___________________________________________________________________________
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, 1996 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ____________
Commission file number 1-8368
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. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $130,769,000 as of October 31, 1996.
The number of shares of registrant's common stock outstanding as of
October 31, 1996 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 31, 1997 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, Louisiana 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 fourth consecutive year, the Company's earnings were adversely
affected by continued weak conditions in the commercial hazardous waste
incineration industry. Overall incineration waste volumes remained flat
during fiscal 1996, however, the incineration revenues continued to be
adversely affected by industry-wide overcapacity, intense price competition
and unpredictable event business. The industry-wide overcapacity was largely
due to fewer remediation projects generating wastes for treatment and
disposal, many of which have been either deferred or cancelled, reduced
volumes from generators attributable to reuse, reduce and recycle programs,
and uncertainties in the regulatory requirements affecting waste and
contaminated sites. On the regulatory front, the Company is continuing to
work vigorously with the states and the EPA to establish standards that will
regulate equitably the commercial hazardous waste incineration industry and
the incineration of hazardous wastes by the cement kiln industry. The
Company believes such standards, when enacted, will mitigate the effects of
intense price competition and help stabilize the volume of waste available
for treatment.
To increase its revenue base, the Company has expanded and will continue
to expand its service line under its ongoing mission to be a one source
service provider. An increasing number of customers prefer to use fewer
environmental service providers who provide wider service offerings. For
example, through a partnership with Ogden Martin Waste Treatment Systems,
Inc., the largest operator of waste-to-energy facilities in the United
States, Rollins now offers non-regulated waste services. In addition, the
Company is striving to streamline and simplify its business processes to
enhance customer satisfaction, a significant contributor to maintaining core
business and gaining new business from current customers.
The Company modified its operations this year by reducing its capacity to
match service demands. The Coffeyville, Kansas incineration plant switched
to a "campaign" operation where it accumulates volumes and incinerates such
volumes periodically. The Baton Rouge, Louisiana plant was transitioned to
a transfer and storage operation with incineration services idled
temporarily, yet available if needed. Both incinerators are being maintained
in a ready status and both were used in this way during the fiscal year.
Otherwise, there have been no significant changes in the business of the
Company since September 30, 1995.
(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 14
and 22 to 35 of this 1996 Annual Report on Form 10-K.
(c) Narrative Description of Business
The Company collects waste for treatment and disposal through a network
of 26 Regional Service Centers nationwide. Each Service Center offers
collection and customer service support and operates as a one source service
location. These Centers are the entry point for collecting waste into
Rollins facilities and are equipped with short-term storage and transfer
capabilities from where waste generated by labpacking and remediation
management is then shipped to treatment and disposal facilities.
The Company treats and disposes industrial chemical waste at its
facilities in Coffeyville, Kansas; Baton Rouge, Louisiana; Bridgeport, New
Jersey; Deer Park, Texas; and Aragonite, Utah, (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 (the
"Landfill"). Aqueous waste streams are treated and disposed 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 (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 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 3,600 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 5% 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.); Calvert City,
Kentucky (LWD); and Clive, Utah (Laidlaw Environmental). 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 in all material respects 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 that was 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 $56,808,000 at
September 30, 1996, which included letters of credit of $6,707,000. 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 23 of this 1996 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. The Company intends to sell this facility in fiscal 1997.
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 that 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 owned all
of the capital stock of Aptus, Inc. NEI did not conduct 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 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 1,665 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; Rollins
Environmental, Inc. 12 acres; Tipton Environmental Technology, Inc. 60 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) has
defended 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 has
been undertaken. The investigation 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
sought recovery of costs incurred by the United States at the BROS site,
interest on these costs and a declaration that the defendants were jointly
and severally liable for future response costs. RES (NJ) has contested this
action vigorously, focusing on its suit against the United Sates as the
contributor of the overwhelming percentage of hazardous substances to the
BROS site.
An intensive mediation effort has resulted in a settlement of the matter
which culminated on September 30, 1996 with the lodging of a consent decree
with the Court. Finalization of the settlement awaits the Court's entry of
the decree. The settlement between all of the potentially responsible
parties ("PRPs") and the EPA was for a total of $221,500,000. Of this
amount, the governmental PRPs will pay 78.9% or $174,760,000, while the
private PRPs (including RES (NJ)) will pay 21.1% or $46,740,000. RES (NJ) is
responsible for $13,035,0000 of the settlement. As of September 30, 1996,
RES (NJ) had been reimbursed a total of $8,163,000 from various insurance
carriers. On November 8, 1996, RES (NJ) received an additional $2,555,000
from insurance carriers with an additional $445,000 to be reimbursed at a
later date. On November 14, 1996, RES (NJ) made payments of $13,035,000 to
the Trustees of the BROS Superfund Site Qualified Settlement Fund and
Environmental Remediation Trust in fulfillment of its settlement obligations.
