___________________________________________________________________________
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, 1995 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) 426-2784
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. / X /
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $185,836,000 as of October 31, 1995.
The number of shares of registrant's common stock outstanding as of
October 31, 1995 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 26, 1996 III
<PAGE>
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 seven facilities located in Colorado,
Kansas, Louisiana (2), New Jersey, Texas and Utah. The Company operates
waste processing, recycling and repackaging facilities in California,
Minnesota, Missouri and Tennessee and has analytical laboratories in
California, Colorado, Kansas, Louisiana, Michigan, New Jersey, Tennessee,
Texas and Utah.
(a) General Development of Business
For the third consecutive year, the Company's earnings were adversely
affected by continued weak conditions in the commercial hazardous waste
incineration industry resulting in market declines caused by lower
incineration pricing, lower available volumes of hazardous waste and a change
in incineration mix. 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 equitably regulate the commercial
hazardous waste incineration industry and the incineration of hazardous
wastes by the cement kiln industry. The Company believes such regulations,
when enacted, will mitigate the effects of intense price competition and help
stabilize the volume of waste available for treatment.
In the face of industry consolidation and market uncertainty, the
Company made a strategic decision to purchase its largest competitor - a
decision designed to position the Company for future long-term success. The
acquisition of Aptus, Inc. on March 31, 1995 provides a critical service
expansion with the addition of a 4.4 meter incinerator in Aragonite, Utah, a
3.6 meter incinerator in Coffeyville, Kansas, and a transfer and storage
facility in Lakeville, Minnesota. This enhanced long-term commitment also
included the purchase of Allworth of Tennessee, Inc., a transfer, storage and
processing facility on April 28, 1995. These strategic actions were taken to
improve service, competitive position and to enhance the Company's full
service capabilities on a regionalized basis.
Otherwise, there have been no significant changes in the business of the
Company since September 30, 1994.
(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 6 to 8 and 15 to 25 of this 1995 Annual Report on Form 10-K.
(c) Narrative Description of Business
The Company treats and disposes of industrial chemical waste at its
facilities in Coffeyville, Kansas; Baton Rouge, Louisiana; Bridgeport, New
Jersey; Deer Park, Texas; and Aragonite, Utah, (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;
Lakeville, Minnesota; and Mt. Pleasant, Tennessee (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.
Federal and state incineration regulations require a destruction and removal
efficiency of 99.99% for most organic wastes and 99.9999% for polychlorinated
biphenyls ("PCBs"). The Company's six rotary kiln incinerators and the
Rollins Rotary Reactor meet or exceed these requirements. The incinerators
at Coffeyville, Kansas and Aragonite, Utah and an incinerator at Deer Park,
Texas have permits 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, Deer Park and
Coffeyville plants and by barge at the Injection Well.
The Company provides analytical services through laboratories operated
at its incineration facilities in Coffeyville, Kansas; Baton Rouge,
Louisiana; Bridgeport, New Jersey; Deer Park, Texas; and Aragonite, Utah and
by other subsidiaries located in Ann Arbor, Michigan; Deer Trail, Colorado;
Mount Pleasant, Tennessee; and Los Angeles, California.
The Company conducts business with more than 1,500 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
regulations, price and concern over long-term liability.
Competitors operate large-scale incinerators in El Dorado, Arkansas
(Environmental Systems Company); Sauget, Illinois and Port Arthur, Texas
(Chemical Waste Management, Inc.); 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 (Laidlaw Environmental) 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.
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. 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.
Facilities 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 $58,363,000 at
September 30, 1995, which included letters of credit of $8,260,000. 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 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 16 of this 1995 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.
On March 31, 1995, the Company acquired from Westinghouse Electric
Corporation all of the capital stock of National Electric, Inc. ("NEI"), a
wholly owned subsidiary of Westinghouse Electric Corporation. NEI owns all
of the capital stock of Aptus, Inc. NEI is not conducting any business
operations. Aptus is engaged in the sale of services related to the
transportation, storage, laboratory analysis and incineration of certain
types of hazardous waste. The Aptus, Inc. acquisition expanded the Company's
incineration offerings to include a 4.4 meter kiln in Aragonite, Utah and a
3.6 meter kiln in Coffeyville, Kansas, which has the nation's only dioxin
permit. In addition, the acquisition included a transfer, storage and
disposal facility in Lakeville, Minnesota. These facilities operate under
Part B permits which were granted on March 30, 1990 for Aragonite, Utah; July
27, 1991 for Coffeyville, Kansas; and August 31, 1992 for Lakeville,
Minnesota.
On April 28, 1995, the Company acquired from Southdown, Inc. all of the
issued and outstanding shares of common stock of Allworth, Inc. of Tennessee,
Inc., a waste processing facility located in Mount Pleasant, Tennessee. This
facility operates under a Part B permit which was granted on July 14, 1988.
The Company has approximately 1,855 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: Aptus, Inc. - Coffeyville,
Kansas 432 acres, Aragonite, Utah 2,323 acres, and Lakeville, Minnesota 17
acres; Allworth of Tennessee, Inc. 18 acres; 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 21 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,
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.
