___________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1994 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 1-8368
ROLLINS ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0228924
(State of Incorporation) (I.R.S. Employer
Identification Number)
ONE ROLLINS PLAZA, WILMINGTON, DELAWARE 19803
(Address of principal executive offices)
Registrant's telephone number including area code (302) 426-3314
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on
which registered
Common Stock, $1 Par Value NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
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.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $323,682,000 as of October 31, 1994.
The number of shares of registrant's common stock outstanding as of
October 31, 1994 was 60,375,811.
The following documents are incorporated by reference:
Document Part of this form into which incorporated
Proxy Statement for the Annual Meeting
of Shareholders to be held January 27, 1995 III
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PART I
ITEM 1. BUSINESS.
Rollins Environmental Services, Inc. through its subsidiaries (herein
collectively referred to as the "Company" unless the context indicates
otherwise), transports, treats and disposes of industrial chemical waste by
incineration and other methods at five facilities located in Colorado,
Louisiana (2), New Jersey and Texas. The Company operates waste
processing, recycling and repackaging facilities in Missouri and California
and has analytical laboratories in California, Colorado, Louisiana,
Michigan, New Jersey and Texas.
(a) General Development of Business
For the second consecutive year, the Company's earnings were adversely
affected by continued weak conditions in the commercial hazardous waste
incineration industry resulting in market declines in both incineration
pricing and available volumes of hazardous waste. The second quarter
fiscal year 1994 results included a special charge before taxes of
$14,500,000 relating primarily to the write-off of various engineering and
other expenditures on projects no longer considered viable in the current
business climate and estimated expenditures for capping of a closed
landfill. The Company has taken new initiatives in its efforts to improve
competitive position and profitability. (See "Management's Discussion and
Analysis" on page 9 of this 1994 Annual Report on Form 10-K.)
Otherwise, there have been no significant changes in the business of
the Company since September 30, 1993.
(b) Financial Information about Industry Segments
The business of the Company, essentially all of which is conducted in
the United States, consists solely of industrial waste treatment and
disposal. Financial information concerning this business is included on
pages 8 to 11 and 16 to 26 of this 1994 Annual Report on Form 10-K.
(c) Narrative Description of Business
The Company treats and disposes industrial chemical waste at its
facilities in Baton Rouge, Louisiana; Bridgeport, New Jersey and Deer Park,
Texas, (hereinafter the "Plants"). In addition, the Company provides
secure land disposal services for a variety of treated wastes and treatment
residues at its Deer Trail, Colorado landfill (hereinafter the "Landfill").
Aqueous waste streams are treated and disposed of at a deep injection well
(the "Injection Well") located in Plaquemine, Louisiana. The Plants,
Landfill and Injection Well are operated by wholly owned subsidiaries. The
Company also treats, stores, recycles or repackages industrial chemical
wastes at its facilities in Los Angeles, California and Tipton, Missouri
(hereinafter the "TSDs") for disposal at the Plants, Landfill or other
disposal facilities.
The Company incinerates wastes at each of the Plants. High temperature
incineration effectively eliminates organic wastes such as herbicides,
plastics, halogenated solvents, pesticides, pharmaceuticals and refinery
wastes, regardless of whether they are gases, liquids, sludges or solids.
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Federal and state incineration regulations require a destruction and
removal efficiency of 99.99% for organic wastes and 99.9999% for
polychlorinated biphenyls ("PCBs"). The Company's four rotary kiln
incinerators and the Rollins Rotary Reactor meet or exceed these
requirements, however, only one of the Company's incinerators at Deer Park,
Texas has a permit to burn PCBs.
The Landfill disposes of a variety of treated wastes, such as
incinerator ash, industrial residues and sludges, contaminated soils,
catalysts and contaminated construction debris, in landfills meeting or
exceeding the requirements of state and federal regulations. The Landfill
offers state-of-the-art stabilization and encapsulation technology,
solidification and other appropriate treatment of organic hazardous waste,
secure landfill disposal of solid and previously solidified materials, and
oil/solvent collection, blending and material storage.
While most waste is transported to the Company's facilities by truck,
waste can also be received by rail at the Baton Rouge and Deer Park plants
and by barge at the Injection Well.
The Company provides analytical services through laboratories operated
at its incineration facilities in Baton Rouge, Louisiana; Bridgeport, New
Jersey and Deer Park, Texas and by other subsidiaries located in Ann Arbor,
Michigan; Deer Trail, Colorado and Los Angeles, California.
The Company conducts business with more than 1,100 customers. These
customers are primarily engaged in the chemical processing industry and are
located throughout the United States. No one customer currently accounts
for more than 4% of the Company's consolidated revenues. The Company
believes the principal considerations for customers choosing between
incineration and other methods of disposal are current and anticipated
state and Federal regulation, price and concern over long-term liability.
The Company is working vigorously with both the States and Federal EPA
to regulate additional waste streams into the incineration market and to
establish standards that will equitably regulate the commercial hazardous
waste incineration industry and cement kiln industry incineration of
hazardous waste. Recent actions by these agencies are supportive of the
Company's arguments to have fair and even application of the law to both
commercial hazardous waste incinerators and cement kilns, to preserve the
environment through strict emission standards, to provide for occupational
health and safety at sites managing hazardous waste and to ensure continued
improvement of technology. Stricter regulation of these kilns should
result in disposal of greater quantities of hazardous wastes at commercial
hazardous waste incineration facilities.
Competitors operate large-scale incinerators in El Dorado, Arkansas
(Environmental Systems Company); Sauget, Illinois and Port Arthur, Texas
(Chemical Waste Management, Inc.); Coffeyville, Kansas and Aragonite, Utah
(Westinghouse Electric Corporation); East Liverpool, Ohio (Waste
Technologies, Inc.); Grafton, Ohio (Ross Incineration Services, Inc.);
Rockhill, South Carolina and Cohoes, New York (ThermalKem, Inc.) and
Calvert City, Kentucky (LWD). The Clive, Utah facility (USPCI) has
received its permit but must conduct a test burn prior to operation. Other
companies have applied for or received permits to construct and operate
hazardous waste incinerators. In addition, competition is also provided by
cement kilns.
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The Plants, Landfill, TSDs and Injection Well are intensively regulated
by the United States Environmental Protection Agency ("USEPA") and by the
applicable state regulatory agencies.
Environmental laws and regulations require hazardous waste disposal
facilities to obtain permits which generally outline the procedures under
which the facility must be operated. Violations of permit conditions or of
the regulations, even if immaterial or unintentional, may result in fines,
shutdowns, remedial work or revocation of the permit. On a number of
occasions during the past five years, the Company has been fined for
alleged violations of federal and state laws. Such fines have not been
material individually or in the aggregate. The Company believes it is in
compliance with the requirements of all of its operating permits and
related federal and state regulations.
The Federal Resource Conservation and Recovery Act ("RCRA") created a
comprehensive scheme for the regulation of hazardous waste facilities and
for the storage, treatment and disposal of hazardous wastes. The USEPA has
adopted regulations under RCRA governing the management and disposal of
hazardous wastes, including standards for storage areas, incinerators
(including destruction standards) and landfills. RCRA also imposes
financial responsibility standards to ensure the availability of funds to
maintain sites after closing.
