additional uncertainties arise from
significant changes being considered for Superfund including shifting the
current preference for permanent treatment to a wider acceptance of containment
and other engineering/institutional controls. This change could lead to smaller
volumes of waste being treated on-site, and the potential to qualify for less
stringent remedies could cause clients to delay the initiation of remediation
projects. However, many of the proposed changes to Superfund are beneficial to
the environmental remediation industry including doubling the dollar amount and
time period in which emergency removal actions take place; increasing contractor
indemnification protections; streamlining the study phase of the process to
accelerate actual remediation; and creating incentives for brownfield cleanups.
The Resource Conservation and Recovery Act of 1976, as amended in 1984
("RCRA"), is the principal federal statute governing hazardous waste generation,
treatment, storage and disposal. RCRA, or EPA-approved state programs at least
as stringent, govern waste handling activities involving wastes classified as
"hazardous." Under RCRA, liability and stringent operating requirements are
imposed on a person who is either a "generator" or "transporter" of hazardous
wastes, or an "owner"
7
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or "operator" of a hazardous waste treatment, storage or disposal facility. The
EPA has issued regulations under RCRA for hazardous waste generators,
transporters and owners and operators of hazardous waste treatment, storage or
disposal facilities. These regulations impose detailed operating, inspection,
training, emergency preparedness and response standards, and requirements for
closure, continuing financial responsibility, manifesting, recordkeeping and
reporting. The Company's clients remain responsible by law for the generation or
transportation of hazardous wastes or ownership or operation of hazardous waste
treatment, storage or disposal facilities. Although the Company does not believe
its conduct in performing environmental remediation services would cause it to
be considered liable as an owner or operator of a hazardous waste treatment,
storage or disposal facility, or a generator or transporter of hazardous wastes
under RCRA, RCRA and similar state statutes regulate the Company's practices for
the treatment, transportation and other handling of hazardous materials, and
substantial fines and penalties may be imposed for any violation of such
statutes and the regulations thereunder.
The Company's services are also utilized by its clients in complying
with, and the Company's operations are subject to regulation under, among
others, the following federal laws: the Toxic Substances Control Act, the Clean
Water Act, the Safe Drinking Water Act, the Occupational Safety and Health Act
and the Hazardous Materials Transportation Act. In addition, many states have
passed Superfund-type legislation and other statutes, regulations and policies
to cover more detailed aspects of hazardous materials management.
The Company, through its on-site treatment capabilities and the use of
subcontractors, attempts to minimize its transportation of hazardous substances
and wastes. However, there are occasions, especially in connection with its
emergency response activities, when the Company does transport hazardous
substances and wastes. Such transportation activities are closely regulated by
the United States Department of Transportation, the Interstate Commerce
Commission, and transportation regulatory bodies in each state. The applicable
regulations include licensing requirements, truck safety requirements, weight
limitations and, in some areas, rate limitations and operating conditions.
BACKLOG AND POTENTIAL VALUE OF TERM CONTRACTS
The following table lists at the dates indicated (i) the Company's
backlog, defined as the unearned portion of the Company's existing contracts and
unfilled orders, and (ii) the Company's term contracts, defined as the potential
value of government term contracts (in thousands):
December 31,
------------
1996 1995 1994
---- ---- ----
Backlog $ 375,000 $ 445,000 $ 255,000
Term contracts 1,401,000 1,531,000 1,498,000
---------- ---------- ----------
Total contract backlog $1,776,000 $1,976,000 $1,753,000
========== ========== ==========
Backlog. 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 80% of the backlog at December 31, 1996 will be
realized within the next year.
Term Contracts. Term contracts typically are performed by completing
remediation work under delivery orders, issued by the contracting government
entity, for a large number of small-to-medium-sized 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.
EQUITY INVESTMENT
NSC is a provider of asbestos-abatement and other specialty contracting
services to a broad range of commercial, industrial and institutional clients
located throughout the United States. NSC provides asbestos-abatement services
through two of its wholly-owned subsidiaries, National Surface Cleaning, Inc.
and National Service Cleaning Corp.; demolition and dismantling services through
its wholly-owned subsidiary, Olshan Demolishing Management, Inc. ("ODMI"); and
specialty coatings application and lead paint-abatement through its wholly-owned
subsidiary, NSC Specialty Coatings, Inc. In May 1993, the Company's investment
in NSC was reduced from 70% to 40% as a result of NSC's purchase of the asbestos
abatement division of The Brand Companies, Inc. ("Brand") in exchange for its
industrial cleaning and maintenance business and the issuance of
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4,010,000 shares of NSC common stock. The Company accounts for NSC on the equity
method. In April 1995, NSC entered into an agreement with Rust under which NSC,
through ODMI, assumed the management of Olshan Demolishing Company, a Rust
subsidiary specializing in demolition and dismantling, primarily in the
industrial market. Rust owns another 40% of NSC and the remaining 20% is
publicly held.
An asbestos-abatement or demolition and dismantling program is focused
on meeting the needs of the facility owner or operator to properly manage the
financial, regulatory and safety-related risks associated with a demolition or
asbestos project. NSC's removal and demolition services require the coordination
of several processes: marketing, bidding and contracting, project management,
health and safety programs, and the actual asbestos removal or dismantling and
demolition. NSC management maintains administrative and operational control over
all phases of a project, from estimating and bidding through project completion.
Although some of NSC's contracts are directly entered into with its
clients without a formal bidding process, NSC receives a significant portion of
its contracts through a bidding process. The majority of NSC's projects are
contracted on a fixed-price basis, while the remainder are contracted either on
a time and materials or a unit-price basis. All work is done in accordance with
applicable EPA and OSHA regulations and applicable state and local regulations.
NSC is also subject to the regulations of the Mine Safety and Health Act when it
conducts demolition and dismantling projects at mine locations.
The market for asbestos abatement services is highly competitive. NSC
competes with large asbestos abatement firms, several of which provide services
on a regional basis. NSC also competes, to a lesser extent, with smaller local
and regional firms. While the demand for asbestos-abatement services has
stabilized, demand is still dependent on the fluctuation of national and
regional economies and the finite amount of asbestos remaining to be removed,
there can be no assurance that such demand will remain steady. Through the
diversification into the demolition, specialty coatings and lead paint-abatement
markets, NSC is seeking to provide a full range of specialty contracting
services to the performance-sensitive customer.
NSC's Board of Directors declared and NSC paid a cash dividend of
$602,000 to the Company for each of the years ended December 31, 1996 and 1995.
While NSC's Board of Directors has not established a policy concerning payment
of regular dividends, it has stated its intention to review annually the
feasibility of declaring additional dividends depending upon the results of
NSC's operations and the financial condition and cash needs of NSC.
ITEM 2. PROPERTIES
The Company currently owns property in four states and leases property
in 18 states and the District of Columbia. The property owned by the Company
includes approximately 26 acres in Findlay, Ohio, upon which are located the
Company's 37,500 square foot corporate headquarters, a 39,600 square foot
laboratory and technical facility, a 20,000 square foot support services
facility, as well as its fabrication, maintenance and remediation service center
and training facilities. The Company also owns remediation service centers in
Covington, Georgia (approximately ten acres of land and an 8,200 square foot
building), Clermont, Florida (approximately five acres of land and a 6,500
square foot building) and Baton Rouge, Louisiana (approximately ten acres of
land and a 52,500 square foot building).
The Company operates other offices and remediation service centers in
the following states: California, Colorado, the District of Columbia, Florida,
Georgia, Hawaii, Illinois, Iowa, Massachusetts, Minnesota, Missouri, New Jersey,
New York, Ohio, Pennsylvania, Tennessee, Texas, Virginia and Washington. All of
these offices and service center facilities are leased. Under these leases, the
Company is required to pay base rentals, real estate taxes, utilities and other
operating expenses. Annual rental payments for the remediation service centers
and office properties are approximately $4,500,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently in litigation in the U.S. District Court for
the Western District of Louisiana with Citgo Petroleum Corporation ("Citgo"),
Oxy USA Inc., and Occidental Oil & Gas (collectively "Oxy") relating to cost
overruns and production shortfalls on a remediation project which was performed
by the Company for Citgo at its Lake Charles, Louisiana refinery during 1993 and
1994. The Company has recorded in its financial statements approximately
$27,609,000 as a claim receivable and $5,381,000 of accounts receivable that are
in dispute for work performed under the terms of the Company's base contract
with Citgo. The Company is seeking damages in excess of $35,000,000. Citgo's
second amended complaint seeks 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 has filed a third party complaint
against Oxy for negligent misrepresentation and
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12
detrimental reliance as a result of Oxy's involvement with the development of
sample and analytical data relied upon by the Company in preparation of its bid
and cost estimates for work at the Lake Charles refinery. In December 1996 and
January 1997, Oxy and Citgo, respectively, filed motions for summary judgment
and partial summary judgment on the Company's claims. The Company filed briefs
in opposition to these motions. These motions for summary judgment and partial
summary judgment are still pending.
The Company is currently in litigation in the U.S. District Court for
the Western District of New York with Occidental Chemical Corporation
("Occidental") relating to the Durez Inlet Project performed in 1993 and 1994
for Occidental in North Tonawanda, New York. The Company's accounts receivable
at December 31, 1996 include a claim receivable of $8,618,000 related to this
matter. 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 believes were materially different than as represented by
Occidental. Occidental's amended complaint seeks $8,806,000 in damages primarily
for alleged costs incurred as a result of project delays and added volumes of
incinerated waste. The Company's counterclaim seeks 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.
The Company is currently in arbitration proceedings with Separation and
Recovery Systems, Inc. ("SRS") resulting from SRS's failure to adequately
perform it's subcontract obligations to the Company for thermal desorption
services at the Hilton- Davis project in Cincinnati, Ohio. The Company's
financial statements on December 31, 1996 include a back charge receivable of
approximately $7,345,000 representing additional costs the Company has and will
incur as a result of completing SRS's scope of work under its thermal desorption
subcontract with the Company. SRS has filed a counterclaim against the Company
for approximately $2,500,000 alleging wrongful termination of the subcontract.
Management believes that it has established adequate reserves should
the resolution of the above matters be lower than the amounts recorded. There
is, however, always risk and uncertainty in pursuing and defending litigation
and arbitration proceedings in the course of the Company's business and,
notwithstanding the reserves currently established, adverse future results in
litigation or other proceedings could have a material adverse impact upon the
Company's consolidated future results of operations or financial condition.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are listed below:
Name Age Positions
---- --- ---------
James L. Kirk 47 Chairman of the Board, President and Chief Executive Officer
Joseph R. Kirk 45 Executive Vice President and a Director
Pamela K.M. Beall 40 Vice President, Treasurer and Assistant Secretary
Robert J. Blackwell 40 Vice President, Marketing and Strategic Planning
Fred H. Halvorsen 55 Vice President, Health and Safety
Kris E. Hansel 39 Vice President and Controller
Steven E. Harbour 48 Vice President, Legal and Secretary
Gene J. Ostrow 42 Vice President, Corporate Development
Phillip V. Petrocelli 38 Vice President, Western Operations
Philip O. Strawbridge 42 Vice President, Chief Financial and Administrative Officer
Michael A. Szomjassy 46 Vice President, Eastern Operations
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James L. Kirk - Chairman of the Board, President and Chief Executive Officer.
Mr. Kirk was elected President and Chief Executive Officer of the Company in
July 1986, and was elected Chairman of the Board in January 1987. Mr. Kirk has
been Chairman of the Board and Chief Executive Officer of OHMR since April 1985.
Mr. Kirk is a founder of OHMR and has served in various capacities as an officer
and director of OHMR.