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 entire mediation process is covered
by a court confidentiality order and court-approved mediation protocol which
require strict adherence to their confidentiality provisions and prohibit the
dissemination of information. Amounts that have been accrued as of September
30, 1995 are expected to be adequate to cover the amounts RES (NJ) believes
will be payable 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.
It is not possible at this time to determine RES (NJ)'s portion of the Site
remediation expenses, if any. Virtually all parties, including RES (NJ),
have been involved in a lengthy and complex settlement process which has yet
to produce an allocation plan. 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
STOCK PRICES
The range of per share prices for the Common Stock on the New York and
Pacific Stock Exchanges for the fiscal years ended September 30, 1995 and
1994 is as follows:
Prices
1995 1994
High Low High Low
Fiscal Quarter
First .............. $6 1/8 $4 3/8 $6 1/2 $4 7/8
Second ............. 5 1/2 4 6 3/8 4 5/8
Third .............. 5 4 1/8 5 1/2 4 1/4
Fourth ............. 5 1/4 4 1/4 6 3/8 4
No dividends were declared on the common stock during the fiscal years
ended September 30, 1995 and 1994.
At September 30, 1995, there were 6,417 holders of record of the Common
Stock.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
Five Year Selected Financial Data
(Dollars in Thousands, Except Per Share Amounts)
Fiscal Year Ended September 30, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $217,367 (4) $181,468 $214,843 $240,477 $220,759
Earnings (loss) before
income taxes (benefits) $(28,655)(4) $(16,876)(1) $ 19,155 $ 49,215 $ 40,020
Income taxes (benefits) (10,363)(4) (6,942)(2) 7,231 17,203 14,083
Net earnings (loss) $(18,292)(4) $ (9,934)(1)(2) $ 11,924 $ 32,012 $ 25,937
Earnings (loss) per share $ (.30)(4) $ (.16)(1)(2) $ .20 $ .53 $ .43
Cash dividends per share(3) $ - $ - $ .10 $ .0925 $ .09
September 30,
Working capital $ 50,772 (4) $ 66,369 $ 64,864 $ 68,898 $ 60,891
Property and equipment $298,673 (4) $166,383 $180,998 $169,285 $151,446
Total assets $429,484 (4) $273,386 $278,641 $283,318 $257,968
Long-term debt $134,181 (4) $ 3,970 $ 4,632 $ 5,444 $ 7,945
Shareholders' equity $184,669 (4) $202,961 $212,807 $206,572 $179,809
(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. The Board of Directors periodically reviews this decision.
(4) Includes the results of operations of acquired companies (see Notes to the Consolidated Financial
Statements).
</TABLE>
<PAGE>
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) 1995 Revenues 1994 Revenues 1993 Revenues
Incineration $154,266 71.0 $135,559 74.7 $170,171 79.2
Transportation 22,110 10.2 15,922 8.8 18,148 8.4
Chempak services (net) 10,914 5.0 9,930 5.5 10,006 4.7
Landfill 5,663 2.6 906 .5 226 .1
Other 24,414 11.2 19,151 10.5 16,292 7.6
$217,367 100.0 $181,468 100.0 $214,843 100.0
Each caption in the above table includes the portion of the revenues of
the Company's subsidiaries related to that particular service.
Fiscal Year 1995 vs. 1994
Revenues for 1995 increased by $35,899,000 (20%) to $217,367,000 from
the $181,468,000 reported in 1994. Acquisitions in 1995 and late 1994
contributed approximately $42,835,000 of the revenue increase, while existing
business revenues decreased by $6,936,000. Existing business incineration
revenues decreased $10,683,000 which was the result of lower average prices,
lower incineration volumes and a change in incineration mix. The Company's
incineration revenues continue to be adversely affected by industry-wide
overcapacity, intense price competition and lower volumes of available waste.
The decrease in incineration revenues was offset in part by an increase in
transportation revenues, Chempak services and other revenues which were
attributable to the growing customer demand for total waste management and
transportation services. 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 equitably regulate the
commercial hazardous waste incineration industry and the incineration of
hazardous wastes by the cement kiln industry. The Company believes such
regulations, when enacted, will mitigate the effects of intense price
competition and help stablize the volume of waste available for treatment.
Operating expenses increased by $47,713,000 (36%) to $181,766,000 from
the $134,053,000 reported in 1994. Acquisitions in 1995 and late 1994
contributed approximately $37,402,000 of this expense increase, while
existing business expense increased by $10,311,000. The existing business
increase was the result of higher transportation, plant maintenance, payroll
and disposal costs. Increased plant maintenance and payroll overtime
resulted from the adverse effects upon treatment equipment caused by the
changed incineration mix of disposable wastes. The increase in
transportation costs reflects the increased customer reliance on Company-
supplied transportation. Disposal cost increases were attributable to a
change in incineration mix which required the use of subcontractors to
dispose of various waste streams outside of the Company's permitted
capabilities. Operating costs as a percentage of revenues increased to 84%
in 1995 from 74% in 1994. Since a large component of the Company's cost
structure is fixed, operating expenses increased as a percentage of revenues.