Under RCRA, applicants who filed Part A applications with the USEPA
received interim status for their hazardous waste treatment facilities in
November 1980. If the USEPA (or the state agency which has been delegated
this authority by the USEPA) is satisfied with an application describing
the proposed characteristics, equipment and operation of a facility, it may
issue a Part B operating permit valid for up to ten years. All new
facilities will require a Part B permit before commencing operations. Part
B permits were granted to the Deer Park plant on March 15, 1988, to the
Bridgeport plant on March 31, 1989 and to the Baton Rouge plant on February
8, 1993. The Injection Well was granted a Part B permit on January 10,
1994.
Plants operated under Part B permits must meet stringent RCRA and
permit standards. Operators with Part B permits or interim status are
required to certify to regulatory agencies that they (1) meet specified
groundwater monitoring conditions; (2) post financial security for the
closure and, with certain permits, post-closure maintenance of their
facilities; and (3) provide insurance protection for other parties in the
event of environmental damage. Such certifications were made for all
Company facilities. In this regard, the Company has supplied financial
assurance to regulatory agencies and others in the aggregate amount of
$44,171,000 at September 30, 1994, which included letters of credit of
$20,656,000. The balance is satisfied principally by a combination of
insurance and trust funds.
In order to qualify the Bridgeport, New Jersey; Baton Rouge, Louisiana
and the Deer Park, Texas plants to accept and dispose of waste under the
Superfund program, the Company's subsidiaries Rollins Environmental
Services (NJ) Inc. ("RES (NJ)"), Rollins Environmental Services (LA) Inc.
("RES (LA)") and Rollins Environmental Services (TX) Inc. ("RES (TX)")
entered into Consent Agreements with the USEPA under Section 3008(h) of
RCRA. The agreements provide for a thorough evaluation and assessment of
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the facilities and contain procedures under which RES (NJ), RES (LA) and
RES (TX) will undertake certain corrective actions. The cost of certain
corrective actions required under Section 3008(h) has been included in
Accrued Remediation and Other Costs in the Consolidated Balance Sheet on
page 18 of this 1994 Annual Report on Form 10-K.
In November 1988, the Company acquired Oil, Inc. (name changed to
Rollins O.P.C. Inc. in 1992), a small company that operates a hazardous
waste storage, treatment and transfer facility in Los Angeles, California.
In August 1990, Oil, Inc. was granted a Part B permit allowing it to handle
most of the EPA waste codes as well as to upgrade the facility for drum
storage, repacking, bulking and blending.
In January 1989, the Company acquired a hazardous waste storage and
container processing facility in Tipton, Missouri, which was incorporated
as Tipton Environmental Technology, Inc. On April 22, 1994, this facility
was granted a Part B permit to store and bulk certain hazardous waste
regulated under RCRA along with the storage and processing of certain PCB-
contaminated wastes.
In July 1994, the Company acquired Highway 36 Land Development Company,
a secure landfill in Deer Trail, Colorado. This facility operates under a
Part B permit which was granted on April 2, 1987.
With the addition of the Part B permits received at the Injection Well
and the Tipton, Missouri facility, the Company now has all of its disposal
facilities and TSDs operating under RCRA Part B permits.
The Company has approximately 1,295 employees.
ITEM 2. PROPERTIES.
The Company maintains its headquarters in space leased from Rollins
Properties, Inc., a wholly owned subsidiary of Rollins Truck Leasing Corp.
at 2200 Concord Pike, Wilmington, Delaware.
In addition to pollution control equipment, each subsidiary owns the
number of acres of land following its name: RES (NJ) 532 acres; RES (LA)
820 acres; Rollins Environmental Services of Louisiana, Inc. 20 acres; RES
(TX) 1,200 acres; Rollins Environmental Services (CA) Inc. 3,693 acres;
ENCOTEC, Inc. 7 acres; Tipton Environmental Technology, Inc. 60 acres;
Custom Environmental Transport, Inc. 5 acres and Highway 36 Land
Development Company 6,010 acres. Administrative and service offices are
located in owned or leased facilities in 17 states.
ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, based on the advice of counsel, the
outcome of the unsettled claims and litigation listed below and various
other claims and legal actions pending against the Company which are not
listed are only remotely likely to be material.
(a) Bridgeport Rental & Oil Service Superfund Site
On April 3, 1989, RES (NJ) was served with a Directive by the NJDEPE
in which it is alleged that RES (NJ), during the period 1970 through 1977,
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discharged hazardous wastes into a lagoon at a facility operated by
Bridgeport Rental & Oil Service ("BROS") in Logan Township, New Jersey.
RES (NJ) believes the allegations are unfounded and inaccurate. RES (NJ),
now and in the future, intends to defend itself vigorously against the
allegations. It has been alleged by the United States Environmental
Protection Agency ("USEPA") that the lagoon covered 13 acres and contained
some 70,000,000 gallons of contaminated liquids and 85,000 cubic yards of
contaminated soils and sludges. On August 29, 1989, RES (NJ) was served
with a demand letter by the USEPA in which it alleged that RES (NJ) was
liable for its share of $17,800,000 in past costs incurred by the USEPA at
the BROS site.
In late 1970, RES (NJ) completed the construction of its hazardous
waste disposal plant located in Bridgeport, New Jersey. At the time, RES
(NJ) did not have sufficient tank storage space on site to store all of the
liquid hazardous waste received from a substantial number of customer-
generators. As a consequence, in late 1970, RES (NJ) rented tank storage
space at BROS. Thereafter, some of the liquid waste material received at
the Bridgeport plant was transferred to the rented BROS storage tanks for
storage pending disposal at the Bridgeport plant.
RES (NJ) did not knowingly discharge any waste materials from these
rented storage tanks into the BROS lagoon or on the ground surrounding the
tanks. The waste material was returned to RES (NJ)'s Bridgeport plant for
disposal. RES (NJ) does, however, have records relative to three spills
which occurred at the BROS site. It is believed that only one spill which
occurred in 1971 may possibly have found its way into the lagoon. The
other two spills were in negligible amounts and were cleaned up
immediately.
Although the NJDEPE is aware that only a minuscule portion of the
material in the lagoon resulted from the storage tank operations of RES
(NJ), the NJDEPE has nonetheless taken the position that the act of storing
waste in the tanks rented from BROS constituted a "discharge" of the waste.
Thus the NJDEPE contends that RES (NJ) and its customers are responsible
for partial payment of the clean up costs even though their waste was
removed by RES (NJ) from the storage tanks at BROS and disposed at RES
(NJ)'s Bridgeport plant.
In 1978, RES (NJ) completed the construction of a new tank farm at its
Bridgeport plant. In 1980, RES (NJ) emptied and cleaned each and every one
of the storage tanks that it had under lease at the BROS site. During the
cleaning process, each and every tank was inspected carefully to determine
its integrity. As each tank was determined to be empty and clean, the use
of each tank was then returned to BROS. Each and every tank was determined
to be structurally sound with no leaks of any type.
A comprehensive investigation of the historical uses of the BROS site
was begun in 1989 and is still continuing. The investigation has produced
proof that the contributors of the vast majority of hazardous substances to
the BROS site were departments and/or agencies of the United States. On
March 20, 1992, RES (NJ) and others filed suit against the United States
and its responsible departments and agencies, seeking cost recovery and a
declaration as to the liability of the United States with respect to the
site.