Joseph R. Kirk - Executive Vice President and Director. Mr. Kirk assumed his
current position in July 1986 and previously served as Vice Chairman of OHMR. He
is a founder of OHMR and has served in various capacities as an officer and
director of OHMR.
Pamela K.M. Beall - Vice President, Treasurer and Assistant Secretary. Ms. Beall
joined the Company in June 1985 as Director of Finance of OHMR, became Treasurer
and Assistant Secretary of OHMR in September 1985, and became Treasurer and
Assistant Secretary of the Company in January 1986. Ms. Beall assumed her
current position in August 1994. Prior to joining the Company, Ms. Beall was
General Manager, Treasury Services for USX Corporation and previous to that with
Marathon Oil Company. Ms. Beall also serves as a director of NSC.
Robert J. Blackwell - Vice President, Marketing and Strategic Planning. Mr.
Blackwell joined the Company in July 1993 as Vice President, Government Business
Development of OHMR, and has served as Senior Vice President, Marketing of OHMR
since October 1995. Prior to joining the Company, Mr. Blackwell was Vice
President for Federal Marketing and Legislative Affairs, from January 1993 to
July 1993, and Director of Marketing and Federal Relations, from January 1989 to
December 1992, of Ebasco Services Incorporated. Mr. Blackwell also serves as a
director of NSC.
Fred H. Halvorsen - Vice President, Health and Safety. Dr. Halvorsen joined the
Company in July 1984 as Director of Health and Safety of OHMR and assumed his
current position in May 1987.
Kris E. Hansel - Vice President and Controller. Mr. Hansel joined the Company as
General Accounting Manager in November 1988 of OHMR, became Assistant Controller
in October 1991 of the Company, and became Controller in October 1992. Mr.
Hansel assumed his current position in August 1994. Prior to joining the
Company, Mr. Hansel was General Accounting Manager of WearEver-ProctorSilex,
Inc.
Steven E. Harbour - Vice President, Legal and Secretary. Mr. Harbour joined the
Company in December 1996. Prior to joining the Company, Mr. Harbour served in
various management and legal capacities with The Coca-Cola Company from 1983 to
1993, was Vice President, The Coca-Cola Bottling Company of New York, Inc., from
1993 to 1995, and most recently was affiliated with the law firm of Sumner &
Anderson.
Gene J. Ostrow - Vice President of Corporate Development of OHM Corporation
since March of 1997. From November 1994 to March of 1997, Mr. Ostrow was a
Senior Vice President, Corporate Finance with Raymond James and Associates and
Co-head of that firm's mergers and acquisitions practice. Mr. Ostrow was
employed by OHM Corporation and its affiliates from February 1986 to October
1993 in various positions, including Vice President and Chief Financial Officer
of OHM Corporation from February 1986 through September 1991, as Executive Vice
President, Corporate Development from October 1991 to May 1993 and as Vice
President and Chief Financial Officer of NSC Corporation from July 1988 through
October 1993. From November 1993 to October 1994, Mr. Ostrow was Vice President
and Chief Financial Officer and Acting Chief Operating Officer of Ecoscience
Corp., an agricultural biotechnology firm in Worcester, Massachusetts.
Phillip V. Petrocelli - Vice President, Western Operations. Mr. Petrocelli
joined the Company in August 1993 as Vice President, Western Region of OHMR, and
since October 1995 has served as Senior Vice President, Western Operations of
OHMR. Mr. Petrocelli assumed his current position with the Company in May 1995.
Prior to joining the Company, Mr. Petrocelli was Regional Director and previous
to that was Acting Vice President - Analytical Labs, with IT Corporation.
Philip O. Strawbridge - Vice President, Chief Financial and Administrative
Officer. Mr. Strawbridge joined the Company in February 1996. Prior to joining
the Company, Mr. Strawbridge was Senior Director of Government Contracts and
Compliance with Fluor Daniel, Inc.
Michael A. Szomjassy - Vice President, Eastern Operations. Mr. Szomjassy joined
the Company in November 1989 as Vice President, Southeast Region of OHMR and
since October 1995 has served as Senior Vice President, Eastern Operations of
OHMR. Prior to joining OHM, Mr. Szomjassy was Regional Manager, Remediation
Services of Ebasco Services, Inc.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on The New York Stock Exchange
under the symbol "OHM." The table sets forth by quarter, for the last two fiscal
years, the high and low sales prices of the Company's common stock on The New
York Stock Exchange Composite Tape as reported by The Wall Street Journal
(Midwest Edition):
Market Price
------------
High Low
---- ---
1996
First 8 1/8 7
Second 9 1/4 7 1/4
Third 7 7/8 6 1/2
Fourth 9 7
1995
First 10 1/8 6 7/8
Second 12 1/8 10 1/8
Third 14 3/8 8 3/4
Fourth 9 7 1/8
NOTE:
(1) As of December 31, 1996, the Company has approximately 875
shareholders of record.
(2) The Company has not declared any cash dividends on its Common
Stock and has bank covenants that restrict the amount of cash
dividends that can be paid in the future. See "Note 7 to the
Consolidated Financial Statements."
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ITEM 6. SELECTED FINANCIAL DATA
(a) The Five Year Summary of Results of Operations for each of the five
years ended December 31 is set forth below:
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands, Except Per Share Data)
Revenue $ 550,984 $ 457,925 $ 323,381 $ 242,401 $ 221,370
Cost of services 478,924 393,149 296,159 202,341 185,707
--------- --------- --------- --------- ---------
Gross Profit 72,060 64,776 27,222 40,060 35,663
Selling, general and administrative expenses 49,250 45,223 32,281 27,110 30,845
--------- --------- --------- --------- ---------
Operating Income (Loss) 22,810 19,553 (5,059) 12,950 4,818
--------- --------- --------- --------- ---------
Other (Income) Expenses:
Investment income (124) (849) (28) (28) (31)
Interest expense 7,087 10,413 9,177 7,748 7,106
Equity in net (earnings) loss of affiliates'
continuing operations (748) (287) (1,032) (1,600) 1,121
Miscellaneous (income) expense (296) (72) 898 341 966
--------- --------- --------- --------- ---------
5,919 9,205 9,015 6,461 9,162
Income (Loss) From Continuing
Operations Before Income Taxes (Benefit) 16,891 10,348 (14,074) 6,489 (4,344)
Income taxes (benefit) 5,376 3,541 (6,458) 2,082 (1,230)
--------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations 11,515 6,807 (7,616) 4,407 (3,114)
Discontinued Operations of Affiliate,
Net of Income Taxes (Benefit):
Income from operations -- -- -- -- 122
Provision for loss on disposition -- -- -- -- (420)
--------- --------- --------- --------- ---------
Income (Loss) Before Cumulative
Effect of Accounting Change 11,515 6,807 (7,616) 4,407 (3,412)
Cumulative effect of accounting change -- -- -- -- (857)
--------- --------- --------- --------- ---------
Net Income (Loss) $ 11,515 $ 6,807 $ (7,616) $ 4,407 $ (4,269)
========= ========= ========= ========= =========
Net Income (Loss) Per Share:
Continuing operations $ 0.43 $ 0.30 $ (0.49) $ 0.35 $ (0.26)
Discontinued operations:
From operations -- -- -- -- 0.01
From disposition -- -- -- -- (0.03)
--------- --------- --------- --------- ---------
Income (Loss) Per Share Before Effect of
Cumulative Accounting 0.43 0.30 (0.49) 0.35 (0.28)
Cumulative effect of accounting change -- -- -- -- (0.07)
--------- --------- --------- --------- ---------
Net Income (Loss) Per Share $ 0.43 $ 0.30 $ (0.49) $ 0.35 $ (0.35)
========= ========= ========= ========= =========
Weighted Average Number Of Common
and Common Equivalent Shares Outstanding 26,844 22,525 15,582 12,506 12,051
========= ========= ========= ========= =========
NOTES:
(1) The results of operations for the year ended December 31, 1992
reflect the accounting for discontinued operations of certain
business units.
(2) The cumulative effect of accounting change of $857,000 or
$0.07 per share for the year ended December 31, 1992 is for
adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
(3) Special and nonrecurring charges include: (i) for the year
ended December 31, 1995, the Company recorded a $2,312,000
charge (net of income tax benefit of $1,542,000) for
integration costs related to the acquisition of the hazardous
and nuclear waste remediation service business (the
"Division") of Rust International Inc. ("Rust"); (ii) for the
year ended December 31, 1994, the Company recorded a special
charge of $15,000,000 (net of income tax benefit of
$10,000,000) to establish a reserve for accounts receivable,
primarily where such accounts are in litigation; and (iii) for
the year ended December 31, 1992, special charges of
$2,550,000 (net of income tax benefit of $1,600,000) recorded
by the Company, and $2,162,000 recorded by NSC, both of which
relate to the restructuring of the Company and NSC's asbestos
abatement operations in anticipation of NSC's acquisition of
the asbestos abatement division of The Brand Companies, Inc.
(completed on May 4, 1993), and which include provisions for
legal and insurance reserves, and for certain other matters.
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16
(4) On May 30, 1995, the Company completed the acquisition of
substantially all of the assets and certain liabilities of the
Division 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. 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
year ended December 31, 1995, include the results of operations
for the Division since May 30, 1995. See "Note 2 to the
Consolidated Financial Statements."
(b) The Five Year Summary of Financial Position as of December 31 is set
forth below (In Thousands):
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Working capital $ 94,342 $129,156 $116,464 $ 69,985 $ 56,148
Total assets 336,537 376,506 272,546 215,357 185,415
Long-term debt 52,972 104,111 127,279 71,113 101,085
Shareholders' equity 174,572 160,492 76,920 82,743 43,833
<FN>
NOTE:
(1) The Company has not declared any cash dividends on its Common
Stock and is restricted by bank covenants from the payment of
cash dividends in the future. See "Note 7 to the Consolidated
Financial Statements."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(a) 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"),
provided 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. See "Note 2 to the Consolidated
Financial Statements." The Company's consolidated financial statements include
the results of operation for the Division since May 30, 1995.
During the second quarter of 1995, the Company recorded a $3,854,000
pre-tax, $2,312,000 after-tax or $0.10 per share, charge for integration costs
related to the acquisition of the Division. The charge was recorded as a
selling, general and administrative expense and was 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.
During the fourth quarter of 1994, certain developments within and
external to the Company caused management to revaluate certain accounts
receivable recorded during 1994. As a result, the Company recorded a $25,000,000
pre-tax charge against revenue, $15,000,000 after-tax or $0.96 per share, to
establish a reserve for accounts receivable, primarily where such accounts are
in litigation, including projects performed by the Company for Citgo Petroleum
Company ("Citgo") and Occidental Chemical Corporation ("Occidental"). See "Note
15 to the Consolidated Financial Statements."
The following table sets forth, for the periods indicated, the
percentage relationship that items in the statement of operations bear to
revenue:
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Revenue 100% 100% 100%
Cost of services 87 86 92
---- ---- ----
Gross profit 13 14 8
Selling, general and administrative expenses 9 10 10
----- ---- ----
Operating income (loss) 4 4 (2)
Net interest expense 1 2 2
Equity in net earnings of affiliate -- -- --
----- ------ -----
Income (loss) before income taxes (benefit) 3 2 (4)
Income taxes (benefit) 1 1 (2)
----- ----- ----
Income (loss) from continuing operations 2% 1% (2)%
===== ===== ====
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TWELVE MONTHS ENDED DECEMBER 31, 1996 VS. TWELVE MONTHS ENDED DECEMBER 31, 1995
Revenue. The following table sets forth the Company's revenue by client
type for the twelve months ended December 31, 1996 and 1995 (in thousands,
except percentages):
1996 1995
---- ----
Federal, State, and Local Government $426,256 77% $349,052 76%
Industrial 124,728 23 108,873 24
--------- ---- --------- ----
Total Revenue $550,984 100% $457,925 100%
======== === ======== ===
Total revenue for the year ended December 31, 1996, increased 20% to
$550,984,000 from $457,925,000 in 1995. Such improvement resulted primarily from
increased revenue from federal government agencies. In addition, revenue from
industrial sector clients was favorably impacted by the acquisition of the
Division, which was included for a full year in 1996 compared to only seven
months of 1995.