The Company continues its activities to reduce expenses and streamline the
organization.
Depreciation increased by $3,950,000 (17%) due mainly to the impact of
recent acquisitions offset in part by lower amortization expenses related to
leasehold improvements which have become fully amortized and the impact of
lower capital expenditures during the past few years.
Selling and administrative expenses increased by $5,914,000 (22%) as a
result of higher payroll, data processing and other transitional costs
incurred in connection with recent acquisitions. As a percentage of
revenues, selling and administrative expenses were 15% in both 1995 and 1994.
Interest expense increased by $4,601,000 as a result of acquisition-
related debt incurred or assumed.
The income tax benefits recorded for the years 1995 and 1994 were based
on estimated effective rates of 36% and 38% of the loss before income tax,
respectively.
In the face of industry consolidation and market uncertainty, the
Company made a strategic decision to purchase its largest competitor - a
decision designed to position the Company for a future of long-term success.
The acquisition of Aptus, Inc. on March 31, 1995 provides a critical service
expansion with the addition of a 4.4 meter incinerator in Aragonite, Utah, a
3.6 meter incinerator in Coffeyville, Kansas, and a transfer and storage
facility in Lakeville, Minnesota. This enhanced long-term commitment also
included the purchase of Allworth of Tennessee, Inc., a transfer, storage and
processing facility. These strategic actions were taken to improve service,
competitive position and to enhance the Company's full service capabilities
on a regionalized basis. Such actions are expected to result in lower
transportation costs and provide greater operating efficiencies.
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 tax. The income
tax provision for 1993 was based on an estimated effective income tax rate of
38%.
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 property and equipment were $20,051,000 in 1995,
$18,002,000 in 1994 and $32,993,000 in 1993. Commitments for the purchase of
property and equipment amounted to $3,043,000 at September 30, 1995. Such
commitments are to complete projects in process. The Company plans capital
expenditures of up to $19,000,000 in 1996 to upgrade facilities. Such
expenditures include improvements to electrical power and water systems;
waste collection, storage and processing facilities; and other equipment
modernization programs.
In addition, the Company spent $3,937,000, $2,874,000 and $3,902,000,
respectively, on remediation projects at its facilities in 1995, 1994 and
1993. 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 1996 are expected to be financed with the cash flows from operations and
funds on hand.
In March 1995, the Financial Accounting Standards Board issued SFAS NO.
121-Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of - which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This standard must be
adopted no later than fiscal year ending September 30, 1997. The Company has
not determined the impact, if any, of adopting this standard.
For additional information on commitments and contingent liabilities,
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 13.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
NONE.
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 26, 1996.
Executive Officers of the Registrant. As of October 31, 1995, the
executive officers of the registrant were:
Name Position Age Term of Office
John V. Flynn, Jr. President, Chief Operating Officer 53 7/95 to date
Executive Vice President 1/95 to 7/95
Michael B. Kinnard Vice President-General Counsel 38 10/95 to date
and Secretary
General Counsel and Secretary 10/94 to 10/95
Frank H. Minner, Jr. Group Vice President-Finance and 63 2/95 to date
Treasurer, Chief Financial Officer
and Chief Accounting Officer
Nicholas Pappas Vice Chairman of the Board 65 7/95 to date
President, Chief Operating 7/91 to 7/95
Officer and Director
John W. Rollins Chairman of the Board, 79 7/88 to date
Chief Executive Officer and 10/88 to date
Chairman of the Executive Committee 4/82 to 10/88
John W. Rollins, Jr. Senior Vice Chairman of the Board 53 1/88 to date
Vice Chairman of the Board 5/83 to 1/88
Henry B. Tippie Chairman of the Executive Committee, 68 10/88 to date
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 26, 1996.
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 26, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fiscal year ended September 30, 1995, the following officers
and/or directors of the Company were also officers and/or directors of
Rollins Truck Leasing Corp.; Patrick J. Bagley; Michael B. Kinnard, 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,
Michael B. Kinnard, 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 11.4% of the Common Stock of Rollins Truck Leasing Corp. and
Matlack Systems, Inc., respectively at October 31, 1995. 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 page 22 of this 1995 Annual Report
on Form 10-K.
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 13.
(2) Financial Statement Schedules - See accompanying Index to
Consolidated Financial Statements and Schedules on page 13.
(3) Exhibits:
(2) Stock Purchase Agreement between Westinghouse Electric
Corporation (Seller) and Rollins Environmental Services,
Inc., (Buyer) for National Electric, Inc., a Minnesota
corporation, dated as of March 7, 1995 as filed as an Exhibit
to Form 8-K filed by the Registrant on June 13, 1995 is
incorporated herein by reference.
(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) (a) Indenture dated as of March 31, 1995 between Rollins
Environmental Services, Inc. and First Fidelity Bank,
National Association, as Trustee covering the issue of
$13,839,000 of 7.75% Senior Unsecured Debentures Due March
31, 2005 as filed as an Exhibit to Form 8-K filed by the
Registrant on June 13, 1995 is incorporated herein by
reference.