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On July 10, 1992, the United States filed suit against RES (NJ) and six
(6) other defendants in the U.S. District Court of New Jersey. The suit
seeks recovery of costs incurred by the United States at the BROS site in
the amount of $29,000,000 in past response costs, plus interest, as well as
a declaration that the defendants are jointly and severally liable for
future response costs. RES (NJ) will contest this action vigorously,
emphasizing its suit against the United States as the contributor of the
overwhelming percentage of hazardous substances to the BROS site. The
Court has placed the case on parallel litigation and settlement tracks.
The presiding U.S. Magistrate Judge has ordered the parties to engage in
mediation as part of the settlement track, and this process has been an
intensive and on-going one in the effort to achieve settlement. The major
issues to be resolved involve the U.S. government's contribution to the
site vs. the private parties' contribution and the propriety of the USEPA's
chosen remedy. It is not possible at this time to determine what amounts,
if any, will be payable by RES (NJ) with respect to this matter.
(b) Helen Kramer Superfund Site
In October 1990, RES (NJ) was served with a third-party complaint
alleging RES (NJ)'s use of the Helen Kramer Landfill during the mid-1970s.
The Helen Kramer Landfill ("Site") is a USEPA Superfund site which is
currently being remediated under the supervision of the USEPA. In 1989,
the United States filed suit against 25 parties for cost recovery. A
number of those original defendants have commenced this third-party action
against RES (NJ) and approximately 160 other parties. RES (NJ) does have
a connection to the Site based on the disposal of lagoon sludge from a
customer's facility. RES (NJ)'s portion of the Site remediation is
expected to be minimal. Virtually all parties, including RES (NJ), have
been involved in a lengthy and complex settlement process which has yet to
produce an allocation plan. Recently, while requiring the allocation
process to continue, the failure of the United States and the direct
defendants to reach a settlement has caused the Court to order that the
discovery phase of the litigation commence.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
STOCK PRICES AND DIVIDENDS
The range of per share prices for the Common Stock on the New York and
Pacific Stock Exchanges and per share dividends paid on Common Stock for
the fiscal years ended September 30, 1994 and 1993 are as follows:
Prices Dividends (1)
1994 1993 1994 1993
High Low High Low
Fiscal Quarter
First ........ $6 1/2 $4 7/8 $12 7/8 $10 7/8 None $.0250
Second ....... 6 3/8 4 5/8 13 1/8 7 1/2 None .0250
Third ........ 5 1/2 4 1/4 8 3/8 7 None .0250
Fourth ....... 6 3/8 4 7 1/2 5 3/4 None .0250
At September 30, 1994, there were 6,791 holders of record of the
Common Stock.
(1) The Company's Board of Directors suspended the payment of cash
dividends at its October 29, 1993 meeting. The Board of Directors
periodically reviews this decision.
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ITEM 6. SELECTED FINANCIAL DATA.
Five Year Selected Financial Data
(Dollars in Thousands, Except Per Share Amounts)
Fiscal Year Ended September 30,
1994 1993 1992 1991 1990
Revenues $181,468 $214,843 $240,477 $220,759 $200,043
Earnings (loss)
before income
taxes $(16,876)(1) $ 19,155 $ 49,215 $ 40,020 $ 42,532
Income taxes
(benefit) (6,942)(2) 7,231 17,203 14,083 14,640
Net earnings
(loss) $ (9,934)(1)(2) $ 11,924 $ 32,012 $ 25,937 $ 27,892
Earnings (loss)
per share $ (.16)(1)(2) $ .20 $ .53 $ .43 $ .46
Cash dividends
per share(3) $ - $ .10 $ .0925 $ .09 $ .0825
Working capital $ 66,369 $ 64,864 $ 68,898 $ 60,891 $ 50,966
Property and
equipment $166,383 $180,998 $169,285 $151,446 $139,379
Total assets $273,386 $278,641 $283,318 $257,968 $233,667
Long-term debt $ 3,970 $ 4,632 $ 5,444 $ 7,945 $ 5,766
Shareholders'
equity $202,961 $212,807 $206,572 $179,809 $159,119
(1) Includes special charge of $14,500 ($9,031 after tax benefit or $.15
per share).
(2) Includes benefit of $543 or $.01 per share from the adoption of SFAS
No. 109 - Accounting for Income Taxes.
(3) The Company's Board of Directors suspended the payment of cash
dividends at its October 29, 1993 meeting.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
The Company's revenues, summarized by method of disposal or other
service provided, are as follows:
% of % of % of
(Dollars in Thousands) 1994 Revenues 1993 Revenues 1992 Revenues
Incineration $135,559 74.7 $170,171 79.2 $192,068 79.9
Transportation 15,922 8.8 18,148 8.4 18,078 7.5
Chempak services
(net) 9,930 5.5 10,006 4.7 10,632 4.4
Other 20,057 11.0 16,518 7.7 19,699 8.2
$181,468 100.0 $214,843 100.0 $240,477 100.0
Each caption in the above table includes the portion of the revenues
of the Company's subsidiaries related to that particular service.
________________________________________________________________________
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Fiscal Year 1994 vs. 1993
Revenues for the year decreased by $33,375,000 (16%) mainly due to the
weak conditions in the hazardous waste treatment market and the impact of
severe weather conditions in the Northeast and Midwest earlier in 1994.
The revenue reduction resulted from a combination of lower average prices,
lower volume and change in incineration mix.
Operating expenses decreased by $12,775,000 (9%) reflecting the reduced
level of revenues along with the impact of the Company's cost containment
program. Operating costs as a percentage of revenues increased to 74% in
1994 from 68% in 1993 mainly due to the decrease in revenues.
A special charge of $14,500,000 ($9,031,000 after tax benefit or $.15
per share) was recorded in the second quarter of fiscal year 1994. The
charge included: (1) various engineering and other expenditures
($8,200,000) on projects no longer considered viable in the current
business climate; (2) estimated expenditures ($5,000,000) for capping of a
closed landfill and related activities and (3) miscellaneous items
($1,300,000).
Depreciation increased by $2,365,000 (12%) due to the Company's capital
expenditure program to upgrade equipment, improve operating efficiency and
comply with changing regulations.
Selling and administrative expenses decreased by $1,389,000 (5%) mainly
due to lower compensation and travel expenses related to the personnel
cutbacks under the Company's cost containment program. As a percentage of
revenues, selling and administrative expenses were 15% in 1994 and 13% in
1993 mainly due to the lower revenues.
The income tax benefit recorded for the year was based on an estimated
effective income tax rate of 38% of the loss before income taxes. The
income tax provision for 1993 was based on an estimated effective income
tax rate of 38%.
The net loss for the year was $9,934,000 or $.16 per share compared
with net earnings of $11,924,000 or $.20 per share in 1993. Exclusive of
the special charge and the cumulative effect of the change in accounting
principle related to income taxes, the Company reported a net loss of
$1,446,000 or $.02 per share.
Although weak conditions in the hazardous waste treatment market have
continued, the Company has taken new initiatives in 1994 to improve its
competitive position and profitability. First, a major Company-wide cost
containment program was implemented which included personnel cutbacks and
elimination of salary increases. Second, the Company is working to
restructure its organization and expand the services offered to its
customers. To this end, in June the Company signed a letter of intent with
Molten Metal Technology, Inc. to construct Rollins' first hazardous waste
recycling unit; in July the Company acquired Highway 36 Land Development
Company, a treatment, storage and disposal facility near Denver, Colorado;
and, in August the Company signed a letter of intent to acquire Aptus, Inc.