Revenue from government agencies for the twelve months ended December
31, 1996 increased $77,204,000 or 22% from $349,052,000 in 1995. This
improvement resulted primarily from an increase in revenue from the Company's
term contracts with the United States Air Force ("Air Force"), the United States
Army Corps of Engineers ("USACE"), the Department of Energy ("DOE") and the
United States Navy ("Navy"). Such increases were partially offset by a decrease
in revenue from state and local governments and the Environmental Protection
Agency ("EPA") during 1996. 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 continue to receive funding under its federal
contracts into the foreseeable future and continues to experience a significant
amount of proposal activity for new contracts with the various Department of
Defense ("DOD") agencies, as well as the DOE. However, no assurance can be given
that the Company will be awarded any new contracts with the DOD or DOE. In
addition, 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 $15,855,000 or 15% increase in revenue from
industrial clients for the year ended December 31, 1996 as compared to 1995.
Such increase is primarily a result of the acquisition of the Division during
May 1995. The Company believes that revenue growth 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.
During 1996, the Company's government revenue as a percent of total
revenue was 77%. The Company believes that the government sector will continue
to be its primary source of revenue for the foreseeable future in light of the
factors discussed above.
Cost of Services and Gross Profit. Cost of services for the year ended
December 31, 1996 increased 22% to $478,924,000 from $393,149,000 in 1995
primarily due to increased revenue. Cost of services as a percentage of revenue
increased to 87% for the year ended December 31, 1996 from 86% for 1995.
Gross profit increased 11% to $72,060,000 in 1996 from $64,776,000 in
1995. The increase in gross profit is primarily due to increased revenues. Gross
profit as a percentage of revenue decreased to 13% for the year ended December
31, 1996 from 14% 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
as a result of 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.
16
19
The Company believes the trend towards the use of subcontracted
services and materials for government projects will continue. In addition,
competitive pressure for future industrial sector projects will continue due to
the lack of regulatory enforcement, and resultant diminished number of contract
opportunities, as a result of the failure of Congress to reauthorize the
Superfund law. Both of these factors will continue to impact the Company's gross
profit margin on its contracts into the foreseeable future.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SGA") expenses for the year ended December 31, 1996 increased
9% to $49,250,000 from $45,223,000 in 1995. SGA expenses for the year ended
December 31, 1995 include the aforementioned charge of $3,854,000 for
integration costs related to the acquisition of the Division. Without such
charge, SGA expenses increased 19% primarily as a result of the acquisition of
the Division and the growth in 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 was
9% for the twelve months ended December 31, 1996 and 1995, exclusive of the
integration charge in 1995.
Interest expense. Interest expense, net of investment income, decreased
27% to $6,963,000 for the year ended December 31, 1996 from $9,564,000 for 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 compared to 1995. The decrease in
interest rates charged under the revolving credit agreement primarily is a
result of the WMX guarantee of the Company's debt in exchange for the warrant
described above. Investment income for the twelve months ended December 31, 1995
included income earned on certain outstanding receivables guaranteed by Rust
pursuant to the agreement for the acquisition of the Division. Such receivables
were paid to the Company on September 30, 1995.
Equity in Net Earnings of Affiliate. The Company's equity interest in
NSC's net earnings increased $461,000 to $748,000 in 1996 from $287,000 in 1995.
The twelve months ended December 31, 1995 was negatively impacted by the
settlement of claims with certain clients of NSC as well as increases in
insurance reserves. NSC has experienced a decrease in revenues from asbestos
abatement contracts for the twelve months ended December 31, 1996 compared to
1995. Such decrease in revenue was more than offset by increases in revenue from
its specialty contractor services subsidiary, Olshan Demolishing Management,
Inc. The asbestos abatement industry in general continues to experience
competitive pressures in the marketplace which have negatively impacted the
gross margin on NSC's projects.
Net Income. Net income for the year ended December 31, 1996 was
$11,515,000 or $0.43 per share compared to $6,807,000 or $0.30 per share in
1995. The improvement in net income is primarily due to increased revenue, the
integration charge recorded during 1995, decreased interest expense and other
factors discussed above.
TWELVE MONTHS ENDED DECEMBER 31, 1995 VS. TWELVE MONTHS ENDED DECEMBER 31, 1994
Revenue. The following table sets forth the Company's revenue by client
type for the twelve months ended December 31, 1995 and 1994 (in thousands,
except percentages):
1995 1994
---- ----
Federal, State, and Local Government $349,052 76% $208,610 65%
Industrial 108,873 24 114,771 35
-------- --- -------- ---
Total Revenue $457,925 100% $323,381 100%
======== === ======== ===
Total revenue for the year ended December 31, 1995, increased 42% to
$457,925,000 from $323,381,000 in 1994. Such improvement resulted primarily from
increased revenue from federal government agencies and the acquisition of the
Division.
During 1995, the Company experienced a $140,442,000 or a 67% increase
in revenue from government agencies. This improvement resulted primarily from an
increase in revenue from the Company's term contracts with the Navy, the USACE
and the Air Force, as well as increased revenue from other federal government
agencies. Such increases were partially offset by a decrease in revenue from
state and local governments for the year ended December 31, 1995 when compared
to 1994.
The Company experienced a $5,898,000 or 5% decrease in revenue from
industrial clients for the year ended December 31, 1995 as compared to 1994.
Such revenue would have decreased further if not for the Company's 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 economic conditions in
certain industry and geographic
17
20
sectors. Industrial sector revenue was negatively impacted for the year ended
December 31, 1994 by the previously discussed $25,000,000 accounts receivable
reserve which was primarily related to industrial clients. Industrial sector
revenue as a percentage of total revenue decreased to 24% for 1995 from 35% in
1994.
Cost of Services and Gross Profit. Cost of services for the year ended
December 31, 1995 increased 33% to $393,149,000 from $296,159,000 in 1994
primarily due to increased revenue. Cost of services as a percentage of revenue
decreased to 86% for the year ended December 31, 1995 from 92% for 1994. Such
decrease is primarily due to the aforementioned charge for accounts receivable
recorded during the fourth quarter of 1994. Cost of services as a percentage of
revenue for 1994 would have been 85% without the accounts receivable charge.
Gross profit increased 138% to $64,776,000 in 1995 from $27,222,000 in
1994. The increase in gross profit is primarily due to the increase in revenue
and the accounts receivable charge recorded in 1994. The Company has experienced
a slight 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.
In addition, cost of services and gross profit have been negatively
impacted by the acquisition of the Division during 1995. The Company has
incurred additional indirect cost of services for the Division's offices and
employees, while revenue from the Division's projects were significantly lower
than expected during 1995.
Selling, General and Administrative Expenses. SGA expenses for the year
ended December 31, 1995 increased 40% to $45,223,000 from $32,281,000 in 1994.
SGA expenses for the year ended December 31, 1995 include the previously
discussed charge of $3,854,000 for integration costs related to the acquisition
of the Division. Without such charge, SGA expenses increased 28% primarily as a
result of the acquisition of the Division and the growth in revenue.
Interest expense. Interest expense, net of investment income, increased
5% to $9,564,000 for the year ended December 31, 1995 from $9,149,000 for 1994.
The increase in interest expense was offset by interest earned on certain
outstanding receivables guaranteed by Rust pursuant to the agreement for the
acquisition of the Division. Such receivables guaranteed by Rust were paid to
the Company on September 30, 1995. The increase in interest expense was
primarily due to additional borrowing under the Company's credit facility during
the first half of 1995 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 decreased $745,000 to $287,000 in 1995 from $1,032,000 in
1994. Such decrease in earnings is primarily a result of losses recorded by NSC
on claims settled in the third quarter of 1995 with certain of its clients and
an increase in insurance reserves. The asbestos abatement industry in general
continues to experience competitive pressures in the marketplace which have
negatively impacted the gross margin on NSC's projects.
Net Income (Loss). Net income for the year ended December 31, 1995 was
$6,807,000 or $0.30 per share compared to a net loss of $(7,616,000) or $(0.49)
per share in 1994. The improvement in net income is primarily due to the reserve
recorded for accounts receivable during 1994 and other factors discussed above.
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 contracts and
unfilled orders, and (ii) the Company's term contracts, defined as the potential
value of government term contracts (in thousands):
December 31,
------------
1996 1995 1994
---- ---- ----
Backlog $ 375,000 $ 445,000 $ 255,000
Term contracts 1,401,000 1,531,000 1,498,000
---------- ---------- ----------
Total contract backlog $1,776,000 $1,976,000 $1,753,000
========== ========== ==========
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21
Backlog. 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 80% of the backlog at December 31, 1996 will be
realized within the next year.
Term Contracts. Term contracts are typically performed under delivery
orders, issued by the contracting government entity, for a large number of
small-to medium-sized remediation projects throughout the geographic area
covered by the contract. The Company's government term contracts generally may
be canceled, delayed or modified at the sole option of the government, and
typically are subject to annual funding limitations and public sector budget
constraints. Accordingly, such government contracts represent the potential
dollar value that may be expended under such contracts, but there is no
assurance that such amounts, if any, will be actually spent on any projects or
of the timing thereof. In addition, further reductions by Congress in future
environmental remediation budgets of government agencies may adversely impact
future revenue from such agencies and the funding of the Company's government
term contracts included in contract backlog.
(b) 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 2
to the Consolidated Financial Statements." 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 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, 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 December 31, 1996 and 1995 were $0 and
$42,100,000, respectively, and aggregate letters of credit outstanding at
December 31, 1996 and 1995 were $12,223,000 and $14,655,000, respectively.
Capital expenditures for the years ended December 31, 1996, 1995, and
1994 were $23,279,000, $14,276,000, and $13,354,000, respectively. The Company's
capital expenditures are primarily related to the installation of computer
systems and related equipment, the purchase of heavy construction equipment and
the fabrication of custom equipment by the Company for the execution of
remediation projects. Capital expenditures for fiscal year 1997 are expected to
range between $20,000,000 and $25,000,000. The Company's long-term capital
expenditure requirements are dependent upon the type and size of future
remediation projects awarded to the Company.
During 1996, the Company derived 77% of its revenue from 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 with industrial sector
clients, the DOD and the DOE 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, borrowings under its Revolving Credit Facility, proceeds from
permitted asset sales, utilization of operating leases and other external
sources. In addition, under the terms of the 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. See "Note 2 to the Consolidated
Financial Statements." 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, from time to time, evaluates potential acquisitions of
companies in the environmental remediation industry and industries related to
the core skills of the Company. While the Company believes that there are
currently available a number of potential acquisition candidates that would be
complementary to its business, the Company currently has no agreements,
understandings or arrangements to acquire a specific business or other material
assets. The Company cannot predict whether it will be successful in pursuing
such acquisition opportunities or what the consequences of any such acquisition
would be. Future
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22
acquisitions may involve the expenditure of significant funds and management
time. Depending upon the nature, size and timing of future acquisitions, the
Company may be required to raise additional capital through financings,
including public or private equity or debt offerings or additional bank
financing. There is no assurance that such additional financing will be
available to the Company on acceptable terms.