(b) Indenture dated as of March 31, 1995 between Rollins
Environmental Services, Inc. and Texas Commerce Bank National
Association, as Trustee covering the issue of $66,000,000 of
7.25% Convertible Subordinated Debentures Due March 31, 2005
as filed as an Exhibit to Form 8-K filed by the Registrant on
June 13, 1995 is incorporated herein by reference.
(c) Debenture Purchase Agreement dated as of March 31, 1995
between Rollins Environmental Services, Inc. and Westinghouse
Electric Corporation as filed as an Exhibit to Form 8-K filed
by the Registrant on June 13, 1995 is incorporated herein by
reference.
(d) Assignment and Assumption Agreement dated March 31, 1995
between Rollins Environmental Services, Inc. and Westinghouse
Electric Corporation assigning to Rollins all of the
obligations of Westinghouse under the Loan Agreement dated as
of June 1, 1990 between Tooele County, Utah and Westinghouse
Electric Corporation relating to Variable Rate Hazardous
Waste Treatment Revenue Bonds, Series A (as attached to the
Assignment and Assumption Agreement) as filed as an Exhibit
to Form 8-K filed by the Registrant on June 13, 1995 is
incorporated herein by reference.
(e) Rights Agreement dated as of June 14, 1989 between Rollins
Environmental Services, Inc. and Registrar and Transfer
Company, as Rights Agent, as filed as an Exhibit to Form 8-K
filed by the Registrant on June 13, 1995 is incorporated
herein by reference.
(f) Amendment No. 1 dated as of March 31, 1995 to Rights
Agreement between Rollins Environmental Services, Inc. and
Registrar and Transfer Company, as Rights Agent as filed as
an Exhibit to Form 8-K filed by the Registrant on June 13,
1995 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, 1995.
(27) Rollins Environmental Services, Inc. Financial Data Schedule
at September 30, 1995.
(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.
<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: December 5, 1995 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/ John V. Flynn, Jr. President and December 5, 1995
John V. Flynn, Jr. Chief Operating Officer
/s/ Michael B. Kinnard Vice President-General Counsel December 5, 1995
Michael B. Kinnard and Secretary
/s/ Frank H. Minner, Jr. Group Vice President-Finance December 5, 1995
Frank H. Minner, Jr. and Treasurer,
Chief Financial Officer
and Chief Accounting Officer
/s/ Nicholas Pappas Vice Chairman of the Board December 5, 1995
Nicholas Pappas and Director
/s/ John W. Rollins, Jr. Senior Vice Chairman of the December 5, 1995
John W. Rollins, Jr. Board and Director
/s/ Henry B. Tippie Chairman of the Executive December 5, 1995
Henry B. Tippie Committee and Director
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(1) Consolidated
Page Nos.
Independent Auditors' Report on Financial Statements
and Financial Statement Schedule 14
Consolidated Statement of Operations for the years
ended September 30, 1995, 1994 and 1993 15
Consolidated Balance Sheet at September 30, 1995
and 1994 16
Consolidated Statement of Cash Flows for the years
ended September 30, 1995, 1994 and 1993 17
Notes to the Consolidated Financial Statements 18 to 25
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
for the years ended September 30,
1995, 1994 and 1993 26
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>
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 schedule as listed
in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement 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 financial position of Rollins
Environmental Services, Inc. and subsidiaries as of September 30, 1995 and
1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended September 30, 1995, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents 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
Wilmington, Delaware
October 26, 1995
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, 1995 1994 1993
Revenues $217,367,000 $181,468,000 $214,843,000
Expenses:
Operating 181,766,000 134,053,000 146,828,000
Special charge - 14,500,000 -
Depreciation 26,710,000 22,760,000 20,395,000
Selling and administrative 32,563,000 26,649,000 28,038,000
Interest 4,983,000 382,000 427,000
246,022,000 198,344,000 195,688,000
Earnings (Loss) Before Income
Tax (Benefits) and Cumulative
Effect of Change in Accounting
Principle (28,655,000) (16,876,000) 19,155,000
Income tax (benefits) (10,363,000) (6,399,000) 7,231,000
Earnings (Loss) Before Cumulative
Effect of Change in Accounting
Principle (18,292,000) (10,477,000) 11,924,000
Cumulative effect
(to September 30, 1993) of
adoption of SFAS No. 109 - 543,000 -
Net Earnings (Loss) $(18,292,000) $ (9,934,000) $ 11,924,000
Earnings (Loss) per Share:
Earnings (loss) before
cumulative effect of
change in accounting
principle $ (.30) $ (.17) $ .20
Cumulative effect of adoption
of SFAS No. 109 - .01 -
Earnings (Loss) Per Share $ (.30) $ (.16) $ .20
Average common shares and
equivalents outstanding 60,400,000 60,377,000 60,364,000
The Notes to the Consolidated Financial Statements are an integral part of
these statements.<PAGE>
CONSOLIDATED BALANCE SHEET
September 30,
1995 1994
ASSETS
Current Assets
Cash and cash equivalents (includes
short-term investments of:
1995-$32,108,000; 1994-$45,437,000) $ 38,691,000 $ 54,772,000
Accounts receivable, net of allowance