(see "Liquidity and Capital Resources"). Third, the Company is continuing
to work vigorously with the States and the EPA to regulate additional waste
streams into the incineration market and establish standards which will
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equitably regulate the commercial hazardous waste incineration industry and
cement kiln industry incineration of hazardous waste.
Fiscal Year 1993 vs. 1992
Revenues decreased by $25,634,000 (11%) due mainly to a change in
incineration mix and lower average prices which resulted from the continued
softness in the commercial hazardous waste treatment market. Volume
processed at the Company's Texas incineration plant was higher than that
processed in 1992 when the plant was closed for part of the 1992 first
quarter due to a fire. Total volume at the New Jersey and Louisiana plants
was comparable to that processed in 1992.
Operating expenses increased by $4,252,000 (3%) due mainly to higher
payroll, property taxes, insurance and maintenance costs, offset in part by
cost reduction programs. Operating expenses as a percentage of revenues
increased to 68% from 59% in 1992. The increase in the operating cost
ratio was due mainly to the decrease in revenues.
The increase in depreciation of $2,706,000 (15%) is attributable to the
Company's capital expenditure program to upgrade its equipment, improve its
operating efficiency, increase capacity and comply with changing
regulations.
Selling and administrative expenses decreased by $2,261,000 (7%).
Expenses were reduced through cost reduction efforts and lower commissions
and other compensation expenses related to the lower level of revenues. As
a percentage of revenues, selling and administrative expenses were 13% in
1993 and 1992.
Income taxes, which are based on the estimated effective tax rate for
the fiscal year, were 38% of earnings before income taxes in 1993 and 35%
in 1992. The higher rate in 1993 was due to higher state income taxes.
The new tax law enacted in 1993 did not materially impact fiscal year 1993
results.
Net earnings for 1993 decreased by 63% to $11,924,000 or $.20 per share
from the $32,012,000 or $.53 per share reported for 1992. The decline in
earnings was due mainly to the decreased revenues noted above and to the
increased operating and depreciation expenses.
Liquidity and Capital Resources
The Company's operations have required substantial capital investments
which have been financed with the cash flows from operations and available
cash. Expenditures for land, buildings and equipment ("capital assets")
were $18,002,000 in 1994, $32,993,000 in 1993 and $37,376,000 in 1992.
Commitments for the purchase of capital assets amounted to $5,244,000 at
September 30, 1994. Such commitments were mainly to complete projects in
process. The Company plans capital expenditures of up to $29,000,000 in
fiscal year 1995 to upgrade its facilities. Such expenditures will include
improvements to electrical power and water systems; waste collection,
storage and processing facilities; and other equipment modernization
programs.
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In addition, the Company spent $2,874,000, $3,902,000 and $4,138,000,
respectively, on remediation projects in 1994, 1993 and 1992. The Company
believes the amounts accrued for remediation and other costs are adequate
to cover the cost of the mandated remediation and other corrective actions
required to be completed at its facilities.
The Company's projected capital and remediation expenditures in fiscal
year 1995 are expected to be financed with the cash flows from operations
and funds on hand.
On August 23, 1994, the Company signed a letter of intent to acquire
Aptus, Inc., a wholly owned subsidiary of Westinghouse Electric
Corporation, for $160,000,000.
For additional information on the pending acquisition and a discussion
of environmental issues, see "Notes to the Consolidated Financial
Statements - Commitments and Contingent Liabilities".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company, the Independent
Auditors' Report and the financial statement schedules included in this
report are referenced on the Index to the Consolidated Financial Statements
and Schedules on page 15.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
NONE.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this Item 10
is incorporated by reference from the Company's Proxy Statement to be filed
pursuant to Regulation 14A for the Annual Meeting of Shareholders to be
held on January 27, 1995.
Executive Officers of the Registrant. As of October 31, 1994, the
executive officers of the registrant were:
Name Position Age Term of Office
Michael B. Kinnard General Counsel and 37 10/94 to date
Secretary
Nicholas Pappas President, Chief Operating 64 7/91 to date
Officer and Director
Leo F. Rattigan, Jr. Vice President-Finance 53 1/92 to date
and Treasurer
Chief Financial Officer
Chief Accounting Officer
John W. Rollins Chairman of the Board, 78 7/88 to date
Chief Executive Officer and 10/88 to date
Chairman of the Executive 4/82 to date
Committee
John W. Rollins, Jr. Senior Vice Chairman 52 1/88 to date
of the Board
Vice Chairman of the Board 5/83 to 1/88
Henry B. Tippie Chairman of the Executive 67 10/88 to date
Committee,
Chairman of the Finance and
Audit Committees and Director 4/82 to 10/88
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by reference
from the Company's Proxy Statement to be filed pursuant to Regulation 14A
for the Annual Meeting of Shareholders to be held on January 27, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information called for by this Item 12 is incorporated by reference
from the Company's Proxy Statement to be filed pursuant to Regulation 14A
for the Annual Meeting of Shareholders to be held January 27, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fiscal year ended September 30, 1994, the following officers
and/or directors of the Company were also officers and/or directors of
Rollins Truck Leasing Corp.; Patrick J. Bagley; John C. Peet, Jr. (retired
effective September 30, 1994), William B. Philipbar, Jr., John W. Rollins,
John W. Rollins, Jr., and Henry B. Tippie. The following officers and/or
directors of the Company were also officers and/or directors of Matlack
Systems, Inc.; Patrick J. Bagley, William B. Philipbar, Jr., John W.
Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins owns
directly and of record 10.9% and 12.0% of the Common Stock of Rollins Truck
Leasing Corp. and Matlack Systems, Inc., respectively at October 31, 1994.
The description of transactions between the Company and Rollins Truck
Leasing Corp. and between the Company and Matlack Systems, Inc. appearing
under the caption "Transactions with Related Parties" is on pages 23 and 24
of this 1994 Annual Report on Form 10-K.
Page 12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements - See accompanying Index to Consolidated
Financial Statements and Schedules on page 15.
(2) Financial Statement Schedules - See accompanying Index to
Consolidated Financial Statements and Schedules on page 15.
(3) Exhibits:
(3)(a) Restated Certificate of Incorporation of Rollins
Environmental Services, Inc. as last amended on January 29,
1988 as filed with the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992 is incorporated
herein by reference.
(3)(b) By-Laws of Rollins Environmental Services, Inc. as amended
and in effect on December 3, 1993 as filed with the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993 is incorporated herein by
reference.
(4) Instrument Defining Rights of Security Holders. Rights
Agreement dated as of June 14, 1989 as filed as an Exhibit
to Form 8-A filed by Registrant on June 15, 1989 is
incorporated herein by reference.
(10)(a) Rollins Environmental Services, Inc. 1982 Incentive Stock
Option Plan, as filed with Amendment No. 1 to the Company's
Registration Statement No. 2-84139 on Form S-1 dated June
24, 1983, is incorporated herein by reference.
(10)(b) Rollins Environmental Services, Inc. 1993 Stock Option Plan,
as filed with the Company's Proxy Statement for the Annual
Meeting of Shareholders held January 28, 1994, is
incorporated herein by reference.