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 which commenced in 1996 of 7.5% of the principal amount as
well as payments due upon maturity of its Convertible Debentures in 2006. The
Company has purchased and retired $10,736,000 of the outstanding Convertible
Debentures during 1995 and 1996, sufficient to meet its annual sinking fund
obligations through October 1, 1997, as well as a portion of the sinking fund
obligation due October 1, 1998. The Company believes that it will be able to
refinance the remaining indebtedness as necessary. See "Note 7 to the
Consolidated Financial Statements."
(c) INFLATION
Historically, inflation has not been a significant factor to the
Company or to the cost of its operations.
(d) DEFERRED TAX ASSETS
The Company has recorded a valuation allowance for its deferred tax
assets to the extent that the Company believes such deferred tax assets may not
be realized. With respect to deferred tax assets for which a valuation allowance
has not been established, the Company believes it will realize the benefit of
these assets through the reversal of taxable temporary differences and future
income. The Company believes that the future taxable income of approximately
$36,092,000 necessary to realize the deferred tax assets is more likely than not
to occur because of its substantial backlog and term contracts from which the
Company has historically realized sufficient margin to produce consolidated net
income. The principal uncertainty of realization of the deferred tax assets is
the Company's ability to convert its backlog to revenue and margin. See
"Contract Backlog" and "Environmental Matters and Government Contracting" in
other sections of Management's Discussion and Analysis of Financial Condition
and Results of Operations. The Company intends to evaluate the realizability of
its deferred tax assets quarterly by assessing the need for an additional
valuation allowance. See "Note 9 to the Consolidated Financial Statements."
(e) 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.
(f) FORWARD LOOKING STATEMENTS
All statements, other than statements of historical facts, included in
this Form 10-K that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, including the amount and nature thereof,
potential acquisitions by the Company, trends affecting the Company's financial
condition or results of operations, and the Company's business and growth
strategies are forward-looking
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23
statements. Such statements are subject to a number of risks and uncertainties,
including risks and uncertainties identified in "Business -- Environmental
Contractor Risks," " Business -- Regulation," "-- Results of Operation," "--
Environmental Matters and Government Contracting," "Note 1 to Consolidated
Financial Statements" and other general economic and business conditions, the
business opportunities (or lack thereof) that may be presented to and pursued by
the Company, changes in laws or regulations affecting the Company's operations
and other factors, many of which are beyond the control of the Company. In
addition, these risks and uncertainties include, without limitation, (i) the
potential for fluctuations in funding of backlog, (ii) weather conditions
affecting or delaying the Company's ability to perform or complete the services
required by its contracts, (iii) the Company's ability to be awarded new
contracts in its target markets or its ability to expand existing contracts,
(iv) other industry-wide market factors, including the timing of client's
planned remediation activities, (v) interpretation or enforcement by federal,
state or local regulators of existing environmental regulations. Also, there is
always risk and uncertainty in pursuing and defending litigation, arbitration
proceedings and claims in the course of the Company's business. All of these
risks and uncertainties could cause actual results to differ materially from
those assumed in the forward-looking statements. These forward- looking
statements reflect management's analysis, judgment, belief or expectation only
as of the date of this Form 10-K. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. In addition to the disclosure
contained herein, readers should carefully review risks and uncertainties
contained in other documents the Company files or has filed from time to time
with the Commission pursuant to the Exchange Act that are incorporated by
reference herein.
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24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary quarterly
financial data of the Company and its subsidiaries for the years ended December
31, 1996, 1995 and 1994, are set forth on pages 22 through 39.
OHM CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
------------
1996 1995
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 14,002 $ 11,205
Accounts receivable 85,461 100,291
Costs and estimated earnings on contracts in process in excess of billings 56,303 77,156
Materials and supply inventory, at cost 13,899 11,831
Receivable from affiliated company -- 15,000
Prepaid expenses and other assets 17,274 7,621
Deferred income taxes 10,513 16,600
Refundable income taxes 493 401
-------- --------
197,945 240,105
-------- --------
Property and Equipment, net 70,521 81,107
-------- --------
Other Noncurrent Assets:
Investment in affiliated company 23,185 23,038
Intangible assets relating to acquired businesses, net 33,534 21,613
Deferred debt issuance and financing costs 1,412 1,779
Deferred income taxes 3,563 1,440
Other assets 6,377 7,424
-------- --------
68,071 55,294
-------- --------
Total Assets $336,537 $376,506
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 69,230 $ 65,233
Billings on contracts in process in excess of costs and estimated earnings 897 1,387
Accrued compensation and related taxes 6,528 6,174
Federal, state and local taxes 150 200
Other accrued liabilities 21,477 33,538
Current portion of non-current liabilities 5,321 4,417
-------- --------
103,603 110,949
-------- --------
Non-current Liabilities:
Long-term debt 52,972 104,111
Deferred gain from sale leaseback of equipment 4,484 --
Capital leases 32 53
Pension agreement 874 901
-------- --------
58,362 105,065
-------- --------
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 - 26,992,140; 1995 - 26,647,077 2,699 2,664
Additional paid-in capital 138,989 136,428
Retained earnings 32,884 21,400
-------- --------
174,572 160,492
-------- --------
Total Liabilities and Shareholders' Equity $336,537 $376,506
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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25
OHM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Revenue $ 550,984 $ 457,925 $ 323,381
Cost of services 478,924 393,149 296,159
--------- --------- ---------
Gross Profit 72,060 64,776 27,222
Selling, general and administrative expenses 49,250 45,223 32,281
--------- --------- ---------
Operating Income (Loss) 22,810 19,553 (5,059)
--------- --------- ---------
Other (Income) Expenses:
Investment income (124) (849) (28)
Interest expense 7,087 10,413 9,177
Equity in net earnings of affiliate (748) (287) (1,032)
Miscellaneous (income) expenses (296) (72) 898
--------- --------- ---------
5,919 9,205 9,015
--------- --------- ---------
Income (Loss) Before Income Taxes (Benefit) 16,891 10,348 (14,074)
Income taxes (Benefit) 5,376 3,541 (6,458)
--------- --------- ---------
Net Income (Loss) $ 11,515 $ 6,807 $ (7,616)
========= ========= =========
Net Income (Loss) Per Share: $ 0.43 $ 0.30 $ (0.49)
========= ========= =========
Weighted average number of common and common
equivalent shares outstanding 26,844 22,525 15,582
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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26
OHM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock
------------ Additional Cumulative
Number of Paid-In Retained Translation Treasury
Shares Amount Capital Earnings Adjustments Stock
------ ------ ------- -------- ----------- -----
BALANCE AT JANUARY 1, 1994 15,763,089 $ 1,576 $ 62,774 $ 22,272 $ (50) $(3,829)
Proceeds from sale of 85,000 shares of
common stock, less issuance expenses
of $86,000 85,000 8 789
Stock options exercised, 105,425 shares
reissued from treasury (269) 1,273
Deferred translation adjustments (8)
Net loss (7,616)
---------- -------- ------- -------- ------- -------
BALANCE AT DECEMBER 31, 1994 15,848,089 1,584 63,294 14,656 (58) (2,556)
Proceeds from sale of 1,000,000 shares of
common stock, less issuance expenses
of $25,000 1,000,000 100 9,875
Shares issued for the acquisition
of the Division 9,668,000 967 61,149
Issuance of common stock warrants 1,372
Stock options exercised, 211,624 shares
reissued from treasury (861) 2,556
Shares issued for stock options 37,921 4 776
Shares issued for 401(k) plan funding 93,067 9 823
Deferred translation adjustments (5)
Net income 6,807
---------- -------- ------- -------- ------- -------
BALANCE AT DECEMBER 31, 1995 26,647,077 2,664 136,428 21,463 (63) --
Shares issued for 401(k) plan funding 345,063 35 2,561
Deferred translation adjustments (31)
Net income 11,515
---------- -------- ------- -------- ------- -------
BALANCE AT DECEMBER 31, 1996 26,992,140 $ 2,699 $138,989 $ 32,978 $ (94) $ --
========== ======== ======== ======== ======= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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27
OHM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 11,515 $ 6,807 $ (7,616)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 19,963 10,652 7,395
Amortization of other noncurrent assets 3,332 2,916 2,418
Deferred income taxes 5,376 3,541 (6,458)
(Gain) loss on sale of property and equipment (206) 423 764
Equity in net earnings of affiliate, net of dividends received (147) 314 (430)
Deferred translation adjustments and other (1,346) (1,939) (1,253)
Changes in current assets and liabilities:
Accounts receivable 13,622 10,049 (22,279)
Costs and estimated earnings on contracts in process in excess of billings 11,972 (10,278) (19,693)
Materials and supply inventory (2,068) (1,732) (3,216)
Prepaid expenses and other assets (8,125) (206) (1,704)
Refundable income taxes and other (92) (196) (114)
Accounts payable 2,949 3,907 5,263
Billings on contracts in process in
excess of costs and estimated earnings (490) (1,019) (669)
Accrued compensation and related taxes (512) 476 715
Federal, state and local income taxes (50) 98 (195)
Other accrued liabilities (11,286) (4,416) 795
--------- --------- ---------
Net cash flows provided by (used in) operating activities 44,407 19,397 (46,277)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (23,279) (14,276) (13,354)
Proceeds from sale of property and equipment 4,612 3,813 1,847
Proceeds from sale and leaseback of equipment 12,850 -- --
Cash acquired from purchase of business, net of acquisition costs -- 13,527 --
Decrease (increase) in receivable from affiliated company 15,000 (6,695) --
Increase in other noncurrent assets (1,140) (589) (1,835)
--------- --------- ---------
Net cash provided by (used in) investing activities 8,043 (4,220) (13,342)
--------- --------- ---------
Cash flows from financing activities:
Increase in long-term debt 204 2,209 8,900
Payments on long-term debt and capital leases (10,230) (8,691) (1,782)
Proceeds from borrowing under revolving credit agreement 202,300 159,900 47,200
Payments on revolving credit agreement (244,400) (175,500) (96,500)
Proceeds from public offering of common stock -- -- 797
Proceeds from private placement of common stock -- 9,975 --
Common Stock issued for 401(k) funding and stock options 2,597 1,612 --
Payments on pension agreement (124) (102) (109)
Reissuance of treasury stock -- 1,695 1,004
--------- --------- ---------
Net cash (used in) provided by financing activities (49,653) (8,902) 59,510
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 2,797 6,275 (109)
Cash and cash equivalents at beginning of year 11,205 4,930 5,039
--------- --------- ---------
Cash and cash equivalents at end of year $ 14,002 $ 11,205 $ 4,930
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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28
OHM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION. The accompanying
consolidated financial statements include the accounts of OHM Corporation (the
"Company") and its subsidiaries. The Company also includes its proportionate
share of joint ventures, in which the Company's ownership is less than 50%,
which were entered into for the purpose of performing large remediation
projects. The Company's investment in 40% of the outstanding common stock of NSC
Corporation ("NSC") is carried on the equity basis. All material intercompany
transactions and balances among the consolidated group have been eliminated in
consolidation.
USE OF ESTIMATES. The preparation of the accompanying consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and the accompanying notes.
Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES. The Company provides a broad range of
environmental and hazardous waste remediation services to its clients located
primarily in the United States. 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 material into the environment, and the possibility of fines, penalties
or other regulatory action. These risks include potentially large civil and
criminal liabilities for violations or environmental laws and regulations, and
liability to customers and to third parties for damages arising from performing
services for clients, which could have a material adverse effect on the Company.
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 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.
The Company's revenue from government agencies accounted for 77%, 76%
and 65% of revenue for the years ended December 31, 1996, 1995 and 1994,
respectively. 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. The dependence on government contracts will also continue to subject
the Company to significant financial risk and an uncertain business environment
caused by the strain of the federal budget deficit and the lengthy budget
negotiations each year.