(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. Virtually all parties, including RES (NJ), have been involved in
a lengthy and complex settlement process which has yet to produce a final
allocation plan. Rather than abandon the effort and resort to a litigation
alternative, the U.S. District Court Judge responsible for the case has urged
the parties to commence a mediation process in an effort to reach a
satisfactory allocation and settle the case.
(c) Rinehardt Litigation
In April, 1996, Rollins Environmental Services of Louisiana, Inc. (RES of
LA) along with 84 other parties was served with a complaint alleging that RES
of LA in some way was responsible for personal injury and property damage to
persons living in the proximity of the Bayou Sorrel Superfund Site ("Site").
This Site was a waste disposal site which has been remediated in conjunction
with the U.S. Environmental Protection Agency. Plaintiffs have requested the
Court to certify the matter as a class action. Defendants removed the action
to federal court. RES of LA will contest this action vigorously as it is not
even clear, at this stage of the case, whether the plaintiffs have suffered
any damages.
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, 1996 and
1995 are as follows:
Prices
1996 1995
High Low High Low
Fiscal Quarter
First ............. $4 1/2 $2 3/4 $6 1/8 $4 3/8
Second ............ 3 1/8 2 5 1/2 4
Third ............. 4 1/2 2 1/4 5 4 1/8
Fourth ............ 4 1/8 2 5/8 5 1/4 4 1/4
At September 30, 1996, there were 5,979 holders of record of the Common
Stock.<PAGE>
FINANCIAL REVIEW
Five Year Selected Financial Data
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
Fiscal Year Ended September 30, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues $241,130 $217,367 $181,468 $214,843 $240,477
Earnings (loss) before
income taxes (benefits) $(45,911) $(28,655) $(16,876)(1) $ 19,155 $ 49,215
Income taxes (benefits) (15,725) (10,363) (6,942)(2) 7,231 17,203
Net earnings (loss) $(30,186) $(18,292) $ (9,934)(1)(2) $ 11,924 $ 32,012
Earnings (loss) per share $ (.50) $ (.30) $ (.16)(1)(2) $ .20 $ .53
Cash dividends per share(3) $ - $ - $ - $ .10 $ .0925
September 30,
Working capital $ 34,065 $ 50,772 $ 66,369 $ 64,864 $ 68,898
Property and equipment $272,811 $298,673 $166,383 $180,998 $169,285
Total assets $384,967 $429,484 $273,386 $278,641 $283,318
Long-term debt $132,453 $134,181 $ 3,970 $ 4,632 $ 5,444
Shareholders' equity $154,483 $184,669 $202,961 $212,807 $206,572
(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.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
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) 1996 Revenues 1995 Revenues 1994 Revenues
<S> <C> <C> <C> <C> <C> <C>
Incineration $164,948 68.4 $154,266 70.9 $135,559 74.7
Transportation 27,348 11.3 22,110 10.2 15,922 8.8
Services 14,053 5.8 10,914 5.0 9,930 5.5
Landfill 10,036 4.2 5,663 2.6 906 .5
Other 24,745 10.3 24,414 11.3 19,151 10.5
$241,130 100.0 $217,367 100.0 $181,468 100.0
Each caption in the above table includes the portion of the revenues of the Company's subsidiaries
related to that particular service.
/TABLE
<PAGE>
Fiscal Year 1996 vs. 1995
Revenues for 1996 increased by $23,763,000 (11%) to $241,130,000 from the
$217,367,000 reported in the prior year. The increase in incineration
revenues was principally the result of acquisitions made in March and April
1995. Fiscal 1996 includes 12 months of revenues from acquisitions compared
with six months in fiscal 1995 offset in part by lower average prices and a
change in incineration mix. The Company's hazardous solid waste operations
faced declining prices during the first nine months of fiscal 1996. During
the last quarter solid waste pricing appeared to have stabilized. Overall
incineration waste volumes remained flat during fiscal 1996. The Company's
incineration revenues continue to be adversely affected by industry-wide
overcapacity, intense price competition and unpredictable event business.
Industry consolidation predicted in 1996 did not occur, therefore, the
Company implemented a new program that manages the Company's capacity and
shifting market demands by placing two facilities on flexible operating
schedules. These facilities are maintained in such a way that incineration
can begin quickly when market demand warrants. Industry overcapacity and
pricing pressure from customers and competitors is expected to continue for
the foreseeable future. The increase in transportation and landfill revenues
was primarily from a large disposal contract with one customer which expires
in December 1996. The increase in service revenues resulted from offering a
wider range of services through new regional service centers that were
established to meet the growing customer demand for total waste management.
The Company is continuing to work vigorously with the states and the EPA to
establish standards that will regulate equitably 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.