(21) Rollins Environmental Services, Inc. Subsidiaries at
September 30, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Rollins Environmental Services, Inc.
during the last quarter of the period covered by this report. However, on
October 13, 1994, a report on Form 8-K was filed disclosing that effective
at the close of business September 30, 1994, John C. Peet, Jr. resigned his
position as Vice President-General Counsel and Secretary and Director of
the Company. Effective on the same date, Michael B. Kinnard was appointed
General Counsel and Secretary of the Company.
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: November 29, 1994 ROLLINS ENVIRONMENTAL SERVICES, INC.
(Registrant)
BY: /s/ John W. Rollins
John W. Rollins
Chairman of the Board,
Chief Executive Officer and Director
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 the dates indicated:
/s/ Michael B. Kinnard General Counsel and November 29, 1994
Michael B. Kinnard Secretary
/s/ Nicholas Pappas President, Chief Operating November 29, 1994
Nicholas Pappas Officer and Director
/s/ Leo F. Rattigan, Jr. Vice President-Finance and November 29, 1994
Leo F. Rattigan, Jr. Treasurer
Chief Financial Officer
Chief Accounting Officer
/s/ John W. Rollins, Jr. Senior Vice Chairman of the November 29, 1994
John W. Rollins, Jr. Board and Director
/s/ Henry B. Tippie Chairman of the Executive November 29, 1994
Henry B. Tippie Committee and Director
Page 14
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(1) Consolidated
Page Nos.
Independent Auditors' Report on Financial Statements and
Financial Statement Schedules 16
Consolidated Statement of Operations for the years
ended September 30, 1994, 1993 and 1992 17
Consolidated Balance Sheet at September 30, 1994
and 1993 18
Consolidated Statement of Cash Flows for the years
ended September 30, 1994, 1993 and 1992 19
Notes to the Consolidated Financial Statements 20 to 26
(2) Financial Statement Schedules:
Consolidated
Schedule II - Amounts Receivable from Related
Parties and Underwriters, Promoters,
and Employees (Other Than Related
Parties) for the years ended
September 30, 1994, 1993 and 1992 27
Schedule V - Property, Plant and Equipment
for the years ended September 30,
1994, 1993 and 1992 28
Schedule VI - Accumulated Depreciation of Property,
Plant and Equipment for the years
ended September 30, 1994, 1993
and 1992 29
Schedule VIII - Valuation and Qualifying Accounts
for the years ended September 30,
1994, 1993 and 1992 30
Schedule X - Supplementary Income Statement
Information for the years ended
September 30, 1994, 1993 and 1992 31
Any financial statement schedules otherwise required have been omitted
because they are not applicable or the required information is shown in the
financial statements or notes thereto.
Page 15
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors
Rollins Environmental Services, Inc.
We have audited the consolidated financial statements of Rollins
Environmental Services, Inc. and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedules as
listed in the accompanying index. These consolidated financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules 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 financial position of Rollins
Environmental Services, Inc. and subsidiaries as of September 30, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended September 30, 1994, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in the Notes to the Consolidated Financial Statements, in
fiscal year 1994, the Company changed its method of accounting for income
taxes.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
October 26, 1994
Page 16
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30,
(Dollars in 000s) 1994 1993 1992
Revenues $181,468 $214,843 $240,477
Expenses:
Operating 134,053 146,828 142,576
Special charge 14,500 - -
Depreciation 22,760 20,395 17,689
Selling and administrative 26,649 28,038 30,299
Interest 382 427 698
198,344 195,688 191,262
Earnings (Loss) Before Income
Taxes (Benefit) and Cumulative
Effect of Change in Accounting
Principle (16,876) 19,155 49,215
Income taxes (benefit) (6,399) 7,231 17,203
Earnings (Loss) Before Cumulative
Effect of Change in Accounting
Principle (10,477) 11,924 32,012
Cumulative effect (to September
30, 1993) of adoption of
SFAS No. 109 543 - -
Net Earnings (Loss) $ (9,934) $ 11,924 $ 32,012
Earnings (Loss) Per Share:
Earnings (loss) before
cumulative effect of
change in accounting
principle $ (.17) $ .20 $ .53
Cumulative effect of adoption
of SFAS No. 109 .01 - -
Earnings (Loss) Per Share $ (.16) $ .20 $ .53
Average common shares and
equivalents outstanding 60,377 60,364 60,567
_________________________________________________________________________
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
Page 17
<PAGE>
CONSOLIDATED BALANCE SHEET
September 30,
(Dollars in 000s) 1994 1993
ASSETS
Current Assets
Cash and cash equivalents
(includes short-term investments
of: 1994-$45,437; 1993-$44,218) $ 54,772 $ 47,487
Accounts receivable, net of
allowance for doubtful accounts:
1994-$724; 1993-$422 28,727 30,311
Deferred income taxes 6,170 3,514
Income taxes recoverable 3,827 1,446
Other current assets 6,538 6,612
100,034 89,370
Property and Equipment, at cost,
net of accumulated depreciation 166,383 180,998
Other Assets 6,969 8,273
$273,386 $278,641
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,591 $ 7,067
Accrued liabilities 17,556 12,119
Accrued remediation and other costs 5,895 4,697
Current maturities of long-term debt 623 623
33,665 24,506
Long-term Debt 3,970 4,632
Accrued Remediation and Other Costs 13,516 16,358
Other Liabilities 5,331 4,964
Deferred Income Taxes 13,943 15,374
Commitments and Contingent Liabilities
(see Notes to the Consolidated
Financial Statements)
Shareholders' Equity
Preferred stock, $1 par value -
Outstanding - None
Common stock, $1 par value
Shares outstanding: 1994-60,375,811;
1993-60,350,254 60,376 60,350
Capital in excess of par value 4,650 4,588
Retained earnings 137,935 147,869
202,961 212,807
$273,386 $278,641
________________________________________________________________________
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
Page 18
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30,
1994 1993 1992
Cash Flows From Operating Activities:
Net earnings (loss) $(9,934) $11,924 $32,012
Reconciliation of net earnings
(loss) to net cash flows from
operating activities, net of
acquisition:
Special charge 14,500 - -
Expenditures charged to accrued
remediation and other costs (2,874) (3,902) (4,138)
Depreciation 22,760 20,395 17,689
Current and deferred income taxes (6,468) (407) 2,261
Decrease (increase) in accounts
receivable 2,636 9,134 (2,358)
Increase (decrease) in accounts
payable and accrued liabilities 5,643 (5,370) 2,424
Other, net (477) 721 1,869
Net cash flows from operating
activities 25,786 32,495 49,759
Cash Flows From Investing Activities:
Purchase of property and equipment (18,002) (32,993) (37,376)
Proceeds from sales of equipment 75 119 2,011
Net cash used in investing
activities (17,927) (32,874) (35,365)
Cash Flows From Financing Activities:
Repayment of long-term debt (662) (1,565) (2,874)
Dividend payments - (6,033) (5,575)
Exercise of stock options 88 344 326
Net cash used in financing
activities (574) (7,254) (8,123)
Cash and Cash Equivalents:
Net increase (decrease) in cash and
cash equivalents 7,285 (7,633) 6,271
Beginning of period 47,487 55,120 48,849
End of period $54,772 $47,487 $55,120
Supplemental information:
Interest paid $ 549 $ 624 $ 947
Income taxes (recovered) paid $ (472) $ 8,902 $14,943
_________________________________________________________________________
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
Page 19
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
The consolidated financial statements include the accounts of all
subsidiaries with appropriate elimination of intercompany transactions and
balances.