In addition to the above, there are other risks and uncertainties that
involve the use of estimates in the preparation of the Company's consolidated
financial statements. See "Note 2 - Acquisition" and "Note 15 - Litigation and
Contingencies."
STOCK-BASED COMPENSATION. The Company grants stock options for a fixed
number of shares to employees and members of the Board of Directors with an
exercise price equal to the fair value of the shares at the date of grant. The
Company accounts for stock compensation arrangements in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and
accordingly, recognizes no compensation expense for the stock compensation
arrangements. The Company has no intention of changing this accounting practice.
The pro forma information regarding net income and earnings per share as
required by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") is disclosed in "Note 13 - Stock
Option Plan."
REVENUE AND COST RECOGNITION. The Company primarily derives its revenue
from providing environmental services under cost plus fee, time and materials,
fixed price and unit price contracts. The Company records revenue and related
income from its fixed and unit price contracts in process using the
percentage-of-completion method of accounting. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. Changes in project performance, project
26
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conditions and estimated profitability may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
An amount equal to contract costs attributable to claims is included in revenue
when realization is probable and the amount can be reliably estimated. Back
charges to subcontractors are recorded as receivables to the extent considered
collectible. Revenue from time and materials and cost plus fee type contracts is
recorded based on performance and efforts expended. Contract costs include all
direct labor, material, per diem, subcontract and other direct and indirect
project costs related to contract performance. Revenue derived from non-contract
activities is recorded when the services are performed.
PROPERTY AND EQUIPMENT. Property and equipment are carried at cost and
include expenditures which substantially increase the useful lives of the
assets. Maintenance, repairs and minor renewals are expensed as incurred.
Depreciation and amortization, including amortization of assets under capital
leases, are provided on a specific item basis net of salvage value over the
estimated useful lives of the respective assets, using the units of production
method on thermal destruction equipment and the straight-line method on all
other fixed assets.
CAPITALIZED INTEREST. Interest expense incurred on capital expenditures
for assets constructed by the Company is capitalized and is included in the cost
of such assets. Total interest expense incurred by the Company was $8,085,000,
$11,205,000 and $10,127,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Total interest capitalized was $998,000, $792,000 and
$950,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
INTANGIBLE ASSETS. Intangible assets consist principally of goodwill
and other intangible assets resulting primarily from acquisitions accounted for
using the purchase method of accounting. Goodwill is amortized using the
straight-line method over forty years. The carrying value of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill will be
reduced by the estimated shortfall of cash flows. Other intangible assets
relating to acquired businesses consist principally of proprietary processes,
and other deferred costs, and are amortized on a straight-line basis over nine
to ten years. The accumulated amortization of intangible assets, including
goodwill, relating to acquired businesses, was $1,938,000 and $1,159,000 at
December 31, 1996 and 1995, respectively.
INCOME TAXES. The Company accounts for income taxes under the liability
method pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under the liability method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
STATEMENT OF CASH FLOWS. The Company considers all short-term deposits
and highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash paid for income taxes for the years
ended December 31, 1996, 1995 and 1994 was $482,000, $986,000 and $550,000,
respectively. Cash paid for interest was $8,137,000, $10,937,000 and $9,171,000
for each of the years ended December 31, 1996, 1995 and 1994, respectively.
With respect to non-cash investing and financing activities, the
Company acquired $1,870,000, $29,000 and $91,000 of fixed assets under financial
obligations for the years ended December 31, 1996, 1995 and 1994, respectively.
In addition, the Company issued 9,668,000 shares of its common stock in fiscal
1995 for an acquisition. See "Note 2 - Acquisition."
NET INCOME (LOSS) PER SHARE. Net income (loss) per share amounts are
based on the weighted average 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 years presented;
therefore, they were excluded from the calculation of net income per share.
RECLASSIFICATION. Certain amounts presented for the years ended
December 31, 1995 and 1994 have been reclassified to conform to the 1996
presentation.
NOTE 2 - 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 their
subsidiaries. In addition to the net assets of the
27
30
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
per 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, which includes
$3,143,000 of direct costs related to the acquisition.
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
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
resolved certain preacquisition contingencies pending at December 31, 1995 and
finalized the purchase accounting adjustments during the second quarter of 1996.
As a result of the final purchase accounting adjustments, goodwill was increased
by $12,700,000. The Company's consolidated financial statements 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 year
ended December 31, 1995 and 1994 giving effect to the acquisition of the
Division as if such acquisition had occurred on January 1, 1994.
Pro Forma
Year Ended December 31,
-----------------------
1995 1994
---- ----
(In Thousands, Except
Per Share Data)
Revenue $520,465 $554,289
Net income (loss) 8,142 (1,640)
Net income (loss) per share $ 0.31 $ (0.06)
The combined pro forma results of operations for the year ended
December 31, 1995 and 1994 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.
The estimated fair value of the assets acquired and liabilities assumed
at the date of acquisition are as follows (in thousands):
Current assets $ 55,118
Property and equipment 21,523
Goodwill 34,183
Current liabilities 45,565
NOTE 3 - ACCOUNTS RECEIVABLE AND COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN
PROCESS
Accounts receivable are summarized as follows:
December 31,
------------
1996 1995
---- ----
(In Thousands)
Accounts billed and due currently $ 45,573 $ 65,377
Unbilled receivables 59,649 54,295
Retained 5,167 6,530
--------- --------
110,389 126,202
Allowance for uncollectible accounts (24,928) (25,911)
--------- --------
$ 85,461 $100,291
========= ========
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31
The consolidated balance sheets include the following amounts:
December 31,
------------
1996 1995
---- ----
(In Thousands)
Costs incurred on contracts in process $ 442,923 $ 342,093
Estimated earnings 90,442 70,600
--------- ---------
533,365 412,693
Less billings to date (477,959) (336,924)
--------- ---------
$ 55,406 $ 75,769
========= =========
Costs and estimated earnings on contracts in process
in excess of billings $ 56,303 $ 77,156
Billings on contracts in process in excess of costs
and estimated earnings (897) (1,387)
--------- ---------
$ 55,406 $ 75,769
========= =========
Unbilled receivables and costs and estimated earnings on contracts in
process typically represent: (i) amounts earned under the Company's contracts
but not yet billable to clients according to contract terms, which usually
consider passage of time, achievement of certain project milestones or
completion of the project; and (ii) amounts equal to contract costs attributable
to claims included in revenue. In addition, unbilled receivables and costs and
estimated earnings on contracts in process include amounts relating to contracts
with federal government agencies which require services performed by the
Company's subcontractors to be paid prior to billing.
The Company provides a broad range of environmental and hazardous waste
remediation services to industrial, federal government agencies, and state and
local government agencies located primarily in the United States and Canada. The
Company's industrial, federal government, and state and local government clients
constituted 44%, 52%, and 4%, respectively, of total accounts receivable and
costs and estimated earnings on contracts in process at December 31, 1996.
NOTE 4 - PROPERTY AND EQUIPMENT
December 31,
------------
1996 1995
---- ----
(In Thousands)
Land $ 257 $ 374
Buildings and improvements 21,698 17,681
Machinery and equipment 89,831 91,997
Construction in progress 8,385 14,937
--------- ---------
120,171 124,989
Less accumulated depreciation and amortization (49,650) (43,882)
--------- ---------
$ 70,521 $ 81,107
========= =========
NOTE 5 - INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANY
The combined summarized financial information of the Company's 40%
owned asbestos abatement and specialty contracting subsidary, NSC, is set forth
below:
December 31,
------------
1996 1995
---- ----
(In Thousands)
Current assets $ 41,123 $ 41,805
Noncurrent assets 44,102 45,356
Total assets 85,225 87,161
Current liabilities 19,969 24,466
Noncurrent liabilities 7,610 5,414
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Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Revenue $129,043 $124,529 $132,218
Gross profit 22,589 19,447 21,716
Operating income 4,361 1,859 5,101
Net income 1,861 715 2,566
Company's interest in net income 748 287 1,032
The Company's accumulated equity in the undistributed earnings of NSC
included in consolidated retained earnings was $6,000,000 at December 31, 1996.
The Company received cash dividends from NSC aggregating $602,000 for each of
the years ended December 31, 1996 and 1995.
NOTE 6 - OTHER ACCRUED LIABILITIES
Other accrued liabilities are summarized as follows:
December 31,
------------
1996 1995
---- ----
(In Thousands)
Reserve for loss projects $ 5,839 $19,357
Reserve for legal settlements 5,490 2,352
Reserve for self-insurance 4,212 3,555
Accrued insurance 2,601 2,503
Other 3,335 5,771
--------- ---------
$21,477 $33,538
======= =======
The reserve for loss projects is related to certain contracts in
process of the acquired Division. The reduction in such reserve during 1996 was
a result of losses incurred on projects of the Division and a $4,687,000
reclassification recorded as a reduction to goodwill, which resulted from the
final purchase accounting adjustments recorded in the second quarter of 1996.
See "Note 2 - Acquisition."
NOTE 7 - LONG-TERM DEBT
The long-term debt of the Company is summarized below:
December 31,
------------
1996 1995
---- ----
(In Thousands)
8% Convertible Subordinated Debentures due October 1, 2006 $ 46,764 $ 52,500
Revolving credit facility -- 42,100
Notes payable to financial institutions 8,434 11,704
Notes payable 3,066 2,170
--------- ---------
58,264 108,474
Less current portion (5,292) (4,363)
--------- ---------
$ 52,972 $ 104,111
========= =========
The convertible subordinated debentures are convertible into 41.67
shares of common stock per $1,000 unit with interest payable semiannually on
April 1 and October 1, and are redeemable at the option of the Company. The
convertible subordinated debentures require annual mandatory sinking fund
payments of 7.5% of the principal amount which commenced in 1996, and continue
through October 1, 2005. The Company purchased and retired $5,736,000 and
$5,000,000 of the outstanding debentures during 1996 and 1995, respectively,
sufficient to meet the first and second annual sinking fund obligations due
October 1, 1996 and 1997 which resulted in a gain of $492,000 and $222,000 and
have been included in miscellaneous income in the Company's statement of
operations for the years ended December 31, 1996 and 1995, respectively. The
fair value of the convertible subordinated debentures, based on a quoted market
price, approximates $43,491,000 at December 31, 1996. The amortization of debt
issuance costs related to the convertible subordinated debentures was $97,000,
$108,000 and $108,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
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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 2 -
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, 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 Company had $12,223,000 and
$14,655,000 of letters of credit outstanding under its revolving credit facility
at December 31, 1996 and 1995, respectively.
Notes payable to financial institutions consist of: (i) a $3,246,000
note payable bearing interest at 7.24% payable in equal monthly installments of
$146,000 with the final payment due in December 1998, (ii) a $772,000 note
payable bearing interest at 9.25% payable in equal monthly installments of
$35,000 with the final payment due in December 1998, (iii) a $3,927,000 note
payable bearing interest at 8.58% payable in quarterly installments of $356,000
with the final payment of $957,000 due in August 1999, and (iv) a $489,000 note
payable bearing interest at 8.72% payable in equal monthly installments of
$43,000 with the final payment due in January 1998. Each of the above agreements
provides the respective financial institution with a security interest in the
equipment financed with the proceeds from such notes.
Notes payable include: (i) a $767,000 interest bearing note at a rate
of 9.50% payable in equal monthly installments of $48,000, due in April 1998,
(ii) a $235,000 interest bearing note at a rate of 9.22% payable in equal
monthly installments of $13,000, due in June 1998, (iii), a $203,000 interest
bearing note at a rate of 7.50% payable in equal monthly installments of $8,000,
due in December 1998, (iv) a $1,503,000 interest bearing note at a rate of 8.67%
payable in equal monthly installments of $48,000, due in July 1999, (v) a
$106,000 interest bearing note at a rate of 8.70% per schedule payable in equal
installments of $5,000, due in June 1999, (vi) a $251,000 interest bearing note
at a rate of 7.51% per schedule payable in equal monthly installments of $8,000,
due in July 1999.