Operating expenses increased by $28,089,000 (15%) to $209,855,000 from the
$181,766,000 reported in 1995. The increase reflects the increase in
revenues and higher fixed operating costs as the result of acquisitions made
during fiscal 1995. Fiscal 1996 includes 12 months of operating expenses
from acquisitions compared with six months in fiscal 1995. Operating costs
as a percentage of revenues increased to 87% in 1996 from 84% in 1995 because
a large component of the Company's cost structure is fixed. In addition, the
percentage increase was the result of continued pressure on pricing and a
shift in revenue mix to lower profit margin business. The lower revenues
reduced the benefit expected from personnel reductions and spending cuts made
during fiscal 1996.
Depreciation increased by $6,792,000 (25%) due mainly to an increase in
amortization of airspace for a completed landfill cell and the impact of the
1995 acquisitions.
Selling and administrative expenses increased by $2,267,000 (7%)
principally as a result of including 12 months of selling and administrative
expenses from acquisitions compared with six months in fiscal 1995. As a
percentage of revenues, selling and administrative expenses decreased
slightly to 14% in 1996 from 15% in 1995.
Interest expense increased by $3,871,000 as a result of acquisition-
related debt incurred or assumed in the third quarter of fiscal 1995.
The income tax benefits recorded for the years 1996 and 1995 were based
on estimated effective rates of 34% and 36% of the loss before income taxes,
respectively.
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 effected 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 stabilize 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 $34,704,000 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. A large component of the Company's cost structure
is fixed which caused operating expenses to increase 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%)
principally 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 taxes,
respectively.
In the face of industry consolidation and market uncertainty, the Company
made a strategic decision to purchase its largest competitor. 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.
Liquidity and Capital Resources
The Company's operations require ongoing capital investments, which have
been financed with the cash flows from operations and available cash.
Expenditures for property and equipment were $7,832,000 in 1996, $20,051,000
in 1995 and $18,002,000 in 1994. Commitments for the purchase of property
and equipment amounted to $471,000 at September 30, 1996. The Company plans
capital expenditures of up to $6,161,000 in 1997 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 $3,883,000, $3,937,000 and $2,874,000,
respectively, on remediation projects at its facilities in 1996, 1995 and
1994. 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.
On September 30, 1996, RES (NJ) settled with the EPA the Bridgeport Rental
& Oil Services Superfund Site (BROS) for $13,035,000. As of September 30,
1996, RES (NJ) had been reimbursed a total of $8,163,000 from various
insurance carriers. On November 8, 1996, RES (NJ) received an additional
$2,555,000 from insurance carriers with an additional $445,000 to be
reimbursed at a later date. On November 14, 1996, RES (NJ) made payments of
$13,035,000 to the Trustees of the BROS Superfund Site Qualified Settlement
Fund and Environmental Remediation Trust in fulfillment of its settlement
obligations.
At September 30, 1996, the Company was not in compliance with the fixed
charge coverage ratio with respect to the 7.75% Senior Unsecured Debentures.
Emerging Issues Task Force Issue No. 86-30, "Classification of Obligations
When a Violation is Waived by the Creditor," requires a company to reclassify
long-term debt as current when a covenant violation has occurred absent a
loan modification and it is probable that the borrower will not be able to
comply with the same covenant at measurement dates that are within the next
twelve months. On November 27, 1996, the Company received a waiver of this
covenant with respect to the period ended September 30, 1996 and the debt
agreement was amended to reduce the quarterly fixed charge coverage ratio
requirement for the periods up to and including September 30, 1997. Based
upon current projections, management of the Company believes that it will be
able to remain in compliance under the terms of the amended agreement.
Additionally, the Company collateralized the 7.75% Senior Unsecured
Debentures and the 7.25% Convertible Subordinated Debentures by granting a
security interest in $22,000,000 of the Company's accounts receivable and a
second mortgage on certain land with a carrying value of $4,973,000.
For fiscal 1997, the Company anticipates lower operating cash requirements
due to a lower level of planned capital and remediation spending. The Company
believes that existing cash balances, cash expected to be generated from
operations, which includes income tax refunds, and proceeds from the sale of
certain nonstrategic assets will be sufficient to meet the Company's cash
requirements for fiscal 1997. Depreciation, which represents the largest
component of cash flow from operations, is expected to be approximately
$34,000,000 in 1997.
Impact of Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires that the Company's long-lived assets, which
consist primarily of incinerator facilities, transfer, storage and processing
facilities, other equipment, and certain identifiable intangibles, be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable. The Company
will adopt this standard in the first quarter of fiscal 1997. The
implementation of SFAS 121 is not expected to have a material impact on the
results of operations or financial position of the Company.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
which encourages the fair value-based method of accounting for stock options
and similar equity instruments granted to employees. This method requires
that the fair value of equity instruments granted to employees be recorded as
compensation expense. However, SFAS 123 allows for the continued use of the
intrinsic value-based method, which, in most cases, does not result in a
charge to earnings. The Company does not expect to change its method of
accounting for stock options. However, the Company will adopt the disclosure
requirements of SFAS 123 when required in fiscal 1997.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 "Environmental Remediation Liabilities"
(SOP 96-1) for fiscal years beginning after December 15, 1996. This SOP 96-1
provides that environmental remediation liabilities should be accrued when
the criteria of Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies" (SFAS 5) are met and it includes benchmarks to
aid in the determination of when environmental remediation liabilities should
be recognized. SOP 96-1 also provides guidance with respect to the
measurement of the liability and the display and disclosure of environmental
remediation liabilities in the financial statements. The Company has not
determined the impact, if any, of adopting SOP 96-1.