The business of the Company, essentially all of which is conducted in
the United States, consists solely of industrial waste treatment and
disposal.
Revenues from waste treatment and disposal are recognized when the
material is delivered to the Company and treatment and disposal costs are
recognized concurrently with revenues.
Earnings per common share are computed assuming the conversion of all
potentially dilutive securities, namely outstanding options to purchase
common stock of the Company.
The Company provides for depreciation on a straight-line, specific item
basis net of salvage or residual values over the assets' estimated useful
lives, which range from three to twenty-five years. Major additions and
improvements are capitalized and depreciated over the remaining lives of
the assets. Repairs and maintenance are charged to expense as incurred.
Where landfill disposal operations have been conducted on the same parcels
of land where the Company conducts its incineration and other treatment
operations, land is carried at cost and expenditures in connection with the
preparation and operation of landfills are charged to expense as incurred.
Where landfill operations are conducted on subsequently acquired parcels of
land, the cost of the land and landfill preparation costs are deferred and
charged to expense as the airspace in the landfill is filled.
Cash equivalents, carried at cost which approximates fair market value,
represent short-term investments with an original maturity at purchase of
three months or less.
The Company records accruals for environmental remediation at hazardous
waste sites not owned by the Company when it is both probable a liability
has been incurred and a reasonable estimate of the costs can be determined.
The Company records accruals for certain environmental remediation
activities at its facilities where commitments have been made and
reasonable cost estimates are possible. The cost of operating and
maintaining systems and equipment constructed for environmental
remediation, as well as the cost of treating recovered groundwater, are
charged to operating expense as incurred.
Special Charge
A special charge of $14,500,000 ($9,031,000 after tax benefit or $.15
per share) was recorded in the second quarter of fiscal year 1994. The
charge included: (1) various engineering and other expenditures
($8,200,000) on projects no longer considered viable in the current
business climate; (2) estimated expenditures ($5,000,000) for capping of a
closed landfill and related activities and (3) miscellaneous items
($1,300,000).
Page 20
<PAGE>
Property and Equipment
The property and equipment accounts are as follows:
September 30,
(Dollars in 000s) 1994 1993
Land $ 28,790 $ 27,861
Buildings 32,360 28,150
Equipment and vehicles 190,785 186,075
Site improvements 29,072 25,406
Construction in progress 13,063 20,409
Accumulated depreciation (127,687) (106,903)
$166,383 $180,998
Commitments for the purchase of capital assets amounted to $5,244,000
at September 30, 1994.
Income Taxes
The income tax provisions (benefit) for the three years ended September
30, 1994 are comprised as follows:
Year Ended September 30,
(Dollars in 000s) 1994 1993 1992
Current:
Federal $(3,242) $4,578 $14,179
State 639 870 557
Deferred:
Federal (2,228) 1,783 2,467
State (1,568) - -
Income taxes (benefit) $(6,399) $7,231 $17,203
A reconciliation of the income tax provisions (benefit) for the three
years ended September 30, 1994 with amounts calculated by applying the
statutory federal income tax rates (35% for 1994, 34 3/4% for 1993 and 34% for
1992) for those years to earnings (loss) before income taxes is as follows:
Year Ended September 30,
(Dollars in 000s) 1994 1993 1992
Federal tax (benefit)
at statutory rate $(5,907) $6,657 $16,733
State income taxes (604) 568 368
Other 112 6 102
Income taxes (benefit) $(6,399) $7,231 $17,203
The tax effect of temporary differences which comprise the current and
non-current deferred income tax amounts shown on the balance sheet are as
follows:
September 30,
(Dollars in 000s) 1994 1993
Excess of tax over book depreciation $22,086 $23,648
Accrued remediation and closure costs (7,455) (8,060)
Expense deductible when paid (5,977) (4,120)
State net operating loss benefits,
expiring 1995-2009 (1,176) -
Other 295 392
Deferred income taxes, net $ 7,773 $11,860
Page 21
<PAGE>
As of October 1, 1993, the Company adopted SFAS No. 109 - Accounting
for Income Taxes which requires the use of the liability method of
accounting for deferred income taxes. The cumulative effect on prior years
of this adoption was a reduction of the 1994 net loss by $543,000 ($.01 per
share). Prior to October 1, 1993, the Company followed APB No. 11 when
accounting for income taxes. The deferred federal income tax provisions
resulting from accounting for certain income and expense items differently
for tax purposes than for financial statement purposes in the prior periods
were:
Year Ended September 30,
(Dollars in 000s) 1993 1992
Excess of tax over book depreciation $1,136 $1,420
Accrued remediation and closure costs 1,298 1,274
Expense deductible when paid (634) (163)
Other (17) (64)
Deferred federal tax provision $1,783 $2,467
Accrued Liabilities
Accrued liabilities are as follows:
September 30,
(Dollars in 000s) 1994 1993
Employee compensation $ 2,942 $ 2,737
Taxes other than income 4,410 3,735
Insurance and legal 4,356 3,683
Landfill capping costs 4,037 -
Other 1,811 1,964
$17,556 $12,119
Shareholders' Equity
Changes in the components of shareholders' equity are as follows:
$1 Par Value Capital in Total
Common Excess of Retained Shareholders'
(Dollars in 000s) Stock Par Value Earnings Equity
Balance at 9/30/91 $60,192 $4,076 $115,541 $179,809
Net earnings 32,012 32,012
Dividends of $.0925
per share (5,575) (5,575)
Exercise of stock
options 95 231 326
Balance at 9/30/92 60,287 4,307 141,978 206,572
Net earnings 11,924 11,924
Dividends of $.10
per share (6,033) (6,033)
Exercise of stock
options 63 281 344
Balance at 9/30/93 60,350 4,588 147,869 212,807
Net loss (9,934) (9,934)
Exercise of stock
options 26 62 88
Balance at 9/30/94 $60,376 $4,650 $137,935 $202,961
The Company is authorized to issue 120,000,000 shares of its $1 Par
Value Common Stock and 1,000,000 shares of its $1 Par Value Preferred
Stock. The terms and conditions of each issue of preferred stock are
determined by the Board of Directors. No preferred stock has been issued.
Page 22
<PAGE>
Each share of common stock outstanding includes one common stock
purchase right (a "Right") which is non-detachable and non-exercisable
until certain defined events occur, including certain tender offers or the
acquisition by a person or group of affiliated or associated persons of 15%
of the Company's common stock. Upon the occurrence of certain defined
events, the Right entitles the registered holder to purchase one share of
common stock of the Company for $200 and may be modified to permit certain
holders to purchase common stock of the Company or common stock of an
acquiring company at a 50% discount. The Right expires on June 30, 1999
unless earlier redeemed by the Company as permitted under certain
conditions at a price of $.01 per Right.
Under the Company's stock option plan, options to purchase common stock
of the Company have been granted to officers and key employees at not less
than 100% of the fair market value at the date of grant.