The aggregate maturity of long-term debt for the five years ending
December 31 is: 1997, $5,292,000; 1998, $6,472,000; 1999, $6,252,000; 2000,
$4,313,000; 2001, $4,313,000; 2002 and thereafter, $31,622,000.
NOTE 8 - LEASES
Future minimum lease payments under noncancelable operating leases
total $13,390,000, $10,203,000, $8,876,000, $7,419,000 and $4,733,000 for the
years ended December 31, 1997, 1998, 1999, 2000 and 2001, respectively. Lease
payments under noncancelable operating leases subsequent to the year ended
December 31, 2001 aggregate $7,637,000.
On December 24, 1996, the Company entered into an agreement for the
sale and leaseback of the Company's self constructed thermal destruction unit
located at the Drake Chemical project in Lockhaven, Pennsylvania. The lease is a
one year lease with annual renewals at the option of the Company. The lease
calls for rental payments which total $3,214,000, $3,214,000, $3,214,000 and
$5,784,000 for the years ended December 31, 1997, 1998, 1999 and 2000,
respectively, with required early termination payments of $9,179,000, $6,962,000
or $5,956,000 in the event the lease is canceled on or before December 24, 1997,
1998 or 1999, respectively. The lease is classified as an operating lease in
accordance with Statement of Financial Accounting Standards No. 13, "Accounting
for Leases". The cost and accumulated depreciation of $11,579,000 and $4,181,000
were removed from the accounts and gain realized on the sale of $5,452,000 was
deferred. The deferred gain is being amortized to income as adjustments to lease
expense over the term of the lease.
Rental expense under operating leases totaled $14,029,000, $8,858,000
and $5,906,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
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NOTE 9 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets as of December 31, 1996 and 1995 are as follows:
December 31,
------------
1996 1995
---- ----
(In Thousands)
Long-term deferred tax liabilities:
Property and equipment $ 10,470 $ 8,043
Intangible assets 1,131 2,003
Investments 2,784 2,729
-------- --------
Total long-term deferred tax liabilities 14,385 12,775
Long-term deferred tax assets:
Net operating loss ("NOL") carryforwards 7,571 3,767
Intangible assets 1,840 2,248
Research and development tax credits 5,832 4,116
Other tax credit carryforwards 2,431 2,410
Other, net 3,474 2,777
-------- --------
Total long-term deferred tax assets 21,148 15,318
Valuation allowance for long-term deferred tax assets (3,358) (1,303)
-------- --------
Total long-term deferred tax assets - net of valuation allowance 17,790 14,015
-------- --------
Net long-term deferred tax assets - domestic operations 3,405 1,240
Foreign tax NOL carryforwards 167 220
Valuation allowance for foreign deferred tax assets (9) (20)
-------- --------
Net long-term deferred tax assets $ 3,563 $ 1,440
======== ========
Current deferred tax liabilities:
Revenue recognition $ -- $ 1,520
Prepaid expenses 1,095 1,216
Tax reserves 366 445
-------- --------
Total current deferred tax liabilities 1,461 3,181
Current deferred tax assets:
Bad debt reserves 9,722 9,863
Project accruals 8,709 13,262
NOL carryforwards 1,950 1,950
Other, net 1,196 1,579
-------- --------
Total current deferred tax assets 21,577 26,654
Valuation allowance for current deferred tax assets (9,603) (6,873)
-------- --------
Total current deferred tax assets - net of valuation allowance 11,974 19,781
-------- --------
Net current deferred tax assets $ 10,513 $ 16,600
======== ========
The net foreign long-term deferred tax assets of $158,000 and $200,000
at December 31, 1996 and 1995, respectively, are attributable to the foreign
operations of the Company and cannot be offset with the net long term deferred
tax liabilities resulting from the Company's domestic operations.
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35
The provisions for income taxes (benefit) consist of the following:
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Current:
Federal $ -- $ -- $ 244
State 41 58 --
------- ------- -------
41 58 244
Benefit of loss carryforwards -- -- (5,380)
Deferred:
Federal 4,569 3,036 (1,161)
State 766 447 (161)
------- ------- -------
5,335 3,483 (1,322)
------- ------- -------
$ 5,376 $ 3,541 $(6,458)
======= ======= =======
The reasons for differences between the provisions for income taxes and
the amount computed by applying the statutory federal income tax rate to income
(loss) from operations before income taxes are as follows:
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
Add (deduct):
State income taxes, net of federal benefit 4.8 3.2 3.7
Research and development tax credits (8.6) (4.5) 3.6
Goodwill 2.4 1.2 --
Equity in net earnings of affiliates (1.2) (0.8) 2.0
Other, net 0.4 1.1 2.6
---- ---- ----
31.8% 34.2% 45.9%
==== ==== ====
Net operating loss, capital loss and tax credit carryforward amounts
and their respective expiration dates for income tax purposes are as follows (in
thousands):
Amount Expiration Date
------ ---------------
Net operating losses $24,414 2006 through 2010
State net operating losses in excess of federal 14,420 1997 through 2010
Research and development tax credits 5,832 2002 through 2011
Alternative minimum tax credits 1,228 Indefinite
Miscellaneous credits 482 1997 through 2005
Foreign tax net operating losses 427 1997 through 1998
The valuation allowance for deferred tax assets is $12,970,000 and
$8,196,000 at December 31, 1996 and 1995, respectively. The change in valuation
allowance for the current year is due to the final purchase accounting
adjustments for the Rust acquisition recorded in the second quarter of 1996. The
increase in the valuation allowance reduces the net deferred tax asset recorded
from the acquisition of the Division. See "Note 2 - Acquisition." In the event
the valuation allowance is not required, a reduction to goodwill will occur in
accordance with SFAS No. 109.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company has a policy whereby transactions with directors, executive
officers and related parties require the approval of a disinterested majority of
the Board of Directors.
The Company has been reimbursed by NSC for certain third party charges
paid on NSC's behalf, such as letter of credit fees, insurance and bonding costs
and legal fees. The costs charged to NSC for general liability and other
insurance coverages were $1,774,000, $981,000 and $363,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. In the normal course of
business, NSC has provided the Company with subcontract services on certain of
its projects for asbestos abatement and
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36
industrial maintenance services. The costs for such services were $40,000,
$212,000 and $1,377,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company has provided remediation services to NSC in the amount
of $121,000 for the year ended December 31, 1996.
In the normal course of business, the Company has provided to WMX and
its affiliates certain subcontractor services on remediation and construction
projects, the cost of these services, in the aggregate, were $12,959,000 and
$10,242,000 for the years ended December 31, 1996 and 1995, respectively. The
Company has purchased from WMX and its affiliates, hazardous waste disposal
services, the cost of these services, in the aggregate, were $7,536,000 and
$6,636,000 for the years ended December 31, 1996 and 1995, respectively. At
December 31, 1996 and 1995, the Company has $6,873,000 and $3,871,000 of
accounts receivable and $968,000 and $806,000 of accounts payable, respectively,
recorded related to such activities. In addition to the above, the Company's
financial statements at December 31, 1995 included a receivable from WMX for
$15,000,000, which was related to final payments due under terms of the
Reorganization Agreement, as amended March 22, 1996. Such amount was paid to the
Company on March 25, 1996.
The Company rents certain buildings and contracts certain services from
The KDC Company and Findlay Machine and Tool, Inc. Such expenses totaled
$348,000, $94,000 and $38,000 for the years ended December 31, 1996, 1995 and
1994, respectively. The principal shareholders of the companies are certain
officers and directors of the Company.
The Company has purchased general contractor services and equipment
from Alvada Construction, Inc. which totaled $957,000, $226,000 and $24,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. The principal
shareholder of the company is directly related to certain officers and directors
of the Company.
In the normal course of business, the Company has purchased
subcontractor services on certain of its projects from Kirk Brothers Co., Inc.
which totaled $2,265,000, $615,000 and $2,055,000 for the years ended December
31, 1996, 1995 and 1994, respectively. The principal shareholders of the company
are directly related to certain officers and directors of the Company.
NOTE 11 - AGREEMENT WITH FORMER SHAREHOLDER
During 1985, the Company executed a pension agreement with a former
officer, directly related to certain directors of the Company, for an annual
pension commencing on June 1, 1990, of $96,000, subject to cost of living
adjustments, for the remainder of his life and that of his spouse if she
survives him. The Company made pension payments totaling $124,000, $102,000 and
$109,000 pursuant to this agreement during the years ended December 31, 1996,
1995 and 1994, respectively.
NOTE 12 - CAPTIAL STOCK
The Company has authorized 2,000,000 shares of preferred stock at a
$10.00 par value. No shares of preferred stock had been issued at December 31,
1996. The rights and preferences of the preferred stock will be fixed by the
Board of Directors at the time such shares are issued. The preferred stock, when
issued, will have dividend and liquidation preferences over those of the common
shareholders.
In December 1993, the Company completed a public offering of 3,365,000
shares of common stock at $11.00 per share. Total net proceeds to the Company
from such offering were $34,963,000, less issuance expenses of $705,000, and
were used to reduce the outstanding amounts under the Company's revolving credit
agreement. In January 1994, the Company issued an additional 85,000 shares of
common stock at $11.00 per share which resulted in $883,000 of net proceeds,
less issuance expenses of $86,000, to the Company.
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, less issuance expenses of
$25,000. 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 issued 9,668,000 shares of common stock in
exchange for substantially all of the assets and certain liabilities of the
hazardous and nuclear waste remediation service business of Rust. In addition,
the Company issued a warrant to purchase up to 700,000 shares of common stock at
an exercise price of $15.00 per share to Rust's parent company, WMX, in exchange
for a $62,000,000 guarantee of the Company's indebtedness by WMX. The warrant is
exercisable until May 30, 2000. See "Note 2 - Acquisition."
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NOTE 13 - STOCK OPTION PLAN
The Company has elected to follow APB No. 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB No. 25, because the exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company's 1986 Incentive Stock Option Plan ("1986 Plan") as amended
by vote of the shareholders at the 1994 and 1996 Annual Meetings, has authorized
the grant of options to officers and key employees for up to 3,850,000 shares of
the Company's common stock. All options granted have 10 year terms and vest and
become fully exercisable at the end of up to 6 years of continued employment.
The number of shares available for grants of additional options under the 1986
Plan were 1,161,674 and 254,844 at December 31, 1996 and 1995, respectively.
On August 6, 1992, the Company's Board of Directors approved a stock
option plan for the Board of Directors (the "Directors' Plan"), which was
subsequently approved by the Company's shareholders at the 1993 Annual Meeting.
The Directors' Stock Option Plan provides for the immediate grant to each
non-employee director a stock option for 15,000 shares of the Company's common
stock, less the number of shares held by any such director under the 1986 Stock
Option Plan. Additionally, the Directors' Plan provides for additional grants of
stock options for 5,000 shares of the Company's common stock, at prices not less
than the fair value, to each non-employee director annually. Options granted
under the Directors' Plan may not be exercised for a period of six months
following the date of grant and terminate up to eleven years after the date of
grant or eighteen months after the holder ceases to be a member of the Board of
Directors, whichever occurs earlier. The total number of shares available for
grants of additional options under the Directors' Plan at December 31, 1996 and
1995 was 805,000 and 850,000, respectively.