Forward-Looking Statements
Matters discussed in this Form 10-K contain forward-looking statements
relating to anticipated financial performance, business prospects, new
services, market forces, commitments, technological developments and other
matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. In order to comply with the
terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from
the anticipated results or other expectations expressed in the Company's
forward-looking statements.
Forward-looking statements typically contain words such as "anticipates",
believes", "estimates", "expects", "forecasts", "predicts", or "projects", or
variations of these words, suggesting that future outcomes are uncertain.
The following discussion is intended to identify certain factors (though not
necessarily all such factors) that could cause future outcomes to differ
materially from those set forth in forward-looking statements made by the
Company.
The risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include the following
factors: general economic conditions, competitive factors and pricing
pressures, overcapacity in the industry, shifts in market demand, changes in
federal, state and local laws and regulations, especially environmental
regulations, equipment utilization, potential increases in equipment,
maintenance and operating costs, potential increases in labor costs, the
performance and needs of industries served by the Company's business,
alternate and emerging technologies and the Company's costs of continuing
investments in technology, uncertainties of litigation, the Company's ability
to generate adequate cash flow or finance its future business requirements
through outside sources, compliance with debt covenants, success or timing of
completion of ongoing or anticipated capital or maintenance projects, planned
and unplanned outages due to maintenance, equipment malfunctions or work
stoppages, the availability of adequate levels of insurance, the Company's
ability to provide adequate financial assurances for its closure and post-
closure obligations, various hazards which could disrupt operations
(including explosions, fires and severe weather conditions) and management
retention and development.
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 20.
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 31, 1997.
Executive Officers of the Registrant. As of October 31, 1996, the
executive officers of the registrant were:
Name Position Age Term of Office
John V. Flynn, Jr. President, Chief Operating Officer 54 7/95 to date
Executive Vice President 1/95 to 7/95
Michael B. Kinnard Vice President-General Counsel 39 10/95 to date
and Secretary
General Counsel and Secretary 10/94 to 10/95
Frank H. Minner, Jr. Group Vice President-Finance and 64 2/95 to date
Treasurer, Chief Financial Officer
and Chief Accounting Officer
John W. Rollins Chairman of the Board, 80 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 54 1/88 to date
Vice Chairman of the Board 5/83 to 1/88
Henry B. Tippie Chairman of the Executive Committee, 69 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 31, 1997.
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 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fiscal year ended September 30, 1996, 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 11.2% and 11.5% of the Common Stock of Rollins Truck Leasing Corp. and
Matlack Systems, Inc., respectively at October 31, 1996. 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 31 of this 1996 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 20.
(2) Financial Statement Schedules - See accompanying Index to
Consolidated Financial Statements and Schedules on page 20.
(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.
(4) (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.
(4) (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.
(4) (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.
(4) (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.
(4) (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.
(4) (g) First Supplemental Indenture dated as of September 30, 1995
between Rollins Environmental Services, Inc. (the "Company")
and First Fidelity Bank, National Association (the "Trustee")
supplementing and amending that certain Indenture between the
Company and the Trustee dated as of March 31, 1995 relating
to $13,839,000 principal amount of 7.75% Senior Unsecured
Debentures Due 2005.
(4) (h) Second Supplemental Indenture dated as of September 30, 1996
between Rollins Environmental Services, Inc. (the "Company")
and First Fidelity Bank, National Association (the "Trustee")
supplementing and amending that certain Indenture between the
Company and the Trustee dated as of March 31, 1995 relating
to $13,839,000 principal amount of 7.75% Senior Unsecured
Debentures Due 2005.
(4) (i) Amendment No. 1 to Debenture Purchase Agreement dated as of
September 30, 1996 between Rollins Environmental Services,
Inc. ("Rollins") and Westinghouse Electric Corporation
("Westinghouse") amending that certain Debenture Purchase
Agreement between Rollins and Westinghouse dated as of March
31, 1995 relating to 7.25% Convertible Subordinated
Securities Due 2005 and 7.75% Senior Unsecured Debentures Due
2005.
(4) (j) First Supplemental Indenture dated as of September 30, 1996
between Rollins Environmental Services, Inc. (the "Company")
and Texas Commerce Bank National Association (the "Trustee")
supplementing and amending that certain Indenture between the
Company and the Trustee dated as of March 31, 1995 relating
to $66,000,000 principal amount of 7.25% Convertible
Subordinated Debentures Due 2005.