for doubtful accounts: 1995-$681,000;
1994-$724,000 42,774,000 28,727,000
Income taxes recoverable 10,637,000 3,827,000
Deferred income taxes 4,948,000 6,170,000
Other current assets 12,122,000 6,538,000
Total Current Assets 109,172,000 100,034,000
Property and Equipment, at cost, net of
accumulated depreciation 298,673,000 166,383,000
Excess of Cost Over Net Assets of
Businesses Acquired 10,054,000 -
Other Assets 11,585,000 6,969,000
Total Assets $429,484,000 $273,386,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 23,705,000 $ 9,591,000
Accrued liabilities 29,283,000 17,556,000
Accrued remediation and other costs 3,723,000 5,895,000
Current maturities of long-term debt 1,689,000 623,000
Total Current Liabilities 58,400,000 33,665,000
Long-term Debt 134,181,000 3,970,000
Accrued Remediation and Other Costs 11,959,000 13,516,000
Other Liabilities 10,456,000 5,331,000
Deferred Income Taxes 29,819,000 13,943,000
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:
1995 and 1994-60,375,811 60,376,000 60,376,000
Capital in excess of par value 4,650,000 4,650,000
Retained earnings 119,643,000 137,935,000
Total Shareholders' Equity 184,669,000 202,961,000
Total Liabilities and Shareholders' Equity $429,484,000 $273,386,000
The Notes to the Consolidated Financial Statements are an integral part of
these statements.<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30, 1995 1994 1993
Cash Flows From Operating Activities:
Net earnings (loss) $(18,292,000) $ (9,934,000) $ 11,924,000
Reconciliation of net earnings
(loss) to net cash flows from
operating activities, net of
acquisitions:
Special charge - 14,500,000 -
Expenditures charged to accrued
remediation and other costs (3,937,000) (2,874,000) (3,902,000)
Depreciation and amortization 26,839,000 22,760,000 20,395,000
Current and deferred income taxes (6,828,000) (6,468,000) (407,000)
(Increase) decrease in accounts
receivable (774,000) 2,636,000 9,134,000
Increase (decrease) in accounts
payable and accrued liabilities 15,668,000 5,643,000 (5,370,000)
Other, net 1,116,000 (477,000) 721,000
Net cash provided by operating
activities 13,792,000 25,786,000 32,495,000
Cash Flows From Investing Activities:
Acquisition of businesses, net
of cash acquired (9,588,000) - -
Purchase of property and
equipment (20,051,000) (18,002,000) (32,993,000)
Proceeds from sales of equipment 428,000 75,000 119,000
Net cash used in investing
activities (29,211,000) (17,927,000) (32,874,000)
Cash Flows From Financing Activities:
Repayment of long-term debt (662,000) (662,000) (1,565,000)
Dividend payments - - (6,033,000)
Exercise of stock options - 88,000 344,000
Net cash used in financing
activities (662,000) (574,000) (7,254,000)
Cash And Cash Equivalents:
Net (decrease) increase in cash
and cash equivalents (16,081,000) 7,285,000 (7,633,000)
Beginning of period 54,772,000 47,487,000 55,120,000
End of period $ 38,691,000 $ 54,772,000 $ 47,487,000
Supplemental Information:
Interest paid $ 4,219,000 $ 549,000 $ 624,000
Income taxes (recovered) paid $ (3,640,000) $ (472,000) $ 8,902,000
Noncash Investing and Financing Activities:
Acquisition of businesses:
Fair value of assets acquired $169,572,000 $ - $ -
Cash paid 9,599,000 - -
Liabilities assumed and
incurred $159,973,000 $ - $ -
The Notes to the Consolidated Financial Statements are an integral part of
these statements.<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.
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 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 forty 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.
The excess of cost over net assets of businesses acquired is amortized on
a straight-line basis over twenty years.
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 recognizes recoveries from third parties when it is probable that
such amounts will be realized and such amounts are not offset against the
related environmental remediation liability. The receivable amounts from
third parties at Septmber 30, 1995 is not material.
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.
In March 1995, the Financial Accounting Standards Board issued SFAS NO.
121-Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of - which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This standard must be
adopted no later than fiscal year ending September 30, 1997. The Company has
not determined the impact, if any, of adopting this standard.
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).
Acquisitions
On March 31, 1995, the Company acquired from Westinghouse Electric
Corporation all of the capital stock of National Electric, Inc. ("NEI"), a
wholly owned subsidiary of Westinghouse Electric Corporation. NEI owns all
of the capital stock of Aptus, Inc. NEI is not conducting any business
operations. Aptus is engaged in the sale of services related to the
transportation, storage, laboratory analysis and incineration of certain
types of hazardous waste.
The purchase price of $132,039,000 consisted of a cash payment of
$6,500,000, the assumption of Westinghouse Electric Corporation's obligations
and duties in connection with the $45,700,000 Variable Rate Hazardous Waste
Treatment Revenue Bonds, and the issuance of $13,839,000 of 7.75% Senior
Unsecured Debentures and $66,000,000 of 7.25% Convertible Subordinated
Debentures.