The number of shares and related prices per share covering all activity
with respect to stock options for each of the years in the three-year
period ended September 30, 1994 are as follows:
Year Ended September 30,
1994 1993 1992
Number of options
Outstanding at beginning
of year 674,660 757,917 689,296
Granted 200,610 - 171,000
Exercised (25,557) (62,882) (95,714)
Expired or canceled (190,845) (20,375) (6,665)
Outstanding at 9/30 658,868 674,660 757,917
At 9/30
Options available for grant 717,390 -
-
Options exercisable 317,900 333,609 288,492
Per share prices
Options granted $4.63 to $ 5.75 - $8.88 to $12.25
Options exercised $3.47 $3.38 to $ 8.88 $1.16 to $ 7.50
Options outstanding $4.63 to $12.80 $3.47 to $12.80 $3.38 to $12.80
Transactions with Related Parties
Certain directors and officers of the Company are also directors and
officers of Rollins Truck Leasing Corp. and Matlack Systems, Inc.
The Company purchased transportation services from subsidiaries of
Matlack Systems, Inc. in the amount of $3,175,000 in 1994, $1,714,000 in
1993 and $1,464,000 in 1992. The cost of these services has been included
in operating expense in the Consolidated Statement of Operations.
The Company also purchased fuel for its vehicles, information systems
services, and rented transportation equipment and office space from Rollins
Truck Leasing Corp., its subsidiaries and affiliates. The aggregate cost
of these materials, services and rents, which have been included in
operating expense or selling and administrative expense, as appropriate, in
the Consolidated Statement of Operations, was $6,551,000 in 1994,
$7,359,000 in 1993 and $6,579,000 in 1992.
Page 23
<PAGE>
An officer of the Company is the trustee of an employee benefits trust
which provides certain insurance and health care benefits to employees of
the Company. Contributions to the trust, which were charged to operating
or selling and administrative expense as appropriate, were $5,156,000 in
1994, $5,635,000 in 1993 and $5,578,000 in 1992.
In the opinion of management of the Company, the foregoing transactions
were effected at rates which approximate those which the Company would have
realized or incurred had such transactions been effected with independent
third parties.
Indebtedness
Long-term debt consists of real estate purchase money mortgage
obligations payable in installments to 2001, at interest rates of 9% and
10%. Land with a carrying value of $5,504,000 is pledged as collateral.
The aggregate amounts of maturities for all indebtedness over the next
five years are as follows: 1995-$623,000; 1996-$662,000; 1997-$662,000;
1998-$662,000 and 1999-$662,000.
Pension Plan
The Company maintains a non-contributory pension plan for full-time
employees. Costs of this plan are funded in accordance with the provisions
of the Internal Revenue Code.
The components of net periodic pension cost are as follows:
Year Ended September 30,
(Dollars in 000s) 1994 1993 1992
Service cost $1,777 $1,295 $1,044
Interest cost 1,032 801 664
Return on plan assets (420) (1,494) (960)
Net amortization and deferral (492) 673 321
Net periodic pension cost $1,897 $1,275 $1,069
The following table sets forth the plan's funded status and the amounts
recognized in the Company's balance sheets:
September 30,
(Dollars in 000s) 1994 1993
Actuarial present value of accumulated
benefit obligation:
Vested $10,250 $ 8,513
Non-vested 1,154 1,138
$11,404 $ 9,651
Projected benefit obligation $15,162 $12,939
Plan assets at market value 11,967 10,179
Projected benefit obligation in
excess of plan assets 3,195 2,760
Unrecognized gain 1,026 1,141
Unrecognized prior service (89) (96)
Unamortized unfunded projected benefit
obligation at adoption (844) (921)
Accrued pension liability $ 3,288 $ 2,884
Page 24
<PAGE>
The assumptions used in accounting for the plan are as follows:
1994 1993 1992
Discount rate 8.0% 8.0% 8.5%
Rate of assumed compensation
increase 5.0% 5.0% 5.0%
Expected long-term rate of
return on assets 9.5% 9.5% 10.0%
The assets of the plan at September 30, 1994 were invested 67% in equity
securities, 23% in fixed income securities and the balance in other
interest bearing accounts.
Commitments and Contingent Liabilities
On August 23, 1994, the Company signed a letter of intent with
Westinghouse Electric Corporation whereby the Company will acquire all the
stock of Aptus, Inc. for $160,000,000. Aptus has incineration operations
in Kansas and Utah and a transfer and storage facility in Minnesota. It is
expected at closing the Company will pay $3,000,000 in cash and incur
various forms of long-term debt totaling $157,000,000. A portion of this
debt may be converted by the holder into common stock of the Company.
Various terms and conditions must be agreed to before a definitive
agreement is executed. The Company is presently engaged in its due
diligence review.
Environmental laws and regulations require hazardous waste disposal
facilities to obtain operating permits which generally outline the
procedures under which the facility must be operated. Violations of permit
conditions or of the regulations, even if immaterial or unintentional, may
result in fines, shutdowns, remedial work or revocation of the permit. The
Company believes it is in compliance with the requirements of all of its
operating permits and related federal and state regulations.
The Company is the subject of various lawsuits and claims by government
agencies with respect to clean-up of hazardous waste sites not owned by the
Company. While the Company does not expect to make any significant cash
outlays relative to the above matters, management believes any payments
which may be required will ultimately be substantially recoverable from
insurance coverage. The Company believes that it is only remotely likely
that the ultimate resolution of these lawsuits and claims would be
material.
Accrued remediation and other costs were $19,411,000 and $21,055,000 at
September 30, 1994 and 1993, respectively. Major elements of cost in these
reserves include groundwater recovery systems, slurry wall or alternative
containment systems, excavation and disposal of soil and waste material,
and engineering study and report costs associated with the remedial
activities. These major cost elements are segregated according to facility
location and are based on studies performed for the Environmental
Protection Agency and the states where the facilities operate. Changing
federal or state standards as well as technological developments and
alternative engineering solutions may affect the cost estimates in the
future. Based on the status of the various remedial programs at the
facilities, it is expected that most, if not all, of the remedial work will
occur within the next five years. The Company believes that the ultimate
costs associated with these remediation activities will not be material.
Page 24
<PAGE>
Regulatory agencies normally require operators with temporary or long-
term permits to provide insurance protection for other parties in the event
of environmental damage and to provide for continued maintenance after
operations are terminated. The Company has supplied financial assurance to
regulatory agencies and others in the aggregate amount of $44,171,000 at
September 30, 1994, which included letters of credit of $20,656,000. The
balance is satisfied principally by a combination of insurance and trust
funds.
Lease Commitments
The Company leases some of the premises and equipment used in its
operations. All leases are classified as operating leases and expire over
the next eight years. Total rental expense for all operating leases except
those with terms of a month or less was $4,392,000 in 1994, $5,783,000 in
1993 and $4,802,000 in 1992.