(4) (k) Third Supplemental Indenture dated as of November 27, 1996
between Rollins Environmental Services, Inc. (the "Company")
and First Fidelity Bank, National Association (the "Trustee")
supplementing and amending that certain Indenture between the
Company and the Trustee dated as of March 31, 1995 relating
to $13,839,000 principal amount of 7.75% Senior Unsecured
Debentures due 2005.
(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, 1996.
(27) Rollins Environmental Services, Inc. Financial Data Schedule
at September 30, 1996.
(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 4, 1996 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 4, 1996
John V. Flynn, Jr. Chief Operating Officer
/s/ Michael B. Kinnard Vice President-General Counsel December 4, 1996
Michael B. Kinnard and Secretary
/s/ Frank H. Minner, Jr. Group Vice President-Finance December 4, 1996
Frank H. Minner, Jr. and Treasurer,
Chief Financial Officer and
Chief Accounting Officer
/s/ John W. Rollins, Jr. Senior Vice Chairman of the December 4, 1996
John W. Rollins, Jr. Board and Director
/s/ Henry B. Tippie Chairman of the Executive December 4, 1996
Henry B. Tippie Committee and Director
/s/ William L. Medford Director December 4, 1996
William L. Medford
/s/ Don C. Stansberry Director December 4, 1996
Don C. Stansberry
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(1) Consolidated
Page Nos.
Independent Auditors' Report on Financial
Statements and Financial Statement Schedule 21
Consolidated Statement of Operations for the years
ended September 30, 1996, 1995 and 1994 22
Consolidated Balance Sheet at September 30, 1996
and 1995 23
Consolidated Statement of Cash Flows for the years
ended September 30, 1996, 1995 and 1994 24
Notes to the Consolidated Financial Statements 25 to 35
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
for the years ended September 30,
1996, 1995 and 1994 36
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, 1996 and
1995, and the results of their operations and their cash flows for each of
the years in the three-year period ended September 30, 1996, 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
November 8, 1996, except for the last paragraph under the
footnote "Indebtedness", which is as of November 27, 1996
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
Revenues $241,130,000 $217,367,000 $181,468,000
Expenses:
Operating 209,855,000 181,766,000 134,053,000
Special charge - - 14,500,000
Depreciation 33,502,000 26,710,000 22,760,000
Selling and administrative 34,830,000 32,563,000 26,649,000
Interest 8,854,000 4,983,000 382,000
287,041,000 246,022,000 198,344,000
Loss Before Income Tax Benefits
and Cumulative Effect of
Change in Accounting Principle (45,911,000) (28,655,000) (16,876,000)
Income tax benefits (15,725,000) (10,363,000) (6,399,000)
Loss Before Cumulative Effect of
Change in Accounting Principle (30,186,000) (18,292,000) (10,477,000)
Cumulative effect (to September 30,
1993) of adoption of SFAS No. 109 - - 543,000
Net Loss $(30,186,000) $(18,292,000) $ (9,934,000)
Loss per Share:
Loss before cumulative effect of
of change in accounting
principle $ (.50) $ (.30) $ (.17)
Cumulative effect of adoption
of SFAS No. 109 - - .01
Loss Per Share $ (.50) $ (.30) $ (.16)
Average common shares and
equivalents outstanding 60,401,000 60,400,000 60,377,000
The Notes to the Consolidated Financial Statements are an integral part of
these statements.<PAGE>
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 1995
ASSETS
Current Assets
Cash and cash equivalents (includes
short-term investments of:
1996-$18,166,000; 1995-$32,108,000) $ 27,231,000 $ 38,691,000
Accounts receivable, net of allowance
for doubtful accounts: 1996-$648,000;
1995-$681,000 42,302,000 42,774,000
Deferred income taxes 5,616,000 4,948,000
Income taxes recoverable 7,059,000 10,637,000
Other current assets 11,356,000 12,122,000
Total Current Assets 93,564,000 109,172,000
Property and Equipment, net 272,811,000 298,673,000
Excess of Cost Over Net Assets of
Businesses Acquired 9,331,000 10,054,000
Other Assets 9,261,000 11,585,000
Total Assets $384,967,000 $429,484,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 21,369,000 $ 23,705,000
Accrued liabilities 34,432,000 29,283,000
Accrued remediation and other costs 1,970,000 3,723,000
Current maturities of long-term debt 1,728,000 1,689,000
Total Current Liabilities 59,499,000 58,400,000
Long-term Debt 132,453,000 134,181,000
Accrued Remediation and Other Costs 9,829,000 11,959,000
Other Liabilities 7,396,000 10,456,000
Deferred Income Taxes 21,307,000 29,819,000
Commitments and Contingent Liabilities
(see notes to the Consolidated
Financial Statements)
Shareholders' Equity
Preferred stock, $1 par value
Shares outstanding: None
Common stock, $1 par value
Shares Outstanding: 1996 and
1995-60,375,811 60,376,000 60,376,000
Additional paid-in capital 4,650,000 4,650,000
Retained earnings 89,457,000 119,643,000
Total Shareholders' Equity 154,483,000 184,669,000
Total Liabilities and Shareholders' Equity $384,967,000 $429,484,000
The Notes to the Consolidated Financial Statements are an integral part of
these statements.<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
Cash Flows From Operating Activities:
Net loss $(30,186,000) $(18,292,000) $(9,934,000)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities,
net of acquisitions:
Special charge - - 14,500,000
Expenditures charged to accrued
remediation and other costs (3,883,000) (3,937,000) (2,874,000)
Depreciation and amortization 34,253,000 26,839,000 22,760,000
Changes in assets and liabilities:
Current and deferred income
taxes (5,602,000) (6,828,000) (6,468,000)