On April 28, 1995, the Company acquired all of the common stock of
Allworth of Tennessee, Inc., a waste processing facility for a cash payment
of $3,099,000.
These acquisitions were accounted for using the purchase method and,
accordingly, the assets acquired and the liabilities assumed have been
recorded at their fair values on their acquisition dates. This treatment
resulted in an excess of cost over net assets of businesses acquired of
approximately $10,000,000.
The results of operations of these companies are included in the
Consolidated Statement of Operations from the acquisition dates forward.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisitions had occurred at the beginning of
the periods presented and do not purport to be indicative of what would have
occurred had the acquisitions been made as of those dates or of future
operating results.
Year Ended September 30, 1995 1994
Revenues $261,779,000 $282,058,000
Net loss $(24,653,000) $(12,742,000)
Loss per share $ (.41) $ (.21)
Property and Equipment
The property and equipment accounts are as follows:
September 30, 1995 1994
Land $ 31,324,000 $ 28,790,000
Buildings 72,169,000 32,360,000
Equipment and vehicles 299,035,000 190,785,000
Site improvements 30,250,000 29,072,000
Construction in progress 17,277,000 13,063,000
Accumulated depreciation (151,382,000) (127,687,000)
$298,673,000 $166,383,000
Commitments for the purchase of property and equipment amounted to $3,043,000
at September 30, 1995.
Income Taxes
The income tax provision (benefits) for the three years ended September
30, 1995 are comprised as follows:
Year Ended September 30, 1995 1994 1993
Current:
Federal $(10,446,000) $(3,242,000) $4,578,000
State 144,000 639,000 870,000
Deferred:
Federal 1,277,000 (2,228,000) 1,783,000
State (1,338,000) (1,568,000) -
Income tax (benefits) $(10,363,000) $(6,399,000) $7,231,000
A reconciliation of the income tax provision (benefits) for the three
years ended September 30, 1995 with amounts calculated by applying the
statutory federal income tax rate (35% for 1995 and 1994 and 34 3/4% for
1993) for those years to earnings (loss) before income tax is as follows:
Year Ended September 30, 1995 1994 1993
Federal tax (benefits) at
statutory rate $(10,029,000) $(5,907,000) $6,657,000
State income tax (benefits) (776,000) (604,000) 568,000
Other 442,000 112,000 6,000
Income tax (benefits) $(10,363,000) $(6,399,000) $7,231,000
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, 1995 1994
Deferred tax assets:
Accrued remediation and closure costs $ 6,007,000 $ 7,455,000
Expenses deductible when paid 5,907,000 5,977,000
State net operating loss benefits,
expiring 2000-2010 2,678,000 1,176,000
Federal net operating loss benefits,
expiring 2010 7,000,000 -
Other 497,000 -
Total gross deferred tax assets 22,089,000 14,608,000
Less valuation allowance (2,138,000) -
Net deferred tax assets 19,951,000 14,608,000
Deferred tax liabilities:
Excess of tax over book depreciation 44,032,000 22,086,000
Other 790,000 295,000
Total gross deferred tax liabilities 44,822,000 22,381,000
Net deferred tax liability $24,871,000 $ 7,773,000
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).
At September 30, 1995, the Company has net operating loss carryforwards
for federal income tax purposes of $20,000,000 which will expire on various
dates through 2010. The operating loss carryforwards were generated by
Aptus, Inc. prior and subsequent to its acquisition on March 31, 1995. The
use of Aptus, Inc.'s operating losses is subject to limitations imposed by
the Internal Revenue Code. The Company has recorded a valuation allowance of
$2,138,000 to reflect the estimated amount of deferred tax assets which may
not be realized principally due to expiration of operating loss
carryforwards.
In assessing the realizability of deferred tax assets, management
considered whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considered the scheduled reversals of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this assessment.
Accrued Liabilities
Accrued liabilities are as follows:
September 30, 1995 1994
Environmental remediation (non-owned sites) $ 8,873,000 $ 2,595,000
Employee compensation 5,543,000 2,942,000
Taxes other than income 4,995,000 4,410,000
Insurance and legal 2,339,000 1,761,000
Landfill capping costs 2,208,000 4,037,000
Other 5,325,000 1,811,000
$29,283,000 $17,556,000
Shareholders' Equity
Changes in the components of shareholders' equity are as follows:
<TABLE>
$1 Par Value Capital in Total
Common Excess of Retained Shareholders'
Stock Par Value Earnings Equity
<S> <C> <C> <C> <C>
Balance at September 30, 1992 $60,287,000 $4,307,000 $141,978,000 $206,572,000
Net earnings 11,924,000 11,924,000
Dividends of $.10 per share (6,033,000) (6,033,000)
Exercise of stock options 63,000 281,000 344,000
Balance at September 30, 1993 60,350,000 4,588,000 147,869,000 212,807,000
Net loss (9,934,000) (9,934,000)
Exercise of stock options 26,000 62,000 88,000
Balance at September 30, 1994 60,376,000 4,650,000 137,935,000 202,961,000
Net loss (18,292,000) (18,292,000)
Balance at September 30, 1995 $60,376,000 $4,650,000 $119,643,000 $184,669,000
</TABLE>
<PAGE>
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.