On August 15, 1996, the Board of Directors of the Company approved the
OHM Corporation Incentive Stock Plan ("ISP") which permits the Board to grant
shares of common stock of the Company to officers of the Company under
restrictions set forth with the grant. Shares issued under the ISP are subject
to substantial risk of forfeiture within the meaning of Section 83 of the
Internal Revenue Code of 1986. There have been 105,000 shares of common stock
issued under the ISP with a vesting date of August 15, 2001 for 100% of the
shares.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: risk-free interest rate of 6.0%; no dividend
yield; volatility factor of the expected market price of the Company's common
stock of 0.46; and a weighted-average expected life of each option of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures of net income and earnings per
share, the estimated fair value of the options is amortized to expense over the
options' vesting period. The Company's pro forma information follows:
Pro Forma
Years Ended December 31,
1996 1995
---- ----
(In Thousands, Except Per Share Data)
Net income $10,901 $6,428
Net income per share $ 0.41 $ 0.29
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
35
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The following is a summary of the stock option activity:
Number Weighted Average
of Shares Exercise Price
--------- --------------
1996 PLAN
Outstanding at January 1, 1994 1,485,800 $ 8.45
Granted 477,350 11.92
Exercised (105,425) 7.45
Canceled (92,375) 9.32
---------- ------
Outstanding at December 31, 1994 1,765,350 9.41
Granted 632,750 9.89
Exercised (249,545) 7.74
Canceled (134,735) 9.81
---------- ------
Outstanding at December 31, 1995 2,013,820 9.74
Granted 1,097,569 8.33
Exercised -- --
Canceled (1,004,399) 11.06
---------- ------
Outstanding at December 31, 1996 2,106,990 $ 8.38
========== ======
Exercisable at December 31, 1995 935,105 $ 9.04
========== ======
Exercisable at December 31, 1996 1,037,008 $ 8.44
========== ======
DIRECTORS' PLAN
Outstanding at January 1, 1994 60,000 $ 7.88
Granted 25,000 15.63
---------- ------
Outstanding at December 31, 1994 85,000 10.16
Granted 65,000 11.83
---------- ------
Outstanding at December 31, 1995 150,000 10.88
Granted 60,000 7.94
Canceled (15,000) 10.50
---------- ------
Outstanding at December 31, 1996 195,000 $10.01
========== ======
Exercisable at December 31, 1995 150,000 $10.88
========== ======
Exercisable at December 31, 1996 180,000 $10.20
========== ======
The weighted-average fair value of options granted during the year ended
December 31, 1996 and 1995 was $4.20 and $5.40, respectively. Exercise prices
for options outstanding as of December 31, 1996 for the 1996 Plan and the
Director's Plan ranged from $6.38 to $11.88 and $7.38 to $15.63, respectively.
The weighted-average remaining contractual life of those options is 7.2 and 8.2
years, respectively.
NOTE 14 - RETIREMENT AND PROFIT-SHARING PLANS
The Company has a Retirement Savings Plan (the "Plan") which allows
each of its eligible employees to make contributions, up to a certain limit, to
the Plan on a tax-deferred basis under Section 401(k) of the Internal Revenue
Code of 1986, as amended. Eligible employees are those who are employed
full-time, are over twenty-one years of age, and have one year of service with
the Company. The Company may, at its discretion, make matching contributions and
profit sharing contributions to the Plan out of its profits for the plan year.
The Company made matching contributions of $2,691,000, $1,643,000 and $1,225,000
to the Plan for the years ended December 31, 1996, 1995 and 1994, respectively.
Effective January 1, 1996, the Board of Directors of the Company
approved the Retirement and Incentive Compensation Plan ("RICP") which provides
eligible employees an election to defer a specified percentage of their cash
compensation. The obligations of the Company under the RICP will be unsecured
general obligations to pay the deferred compensation under the terms of the
RICP. Participants may elect under the plan to invest deferrals in an OHM Common
Stock Deferral Account for which contributions will be treated as if such
amounts had been used to purchase shares of the Company's stock and not as
actual purchases of the Company's stock. At the discretion of the compensation
committee of the Board of Directors, contributions to the plan will be matched
by the Company and all amounts invested in the plan will earn interest at the
prime rate published by the Wall Street Journal if not invested in the OHM
Common Stock Deferral Account.
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NOTE 15 - LITIGATION AND CONTINGENCIES
The Company is currently in litigation in the U.S. District Court for
the Western District of Louisiana with Citgo Petroleum Corporation ("Citgo"),
Oxy USA Inc., and Occidental Oil & Gas (collectively "Oxy") relating to cost
overruns and production shortfalls on a remediation project which was performed
by the Company for Citgo at its Lake Charles, Louisiana refinery during 1993 and
1994. The Company has recorded in its financial statements approximately
$27,609,000 as a claim receivable and $5,381,000 of accounts receivable that are
in dispute for work performed under the terms of the Company's base contract
with Citgo. The Company is seeking damages in excess of $35,000,000. Citgo's
second amended complaint seeks 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 has filed a third party complaint
against Oxy for negligent misrepresentation and detrimental reliance as a result
of Oxy's involvement with the development of sample and analytical data relied
upon by the Company in preparation of its bid and cost estimates for work at the
Lake Charles refinery. In December 1996 and January 1997, Oxy and Citgo,
respectively, filed motions for summary judgment and partial summary judgment on
the Company's claims. The Company filed briefs in opposition to these motions.
These motions for summary judgment and partial summary judgment are still
pending.
The Company is currently in litigation in the U.S. District Court for
the Western District of New York with Occidental Chemical Corporation
("Occidental") relating to the Durez Inlet Project performed in 1993 and 1994
for Occidental in North Tonawanda, New York. The Company's accounts receivable
at December 31, 1996 include a claim receivable of $8,618,000 related to this
matter. 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 believes were materially different than as represented by
Occidental. Occidental's amended complaint seeks $8,806,000 in damages primarily
for alleged costs incurred as a result of project delays and added volumes of
incinerated waste. The Company's counterclaim seeks 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.
The Company is currently in arbitration proceedings with Separation and
Recovery Systems, Inc. ("SRS") resulting from SRS's failure to adequately
perform it's subcontract obligations to the Company for thermal desorption
services at the Hilton-Davis project in Cincinnati, Ohio. The Company's
financial statements on December 31, 1996 include a back charge receivable of
approximately $7,345,000 representing additional costs the Company has and will
incur as a result of completing SRS's scope of work under its thermal desorption
subcontract with the Company. SRS has filed a counterclaim against the Company
for approximatley $2,500,000 alleging wrongful termination of the subcontract.
Management believes that it has established adequate reserves should
the resolution of the above matters be lower than the amounts recorded. There
is, however, always risk and uncertainty in pursuing and defending litigation
and arbitration proceedings in the course of the Company's business and,
notwithstanding the reserves currently established, adverse future results in
litigation or other proceedings could have a material adverse impact upon the
Company's consolidated future results of operations or financial condition.
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 other reserves,
or if not insured or reserved, will not, in the aggregate, have a material
adverse impact upon the Company's consolidated financial position or the results
of future operations.
NOTE 16 - MAJOR CUSTOMERS
Revenue from federal government agencies accounted for 72%, 71% and 55%
of total revenue from continuing operations for the years ended December 31,
1996, 1995 and 1994, respectively. Revenue from state and local government
agencies accounted for 5%, 5% and 10% of total revenue from continuing
operations for the years ended December 31, 1996, 1995 and 1994, respectively.
There were no industrial customers which accounted for more than 10% of total
revenue for the years ended December 31, 1996, 1995 and 1994.
NOTE 17 - SPECIAL CHARGES
The Company's consolidated statement of operations for the year ended
December 31, 1995 includes a $2,312,000 (net of $1,542,000 income tax benefit)
or $0.10 per share, charge for integration costs related to the acquisition of
the Division. The charge was recorded as a selling, general and administrative
expense and was primarily for severance and relocation costs
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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.
The Company's consolidated statement of operations for the year ended
December 31, 1994 included a special charge of $15,000,000 (net of $10,000,000
income tax benefit) or $0.96 per share, to establish a reserve for accounts
receivable, primarily where such accounts are in litigation. Such charge was
recorded as a reduction of revenue.
NOTE 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the Company's condensed consolidated
statements of operations by quarter for 1996 and 1995.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In Thousands, Except Per Share Data)
1996
- ----
Revenue $118,963 $129,177 $158,272 $144,572
Gross profit 15,030 17,560 20,638 18,832
Selling, general and administrative expenses 11,176 11,943 13,124 13,007
Operating income 3,854 5,617 7,514 5,825
Net income $ 1,330 $ 2,379 $ 3,996 $ 3,810
======== ======== ======== ========
Net income per share $ 0.05 $ 0.09 $ 0.15 $ 0.14
======== ======== ======== ========
1995
- ----
Revenue $ 80,217 $ 99,501 $135,886 $142,321
Gross profit 12,910 16,144 19,071 16,651
Selling, general and administrative expenses (1) 7,681 13,285 12,348 11,909
Operating income 5,229 2,859 6,723 4,742
Net income $ 1,287 $ 234 $ 3,187 $ 2,099
======== ======== ======== ========
Net income per share $ 0.08 $ 0.01 $ 0.12 $ 0.08
======== ======== ======== ========
<FN>
NOTES:
(1) During the second quarter of 1995, the Company recorded a $3,854,000
pre-tax, $2,312,000 after-tax or $0.10 per share, charge for
integration costs related to the acquisition of the Division. The
charge was recorded in selling, general and administrative expenses and
was 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.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
OHM Corporation
We have audited the accompanying consolidated balance sheets of OHM
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
OHM Corporation and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Columbus, Ohio
February 7, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, in addition to that set forth above in
Part I under the caption "Executive Officers of the Registrant," is set forth in
the section entitled "Election of Directors" of the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission (the "Proxy
Statement") in connection with the Company's 1997 Annual Meeting of
Shareholders, and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in the Proxy Statement under
the caption "Executive Compensation and Other Information," and such information
is incorporated herein by reference except that the information included under
the headings "Board Compensation and Stock Option Committee Report" and
"Performance Graph" is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANANGEMENT
The information required by this item is contained in the Proxy Statement under
the caption "Voting Securities and Principal Holders Thereof," and such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the Proxy Statement under
the caption "Certain Relationships and Related Transactions," and such
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company and its
subsidiaries are included in Item 8:
Consolidated Balance Sheets -As of December 31, 1996 and 1995
Consolidated Statements of Operations -For the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity -For the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -For the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) The following consolidated financial statement schedule of the Company
and its subsidiaries is submitted herewith:
Schedule II Valuation and Qualifying Accounts -- For the Years
Ended December 31, 1996, 1995 and 1994
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
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The following Exhibits are included in this Annual Report on Form 10-K:
Exhibit Exhibit
Number Description
- ------ -----------
2.1 Agreement of Merger dated as of May 6, 1994 by and between OHM
Corporation, a Delaware corporation and the Registrant
[incorporated by reference to Exhibit 2(a) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994].
2.2 Agreement and Plan of Reorganization among OHM Corporation,
Rust Remedial Services, Inc., Enclean Environmental Services
Group, Inc., Rust Environmental, Inc., and Rust International
Inc. dated December 5, 1994 [incorporated by reference to
Appendix B to the Registrant's Proxy Statement for its Annual
Meeting of Shareholders to be held May 11, 1995].
2.3 Amendment dated as of May 4, 1995 to the Agreement and Plan of
Reorganization dated as of December 5, 1994 by and among OHM
Corporation, Rust Remedial Services Inc., Enclean
Environmental Services Group, Inc., Rust Environmental, Inc.,
and Rust International Inc. [incorporated by reference to
Exhibit 2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995].