Minimum future rental payments required under operating leases having
non-cancelable terms in excess of one year as of September 30, 1994 are as
follows:
(Dollars in 000s)
Year Ending September 30,
1995 $ 3,788
1996 2,727
1997 2,235
1998 1,359
1999 972
Later years 1,991
Total minimum payments required $13,072
Page 25
<PAGE>
Quarterly Results (Unaudited)
December March June September
1994 31 31 30 30
Revenues $47,515 $ 41,363 $46,650 $45,940
Gross profit $ 6,983 $ 1,408 $ 8,220 $ 6,166
Earnings (loss) before income
taxes (benefit) $ 227 $(19,690)(1) $ 2,479 $ 108
Earnings (loss) from
operations $ 106 $(12,373)(1) $ 1,568 $ 222
Cumulative effect (to September
30, 1993) of adoption of
SFAS No. 109 $ 543 $ - $ - $ -
Net earnings (loss) $ 649 $(12,373)(1) $ 1,568 $ 222
Earnings (loss) per share:
From operations $ - $ (.20)(1) $ .02 $ .01
Adoption of SFAS No. 109 $ .01 $ - $ - $ -
Earnings (loss) per share $ .01 $ (.20)(1) $ .02 $ .01
1993
Revenues $58,985 $ 54,614 $51,563 $49,681
Gross profit $16,377 $ 11,580 $10,559 $ 7,438
Earnings before income taxes $ 9,464 $ 4,691 $ 3,964 $ 1,036
Net earnings $ 6,066 $ 2,881 $ 2,457 $ 520
Earnings per share $ .10 $ .05 $ .04 $ .01
(1) Includes special charge of $14,500 ($9,031 after tax benefit or $.15
per share) relating primarily to various engineering and other
expenditures on projects no longer considered viable in the current
business climate and estimated expenditures for capping of a closed
landfill.
Page 26
<PAGE>
<TABLE>
ROLLINS ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES (OTHER
THAN RELATED PARTIES)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
($000 OMITTED)
<CAPTION>
Balance at
Deductions End of Period
Balance at
Year Ended Beginning Amounts Amounts Not
September 30, Name of Debtor of Period Additions Collected Written-Off Current Current
<S> <C> <C> <C> <C>
1994: Rollins Administrative
Services, Inc.(1) $300 $300 -
1993: Rollins Administrative
Services, Inc.(1) $388 $ 88 $300(2)
1992: Rollins Administrative
Services, Inc.(1) $838 $450 $388(2)
</TABLE>
[FN]
(1) Formerly Rollins/Matlack Administrative Services, Inc.
(2) Non-interest bearing advance with no fixed repayment terms.
Page 27
<PAGE>
<TABLE>
ROLLINS ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
($000 OMITTED)
<CAPTION>
Balance at Other Changes Balance at
Beginning Sales and Add (Deduct) End of
Classification of Period Additions Retirements Describe Period
Year Ended
September 30,
<S> <C> <C> <C> <C> <C> <C>
1994: Property and Equipment
Land $ 27,861 $ 101 $ 828 $ 28,790
Buildings 28,150 5,049 $ 315 (524) 32,360
Equipment and vehicles 186,075 7,393 868 (1,815) 190,785
Site improvements 25,406 3,951 27 (258) 29,072
Construction in progress 20,409 1,508 35 (8,819) 13,063
$287,901 $ 18,002 $ 1,245 $(10,588)(1) $294,070
1993: Property and Equipment
Land $ 27,861 $ 27,861
Buildings 22,965 $ 5,333 $ 148 28,150
Equipment and vehicles 164,929 24,833 3,687 186,075
Site improvements 21,243 4,213 50 25,406
Construction in progress 21,795 (1,386) 20,409
$258,793 $ 32,993 $ 3,885 - $287,901
1992: Property and Equipment
Land $ 27,669 $ 218 $ 26 $ 27,861
Buildings 19,644 4,143 822 22,965
Equipment and vehicles 160,071 17,048 12,190 164,929
Site improvements 19,013 5,644 3,414 21,243
Construction in progress 11,480 10,323 8 21,795
$237,877 $ 37,376 $ 16,460 - $258,793
</TABLE>
[FN]
(1) Includes special charge write-offs of ($11,524) and assets of acquired
subsidiary $936.
Page 28
<PAGE>
<TABLE>
ROLLINS ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
($000 OMITTED)
<CAPTION>
Additions
Balance at Charged to Other Changes Balance at
Beginning Costs and Sales and Add (Deduct) End of
Classification of Period Expenses Retirements Describe Period
Year Ended
September 30,
<S> <C> <C> <C> <C> <C> <C>
1994: Property and Equipment
Buildings $ 7,279 $ 2,270 $ 297 $ 9,252
Equipment and vehicles 88,563 18,330 815 $ (691) 105,387
Site improvements 11,061 2,160 27 (146) 13,048
$106,903 $22,760 $ 1,139 $ (837)(1) $127,687
1993: Property and Equipment
Buildings $ 5,920 $ 1,455 $ 96 $ 7,279
Equipment and vehicles 74,361 17,073 2,912 $ 41 (2) 88,563
Site improvements 9,227 1,867 33 11,061
$ 89,508 $20,395 $ 3,041 $ 41 $106,903
1992: Property and Equipment
Buildings $ 5,073 $ 1,171 $ 324 $ 5,920
Equipment and vehicles 70,317 15,034 10,990 74,361
Site improvements 11,041 1,484 3,298 9,227
$ 86,431 $17,689 $14,612 - $ 89,508
</TABLE>
[FN]
(1) Includes special charge write-offs of ($1,047) and a reclassification
of $210.
(2) Reclassification.
Page 29
<PAGE>
<TABLE>
ROLLINS ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
($000 OMITTED)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions Deductions
Balance at Charged to Charged Write-offs Balance at
Beginning Costs and to Other Net of End of
Description of Period Expenses Accounts Recoveries Period
Year Ended
September 30,
<S> <C> <C> <C> <C> <C> <C>
1994: Allowance for doubtful
accounts $422 $128 $367(1) $193 $724
1993: Allowance for doubtful
accounts $453 $100 $131 $422
1992: Allowance for doubtful
accounts $450 $186 $183 $453
</TABLE>
[FN]
(1) Subsidiary balance at date of acquisition.
Page 30
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 and 1992
($000 OMITTED)
COLUMN A COLUMN B
Item Charged to Costs and Expenses
1994 1993 1992
Maintenance and Repairs $10,540 $13,793 $13,261
Depreciation $22,760 $20,395 $17,689
Taxes other than Payroll
and Income Taxes
Real Estate $ 3,593 $ 3,256 $ 2,408
Other $ 1,714 $ 1,261 $ 2,014
Page 31
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
Exhibits to Form 10-K
For Fiscal Year Ended September 30, 1994
Index to Exhibits Page Nos.
Exhibit 21 Rollins Environmental Services, Inc.
Subsidiaries at September 30, 1994
Page 32
<PAGE>
Exhibit 21
ROLLINS ENVIRONMENTAL SERVICES, INC.
Subsidiaries of the Registrant
September 30, 1994
JURISDICTION OF
NAME INCORPORATION
Custom Environmental Transport, Inc. Delaware
ENCOTEC, INC. Delaware
Highway 36 Land Development Company Colorado
Rollins O.P.C. Inc. California
Rollins CHEMPAK, Inc. Delaware
Rollins Environmental Services (DE) Inc. Delaware
Rollins Environmental Services (LA) Inc. Delaware
Rollins Environmental Services of Louisiana, Inc. Delaware
Rollins Environmental Services (NJ) Inc. Delaware
Rollins Environmental Services (TX) Inc. Delaware
Tipton Environmental Technology, Inc. Delaware
Rollins Environmental Services (CA) Inc. Delaware
Page 33