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.
<PAGE>
Stock Option Plan
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, 1995 are as follows:
<TABLE>
Year Ended September 30, 1995 1994 1993
<S> <C> <C> <C>
Number of options
Outstanding at beginning of year 658,868 674,660 757,917
Granted 394,200 200,610 -
Exercised - (25,557) (62,882)
Expired or canceled (70,266) (190,845) (20,375)
Outstanding at September 30 982,802 658,868 674,660
At September 30
Options available for grant 339,390 717,390 -
Options exercisable 384,375 317,900 333,609
Per share prices
Options granted $4.13 to $ 5.00 $4.63 to $ 5.75 -
Options exercised - $3.47 $3.38 to $ 8.88
Options outstanding $4.13 to $12.25 $4.63 to $12.80 $3.47 to $12.80
</TABLE>
<PAGE>
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 $13,265,000 in 1995, $3,175,000 in
1994 and $1,714,000 in 1993. The cost of these services has been included in
operating expenses 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 $6,617,000 in 1995, $6,551,000 in
1994 and $7,359,000 in 1993.
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 $6,792,000 in 1995,
$5,156,000 in 1994 and $5,635,000 in 1993.
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
September 30, 1995 1994
7.25% Convertible Subordinated Debentures,
due 2005 $ 66,000,000 $ -
Variable Rate Hazardous Waste Treatment
Revenue Bonds, due 2020 (Interest rates
range from 3.5% to 6.0%) 45,700,000 -
7.75% Senior Unsecured Debentures, due 2005 13,839,000 -
Promissory Note, interest at prime (8.75%),
due 1995-2001 6,400,000 -
Other Long-term Debt 3,931,000 4,593,000
Less Current Maturities (1,689,000) (623,000)
$134,181,000 $3,970,000
On March 31, 1995, the Company issued $66,000,000 of 7.25% Convertible
Subordinated Debentures due on March 31, 2005. The bonds are convertible
into shares of the Company's common stock at a conversion price equal to
$6.15 at any time prior to maturity. The debentures are redeemable at the
option of the Company under certain circumstances on or after March 31, 1998
should the price per share of the Company's common stock exceed $6.97.
Other 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: 1996-$1,689,000; 1997-$1,728,000; 1998-$1,728,000;
1999-$1,728,000 and 2000-$1,728,000.
The Company has a loan agreement containing covenants which restrict or
limit the ability of the Company to pay dividends, incur indebtedness,
repurchase common stock and the sale of assets. The Company must also
maintain a fixed charge coverage ratio and maintain a minimum tangible net
worth of $160,000,000. At September 30, 1995, the Company was in compliance
with such covenants.
Due to the variable rate provisions of the Hazardous Waste Treatment
Revenue Bonds and the Promissory Note, the carrying value approximates fair
value. It is not practical to estimate the fair value of the Convertible
Subordinated and Senior Unsecured Debentures due to an industry decline which
adversely impacted the Company's operations. The fair value of the remaining
long-term debt approximates its carrying value.
Pension Plans
The Company maintains a noncontributory pension plan for eligible
employees. Pension costs are funded in accordance with the provisions of the
Internal Revenue Code. The Company also maintains a nonqualified,
noncontributory defined benefit pension plan for certain employees to restore
pension benefits reduced by federal income tax regulations. The cost
associated with the plan is determined using the same actuarial methods and
assumptions as those used for the Company's qualified pension plan.
The components of net periodic pension cost are as follows:
September 30, 1995 1994 1993
Service cost $1,398,000 $1,777,000 $1,295,000
Interest cost 1,102,000 1,032,000 801,000
Return on plan assets (3,579,000) (420,000) (1,494,000)
Net amortization and deferral 2,455,000 (492,000) 673,000
Net periodic pension cost $1,376,000 $1,897,000 $1,275,000
The following table sets forth the funded status and the amount
recognized in the Company's balance sheet for the plans:
September 30, 1995 1994
Actuarial present value of accumulated benefit obligation:
Vested $11,928,000 $10,250,000
Non-vested 1,107,000 1,154,000
$13,035,000 $11,404,000
Projected benefit obligation $16,203,000 $15,162,000
Plan assets at market value 16,395,000 11,967,000
Projected benefit obligation (under)
in excess of plan assets (192,000) 3,195,000
Unrecognized gain 4,751,000 1,026,000
Unrecognized prior service (139,000) (89,000)
Unamortized unfunded projected benefit
obligation at adoption (768,000) (844,000)
Accrued pension liability $ 3,652,000 $ 3,288,000
The discount rate and the rate of assumed compensation increase for all
three years were 8.0% and 5.0%, respectively. The expected long-term rate of
return on assets was 9.0% for 1995 and 9.5% for 1994 and 1993.