Accounts receivable 472,000 (774,000) 2,636,000
Accounts payable and
accrued liabilities 2,813,000 15,668,000 5,643,000
Other, net (269,000) 1,116,000 (477,000)
Net cash (used in) provided
by operating activities (2,402,000) 13,792,000 25,786,000
Cash Flows From Investing Activities:
Acquisition of businesses, net
of cash acquired - (9,588,000) -
Purchase of property and
equipment (7,832,000) (20,051,000) (18,002,000)
Proceeds from sales of equipment 463,000 428,000 75,000
Net cash used in investing
activities (7,369,000) (29,211,000) (17,927,000)
Cash Flows From Financing Activities:
Repayment of long-term debt (1,689,000) (662,000) (662,000)
Exercise of stock options - - 88,000
Net cash used in financing
activities (1,689,000) (662,000) (574,000)
Cash And Cash Equivalents:
Net (decrease) increase in cash
and cash equivalents (11,460,000) (16,081,000) 7,285,000
Beginning of period 38,691,000 54,772,000 47,487,000
End of period $ 27,231,000 $ 38,691,000 $54,772,000
Supplemental information:
Interest paid $ 9,254,000 $ 4,219,000 $ 549,000
Income taxes recovered $(10,123,000) $ (3,640,000) $ (472,000)
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
Organization and Accounting Policies
Organization - Rollins Environmental Services, Inc. consists solely of
industrial waste treatment and disposal. Essentially all of the Company's
operations are conducted within the United States.
Consolidation - the consolidated financial statements include the accounts of
all subsidiaries. Intercompany transactions and balances among these
subsidiaries have been eliminated.
Revenue recognition - 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 (loss) per share - earnings (loss) per share are computed assuming
the conversion of all potentially dilutive outstanding stock options.
Cash equivalents - 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.
Property and equipment - 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.
Goodwill - the excess of cost over net assets of businesses acquired is being
amortized on a straight-line basis over twenty years. The Company
periodically reviews goodwill to assess recoverability and impairments would
be recognized in operating results if a permanent diminution in value were to
occur.
Environmental remediation reserves - the Company establishes reserves 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 September 30, 1996
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.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair values of financial instruments - The carrying amounts reported in
the balance sheet for current assets and current liabilities approximate
their fair value at September 30, 1996.
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 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, 1996 1995
Land $ 31,324,000 $ 31,324,000
Buildings 75,661,000 72,169,000
Equipment and vehicles 303,305,000 299,035,000
Site improvements 39,978,000 30,250,000
Construction in progress 5,525,000 17,277,000
Accumulated depreciation (182,982,000) (151,382,000)
$272,811,000 $298,673,000
Commitments for the purchase of capital assets amounted to $471,000 at
September 30, 1996.
Income Taxes
The income tax benefits for the three years ended September 30, 1996 are
comprised as follows:
Year Ended September 30, 1996 1995 1994
Current:
Federal $ (7,262,000) $(10,446,000) $(3,242,000)
State 199,000 144,000 639,000
Deferred:
Federal (8,192,000) 1,277,000 (2,228,000)
State (470,000) (1,338,000) (1,568,000)
Income tax benefits $(15,725,000) $(10,363,000) $(6,399,000)
A reconciliation of the income tax benefits for the three years ended
September 30, 1996 with amounts calculated by applying the statutory federal
income tax rate for those years to the loss before income taxes is as
follows:
Year Ended September 30, 1996 1995 1994
Federal income tax benefits
at statutory rate $(16,069,000) $(10,029,000) $(5,907,000)
State income tax benefits (1,566,000) (977,000) (604,000)
Valuation allowance 1,390,000 201,000 -
Other 520,000 442,000 112,000
Income tax benefits $(15,725,000) $(10,363,000) $(6,399,000)
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, 1996 1995
Deferred tax assets:
Accrued remediation and closure costs $ 4,478,000 $ 6,007,000
Expenses deductible when paid 7,659,000 5,907,000
State net operating loss benefits,
expiring 2001-2011 4,359,000 2,678,000
Federal net operating loss benefits,
expiring 2010-2011 18,624,000 7,000,000
Other 187,000 497,000
Total gross deferred tax assets 35,307,000 22,089,000
Less valuation allowance (3,368,000) (2,138,000)
Net deferred tax assets 31,939,000 19,951,000
Deferred tax liabilities:
Excess of tax over book depreciation 44,108,000 44,032,000
Section 172(f) carryback claim 3,331,000 -
Other 191,000 790,000
Total gross deferred liabilities 47,630,000 44,822,000
Net deferred tax liability $15,691,000 $24,871,000
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, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of $53,211,000 which will expire on various dates
through 2010 and 2011. Operating loss carryforwards of $16,200,000 were
generated by Aptus, Inc. prior to its acquisition on March 31, 1995. The use
of Aptus, Inc.'s pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code. The Company has recorded a valuation
allowance for federal and state purposes of $3,368,000 to reflect the
estimated amount of deferred tax assets which may not be realized principally
due to expiration of operating loss carryforwards. The valuation allowance
includes $1,701,000 of tax benefits related to Aptus, Inc.'s pre-acquisition
tax losses which, if realized, would reduce goodwill.