2.4 Amendment No. 2 dated as of July 27, 1995 to the Agreement and
Plan of Reorganization dated as of December 5, 1994 by and
among OHM Corporation, Rust Remedial Services Inc., Enclean
Environmental Services Group, Inc., Rust Environmental, Inc.,
and Rust International Inc. [incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 31, 1995].
2.5 Amendment No. 3, Settlement and Release Agreement dated as of
March 22, 1996 to the Agreement and Plan of Reorganization
dated December 5, 1994 by and among OHM Corporation, OHM
Remediation Services Corp., Rust Remedial Services Inc., Rust
International Inc. and WMX Technologies, Inc. [incorporated by
reference to Exhibit 2.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995].
2.6 Standstill and Non-Competition Agreement by and among the
Registrant, WMX Technologies, Inc., and Rust International
Inc., dated May 30, 1995 [incorporated by reference to Exhibit
10(c) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995].
2.7 Warrant Agreement by and between WMX Technologies, Inc., and
the Registrant dated May 30, 1995 [incorporated by reference
to Exhibit 10(d) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995].
2.8 Stock Purchase Agreement by and between the Huizenga Family
Foundation, Inc. and OHM Corporation dated as of March 28,
1995 [incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995].
2.9 Stock Purchase Agreement by and between H. Wayne Huizenga and
OHM Corporation dated as of March 28, 1995 [incorporated by
reference to Exhibit 10(b) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995].
3.1 Amended and Restated Articles of Incorporation of the
Registrant dated May 19, 1994 [incorporated by reference to
Exhibit 3(i) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994].
- -----------------------
* Indicates a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 14 of Form
10-K.
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Exhibit Exhibit
Number Description
- ------ -----------
3.2 Regulations of the Registrant [incorporated by reference to
Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994].
4.1 Indenture dated as of October 1, 1986 between Registrant and
United States Trust Company of New York, Trustee, relating to
the Registrant's 8% Convertible Subordinated Debentures due
October 1, 2006 [incorporated by reference to Exhibit 4(a) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1986].
4.2 Specimen Debenture Certificate [incorporated by reference to
Exhibit 4(b) to the Registrant's Amendment No. 1 to
Registration Statement on Form S-1, No. 33-8296].
4.3 First Supplemental Indenture dated as of May 20, 1994 by and
among the Registrant and United States Trust Company of New
York [incorporated by reference to Exhibit 4(c) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994].
4.4 Specimen Common Stock Certificate [incorporated by reference
to Exhibit 4.4 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996].
10.1* OHM Corporation 1986 Stock Option Plan, as amended and
restated as of May 10, 1994 [incorporated by reference to
Appendix 2 to the Registrant's Proxy Statement for its Annual
Meeting held May 10, 1994].
10.2* OHM Corporation Nonqualified Stock Option Plan for Directors
[incorporated by reference to Exhibit 10(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992].
10.3* OHM Corporation Retirement Savings Plan, as amended and
restated as of January 1, 1994 [incorporated by reference to
Exhibit 10(c) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994].
10.4* Amendment No. 1 to OHM Corporation Retirement Savings Plan, as
amended and restated as of January 1, 1994 [incorporated by
reference to Exhibit 10(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995].
10.5* Amendment No. 2 to OHM Corporation Retirement Savings Plan, as
amended and restated as of January 1, 1994 [incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995].
10.6* OHM Corporation Retirement Savings Plan Trust Agreement
between Registrant and National City Bank, as Trustee, as
amended and restated effective July 1, 1994 [incorporated by
reference to Exhibit 10(d) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994].
10.7* OHM Corporation Directors' Deferred Fee Plan [incorporated by
reference to Exhibit 10(e) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994].
10.8* Amendment No. 1 to OHM Corporation Directors' Deferred Fee
Plan [incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995].
10.9* Form of Amended and Restated Indemnification Agreements
entered into between Registrant and its Directors and
Executive Officers [incorporated by reference to Exhibit 10.9
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995].
- -----------------------
* Indicates a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 14 of Form
10-K.
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Exhibit Exhibit
Number Description
- ------ -----------
10.10* Form of Employment Agreements providing certain severance
benefits in the event of a change of control entered into
between Registrant and certain of its executive officers
[incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995].
10.11 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 [incorporated by reference to Exhibit 10(e) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995].
10.12 Amendment No. 1 dated as of October 16, 1995 to the 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 [incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 31, 1995].
10.13 Security Agreement dated as of May 11, 1993, among OHM
Corporation, OHM Remediation Services Corp. and Continental
Bank N.A., as Administrative Agent [incorporated by reference
to Exhibit 10(b) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993].
10.14 First Amendment dated as of May 4, 1994 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 [incorporated by reference to Exhibit
10.14 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995].
10.15 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 [incorporated by
reference to Exhibit 10(g) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995].
10.16 Pledge Agreement dated as of May 11, 1993, executed by the
Registrant in favor of Continental Bank N.A., as
Administrative Agent [incorporated by reference to Exhibit
10(c) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993].
10.17 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
[incorporated by reference to Exhibit 10(f) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995].
10.18 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. [incorporated by reference to Exhibit 10(h) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995].
10.19 Guarantee Agreement by and among the Registrant and WMX
Technologies, Inc., dated May 30, 1995 [incorporated by
reference to Exhibit 10(i) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995].
10.20 Reimbursement Agreement dated as of May 31, 1995 among WMX
Technologies, Inc., OHM Corporation, and OHM Remediation
Services Corp. [incorporated by reference to Exhibit 10(j) to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995].
10.21 Security Agreement dated as of May 31, 1995 by and between the
Registrant, OHM Remediation Services Corp., and WMX
Technologies, Inc. [incorporated by reference to Exhibit 10(k)
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995].
- -----------------------
* Indicates a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 14 of Form
10-K.
43
46
Exhibit Exhibit
Number Description
- ------ -----------
10.22 Pledge Agreement dated as of May 31, 1995 by and between the
Registrant and WMX Technologies, Inc. [incorporated by
reference to Exhibit 10(l) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995].
10.23 Master Loan and Security Agreement dated May 11, 1993, between
OHM Remediation Services Corp. and BOT Financial Corporation
[incorporated by reference to Exhibit 10(d) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993].
10.24 Amendment No. 1 to Master Loan and Security Agreement dated as
of January 19, 1995 between BOT Financial Corporation and OHM
Remediation Services Corp. [incorporated by reference to
Exhibit 10(g) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995].
10.25 Promissory Note dated December 23, 1993 executed by OHM
Remediation Services Corp. in favor of BOT Financial
Corporation [incorporated by reference to Exhibit 10(m) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993].
10.26 Promissory Note dated December 28, 1994 executed by OHM
Remediation Services Corp. in favor of BOT Financial
Corporation [incorporated by reference to Exhibit 10(r) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994].
10.27 Loan and Security Agreement dated as of August 1, 1994 by and
between OHM Remediation Services Corp. and Internationale
Nederlanden Lease Structured Finance B.V. [incorporated by
reference to Exhibit 10(b) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994].
10.28 Promissory Note dated August 31, 1994 executed by OHM
Remediation Services Corp. in favor of Internationale
Nederlanden Lease Structured Finance B.V. [incorporated by
reference to Exhibit 10(c) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994].
10.29 Continuing Corporate Guaranty dated as of August 1, 1994
executed by OHM Corporation in favor of Internationale
Nederlanden Lease Structured Finance B.V. [incorporated by
reference to Exhibit 10(d) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994].
10.30 Purchase Agreement dated as of December 15, 1992, among OHM
Corporation, NSC Corporation, NSC Industrial Services Corp.,
Waste Management, Inc., and The Brand Companies, Inc.
[incorporated by reference to Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992].
10.31 Stock Purchase Agreement dated December 17, 1992, among OHM
Corporation and Chemical Waste Management, Inc. [incorporated
by reference to Exhibit 10(k) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992].
10.32* OHM Corporation 1996 Management Incentive Plan [incorporated
by reference to Exhibit 10.32 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995].
10.33* OHM Corporation Executive Retirement Plan, dated as of January
1, 1996 [incorporated by reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995].
10.34* OHM Corporation Retirement and Incentive Compensation Plan
[incorporated by reference to Exhibit 10.33 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996].
- -----------------------
* Indicates a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 14 of Form
10-K.
44
47
Exhibit Exhibit
Number Description
- ------ -----------
10.35* OHM Corporation Incentive Stock Plan [incorporated by
reference to Exhibit 10.34 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996].
10.36* Employment Agreement, dated August 21, 1996, between Joseph R.
Kirk and OHM Corporation [incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996].
10.37 Equipment Agreement, dated as of December 24, 1996, between
BTM Capital Corporation and OHM Remediation Services Corp.
10.38 Supplement No. 01 to the Equipment Agreement, dated as of
December 24, 1996, between BTM Capital Corporation and OHM
Remediation Services Corp.
11 Statement Re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney of certain directors of the Company.
27 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the three months ended
December 31, 1996.
(c) The response to this portion of Item 14 is included as Exhibits to this
report.
- -----------------------
* Indicates a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 14 of Form
10-K.
45
48
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
By: /s/ STEVEN E. HARBOUR
----------------------------------------
Steven E. Harbour-Vice President, Legal
and Secretary
March 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on March 18, 1997.
/s/ JAMES L. KIRK
- -----------------------------------------------------------------------------
James L. Kirk-Chairman of the Board, President and Chief Executive Officer
/s/ PHILIP O. STRAWBRIDGE
- -----------------------------------------------------------------------------
Philip O. Strawbridge-Vice President and Chief Financial and Administrative
Officer (Principal Financial Officer)
/s/ KRIS E. HANSEL
- -----------------------------------------------------------------------------
Kris E. Hansel-Vice President and Controller (Principal Accounting Officer)
* WILLIAM P. HULLIGAN
- -----------------------------------------------------------------------------
William P. Hulligan-Director
* HERBERT A. GETZ
- -----------------------------------------------------------------------------
Herbert A. Getz-Director
* IVAN W. GORR
- -----------------------------------------------------------------------------
Ivan W. Gorr-Director
* CHARLES D. HOLLISTER
- -----------------------------------------------------------------------------
Charles D. Hollister-Director
* JOSEPH R. KIRK
- -----------------------------------------------------------------------------
Joseph R. Kirk-Director
* JAMES E. KOENIG
- -----------------------------------------------------------------------------
James E. Koenig-Director
* RICHARD W. POGUE
- -----------------------------------------------------------------------------
Richard W. Pogue-Director
* CHARLES W. SCHMIDT
- -----------------------------------------------------------------------------
Charles W. Schmidt-Director
* The undersigned, by signing his name hereto does sign and execute this
report pursuant to Powers of Attorney executed on behalf of the
above-named directors and contemporaneously herewith filed with the
Securities and Exchange Commission.
/s/ STEVEN E. HARBOUR March 18, 1997
- -----------------------------------------------------------------------------
Steven E. Harbour, Attorney-in-Fact
46
49
OHM CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Charged to (2) Balance
Beginning Costs and Other Deductions at End
Description of Period Expenses Accounts(1) Describe of Period
- ----------- --------- -------- ----------- -------- ---------
Year ended December 31, 1996
Allowance for Uncollectible
Accounts $25,911 $ 5,343 $1,208 $7,534 $24,928
Year ended December 31, 1995
Allowance for Uncollectible
Accounts $26,063 $ 2,931 $2,628 $5,711 $25,911
Year ended December 31, 1994
Allowance for Uncollectible
Accounts $ 2,776 $ 25,522 $ -- $2,235 $26,063
<FN>
(1) Adjustments made as a result of the acquisition of the hazardous and
nuclear waste remediation service business of Rust International Inc.
(2) Uncollectible accounts charged against the valuation reserve.
47