The assets of the plans at September 30, 1995 were invested 70% in equity
securities, 19% in fixed income securities and the balance in other interest
bearing accounts.
Effective October 1, 1994, the Company established a defined contribution
401(k) plan which permits participation by substantially all employees not
represented under a collective bargaining agreement.
Commitments and Contingent Liabilities
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. 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 $15,682,000 and $19,411,000 at
September 30, 1995 and 1994, 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.
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 $58,363,000 at
September 30, 1995, which included letters of credit of $8,260,000. 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. Leases classified as operating leases expire on various dates
during the next seven years. Total rental expense for all operating leases
except those with terms of a month or less was $4,901,000 in 1995, $4,392,000
in 1994 and $5,783,000 in 1993.
Minimum future rental payments required under operating leases having
non-cancelable terms in excess of one year as of September 30, 1995 are as
follows:
Year Ending September 30,
1996 $ 5,201,000
1997 3,869,000
1998 2,992,000
1999 2,284,000
2000 1,795,000
Later years 1,433,000
Total minimum payments required $17,574,000
<PAGE>
Quarterly Results (Unaudited)
<TABLE>
December March June September
1995 31 31 30 (1) 30 (1)
<S> <C> <C> <C> <C>
Revenues $49,907,000 $ 43,354,000 $ 63,287,000 $ 60,819,000
Gross profit (loss) $ 7,977,000 $ (742,000) $ 556,000 $ (1,622,000)
Earnings (loss) before
income tax (benefits) $ 1,876,000 $ (7,508,000) $(10,094,000) $(12,929,000)
Net earnings (loss) $ 1,220,000 $ (4,577,000) $ (6,606,000) $ (8,329,000)
Earnings (loss) per share $ .02 $ (.08) $ (.11) $ (.13)
1994
Revenues $47,515,000 $ 41,363,000 $ 46,650,000 $ 45,940,000
Gross profit $ 6,983,000 $ 1,408,000 $ 8,220,000 $ 6,166,000
Earnings (loss) before income
taxes (benefit) $ 227,000 $(19,690,000)(2) $ 2,479,000 $ 108,000
Earnings (loss) from
operations $ 106,000 $(12,373,000)(2) $ 1,568,000 $ 222,000
Cumulative effect (to September
30, 1993) of adoption of
SFAS No. 109 $ 543,000 $ - $ - $ -
Net earnings (loss) $ 649,000 $(12,373,000)(2) $ 1,568,000 $ 222,000
Earnings (loss) per share:
From operations $ - $ (.20)(2) $ .02 $ .01
Adoption of SFAS No. 109 $ .01 $ - $ - $ -
Earnings (loss) per share $ .01 $ (.20)(2) $ .02 $ .01
(1) Results for the quarters ended June 30 and September 30, 1995 include the results of operations
of acquired companies for the periods in which they were owned by the Company.
(2) Includes special charge of $14,500,000 ($9,031,000 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.
/TABLE
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($000 OMITTED)
<TABLE>
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>
1995: Allowance for doubtful accounts $724 $325 $368 $ 681
Deferred tax valuation allowance - - $2,138 (2) $2,138
1994: Allowance for doubtful accounts $422 $128 $ 367 (1) $193 $ 724
1993: Allowance for doubtful accounts $453 $100 $131 $ 422
(1) Subsidiary balance at date of acquisition.
(2) The Company has recorded a valuation allowance to reflect the estimated amount of
deferred tax assets which may not be realized principally due to expiration of
operating loss carryforwards.
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
Exhibits to Form 10-K
For Fiscal Year Ended September 30, 1995
Index to Exhibits Page Nos.
Exhibit 21 Rollins Environmental Services, Inc. 27
Subsidiaries at September 30, 1995
Exhibit 27 Rollins Environmental Services, Inc. 28
Financial Data Schedule at
September 30, 1995
<PAGE>
Exhibit 21
ROLLINS ENVIRONMENTAL SERVICES, INC.
Subsidiaries of the Registrant
September 30, 1995
JURISDICTION OF
NAME INCORPORATION
Allworth of Tennessee, Inc. Tennessee
Custom Environmental Transport, Inc. Delaware
ENCOTEC, INC. Delaware
Highway 36 Land Development Company Colorado
National Electric, Inc. (Parent of Aptus, Inc.) Minnesota
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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 38,691
<SECURITIES> 0
<RECEIVABLES> 43,455
<ALLOWANCES> (681)
<INVENTORY> 0
<CURRENT-ASSETS> 109,172
<PP&E> 450,055
<DEPRECIATION> (151,382)
<TOTAL-ASSETS> 429,484
<CURRENT-LIABILITIES> 58,400
<BONDS> 134,181
<COMMON> 60,376
0
0
<OTHER-SE> 124,293
<TOTAL-LIABILITY-AND-EQUITY> 429,484
<SALES> 217,367
<TOTAL-REVENUES> 217,367
<CGS> 0
<TOTAL-COSTS> 208,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,983
<INCOME-PRETAX> (28,655)
<INCOME-TAX> (10,363)
<INCOME-CONTINUING> (18,292)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,292)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