The change in the valuation allowance for deferred tax assets resulted from
management's assessment that some additional portion of the deferred tax
assets may 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.
In September 1996, the Company filed form 1139 "Corporate Application for
Tentative Refund" to carryback its 1995 net loss as provided for in Section
172(f) of the Internal Revenue Code, claiming a federal income tax refund of
$3,331,000. In September of 1996, the Company also filed Form 1120X for
1994, carrying back its net operating loss as provided for in Section 172(f)
claiming a refund of $1,433,000. This amount has not been received and has
not been recorded in the Company's financial statements. Section 172(f) is
an area of the tax law without significant precedent and there may be
substantial opposition by the IRS to the Company's refund claims. Therefore,
the $3,331,000 received in October 1996 also has been recorded on the
Company's financial statements as a deferred tax liability. The $1,433,000
claimed on the Company's 1994 Form 1120X will be recorded as a deferred tax
liability in the Company's financial statements at such time the amount is
received.
Accrued Liabilities
Accrued liabilities are as follows:
September 30, 1996 1995
Environmental remediation (Non-owned sites) $13,560,000 $ 8,873,000
Employee compensation 5,223,000 5,543,000
Taxes other than income 5,086,000 4,995,000
Insurance and legal 1,432,000 2,339,000
Landfill capping costs 1,792,000 2,208,000
Other 7,339,000 5,325,000
$34,432,000 $29,283,000
Shareholders' Equity
Changes in the components of shareholders' equity are as follows:
$1 Par Value Additional Total
Common Paid-in Retained Shareholders'
Stock Capital Earnings Equity
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
Net loss (30,186,000) (30,186,000)
Balance at
September 30, 1996 $60,376,000 $4,650,000 $ 89,457,000 $154,483,000
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 holder to purchase additional stock of the Company or stock of
an acquiring company at a 50% discount. The Right expires on June 30, 1999
unless earlier redeemed by the Company at a price of $.01 per Right.
Stock Option Plan
Under the Company's stock option plan, options to purchase common stock
of the Company may be granted to officers and key employees at not less than
100% of the fair market value at the date of grant.
Option activity is as follows:
<TABLE>
<S> <C> <C> <C>
Year Ended September 30, 1996 1995 1994
Number of options
Outstanding at beginning of year 982,802 658,868 674,660
Granted 341,200 394,200 200,610
Exercised - - (25,557)
Expired or canceled (114,017) (70,266) (190,845)
Outstanding at September 30 1,209,985 982,802 658,868
At September 30
Options available for grant 76,790 339,390 717,390
Options exercisable 500,812 384,375 317,900
Per share prices
Options granted $2.25 to 3.88 $4.13 to $ 5.00 $4.63 to $ 5.75
Options exercised - - $3.47
Options outstanding $2.25 to 12.25 $4.13 to $12.25 $4.63 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 $13,916,000 in 1996, $13,265,000 in
1995 and $3,175,000 in 1994. 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 $4,769,000 in 1996, $6,617,000 in
1995 and $6,551,000 in 1994.
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 $7,385,000 in 1996,
$6,792,000 in 1995 and $5,156,000 in 1994.
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, 1996 1995
7.25% Convertible Subordinated Debentures,
due 2005 $ 66,000,000 $ 66,000,000
Variable Rate Hazardous Waste Treatment
Revenue Bonds, due 2020 (Interest rates
range from 3.5% to 3.7%) 45,700,000 45,700,000
7.75% Senior Unsecured Debentures,
due 2001-2005 13,839,000 13,839,000
Promissory note, interest at prime (8.25%),
due 1995-2001 5,333,000 6,400,000
Other Long-Term Debt 3,309,000 3,931,000
Less Current Maturities (1,728,000) (1,689,000)
$132,453,000 $134,181,000
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 and sinking fund requirements for all
indebtedness over the next five years are as follows: 1997-$1,728,000; 1998-
$1,728,000; 1999-$1,728,000; 2000-$1,728,000 and 2001-$4,496,000.
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
impacted the Company's operations. The fair value of the remaining long-term
debt approximates its carrying value.
The 7.25% Convertible Subordinated Debentures due on March 31, 2005 are
convertible into shares of the Company's common stock at a conversion price
equal to $6.15 at any time prior to maturity. These Debentures contain
default provisions which provide for accelerated repayment should the Company
be in default with regard to the 7.75% Senior Unsecured Debentures. At the
option of the Company, the Debentures are redeemable under certain
circumstances on or after March 31, 1998 should the price per share of the
Company's common stock exceed $6.97.
The 7.75% Senior Unsecured Debentures contain covenants that 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 a minimum tangible net worth of
$145,000,000.
At September 30, 1996, the Company was not in compliance with the fixed
charge coverage ratio with respect to the 7.75% Senior Unsecured Debentures.
Emerging Issues Task Force Issue No. 86-30, "Classification of Obligations
When a Violation is Waived by the Creditor," requires a company to reclassify
long-term debt as current when a covenant violation has occurred absent a
loan modification and it is probable that the borrower will not be able to
comply with the same covenant at measurement dates that are within the next
twelve months. On November 27, 1996, the Company received a waiver of this
covenant with respect to the period ended September 30, 1996 and the debt
agreement was amended to reduce the quarterly fixed charge coverage ratio
requirement for the periods up to and including September 30, 1997. Based
upon current projections, management of the Company believes that it will be
able to remain in compliance under the terms of the amended agreement.
Additionally, the Company collateralized the 7.75% Senior Unsecured
Debentures and the 7.25% Convertible Subordinated Debentures by granting a
security interest in $22,000,000 of the Company's accounts receivable and a
second mortgage on certain land with a carrying value of $4,973,000.
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, 1996 1995 1994
Service cost $1,834,000 $1,398,000 $1,777,000
Interest cost 1,345,000 1,102,000 1,032,000
Return on plan assets (1,796,000) (3,579,000) (420,000)
Net amortization and deferral 170,000 2,455,000 (492,000)
Net periodic pension cost $1,553,000 $1,376,000 $1,897,000
The following table sets forth the funded status and the amount
recognized in the Company's balance sheet for the plans:
September 30, 1996 1995
Actuarial present value of accumulated
benefit obligation:
Vested $14,967,000 $11,928,000
Non-vested 1,080,000 1,107,000
$16,047,000 $13,035,000
Projected benefit obligation $19,844,000 $16,203,000
Plan assets at market value 18,571,000 16,395,000
Projected benefit obligation in excess of
(under) plan assets 1,273,000 (192,000)
Unrecognized gain 4,150,000 4,751,000
Unrecognized prior service (129,000) (139,000)
Unamortized unfunded projected benefit
obligation at adoption (691,000) (768,000)
Accrued pension liability $ 4,603,000 $ 3,652,000
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 1996 and 1995 and 9.5% for 1994.
The assets of the plan at September 30, 1996 were invested 75% 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 $11,799,000 and $15,682,000 at
September 30, 1996 and 1995, 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 $56,808,000 at
September 30, 1996, which included letters of credit of $6,707,000. 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 eight years. Total rental expense for all operating leases
except those with terms of a month or less was $4,915,000 in 1996, $4,266,000
in 1995 and $4,392,000 in 1994.
Minimum future rental payments required under operating leases having
non-cancelable terms in excess of one year as of September 30, 1996 are as
follows:
Year Ending September 30,
1997 $5,900,000
1998 4,702,000
1999 2,622,000
2000 1,620,000
2001 1,282,000
Later years 1,152,000
Total minimum payments required $17,278,000
<TABLE>
<PAGE>
Quarterly Results (Unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
December March June September
1996 31 31 30(1) 30(1)
Revenues $ 61,436,000 $ 58,731,000 $ 61,582,000 $ 59,381,000
Gross profit (loss) $ 724,000 $ (4,355,000) $ (191,000) $ 2,000
Loss before income tax benefit $(10,409,000) $(14,978,000) $ (9,534,000) $(10,990,000)
Net loss $ (6,673,000) $ (9,561,000) $ (6,207,000) $ (7,745,000)
Loss per share $ (.11) $ (.16) $ (.10) $ (.13)
1995
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)
(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.
</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
<CAPTION>
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>
1996: Allowance for doubtful accounts $ 681 $ 156 $189 $ 648
Deferred tax valuation allowance(2) $2,138 $1,230 $3,368
1995: Allowance for doubtful accounts $ 724 $ 325 $368 $ 681
Deferred tax valuation allowance(2) - - $2,138 $2,138
1994: Allowance for doubtful accounts $ 422 $ 128 $ 367(1) $193 $ 724
(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.
</TABLE>
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
Exhibits to Form 10-K
For Fiscal Year Ended September 30, 1996
Index to Exhibits Page Nos.
Exhibit 21 Rollins Environmental Services, Inc.
Subsidiaries at September 30, 1996
Exhibit 27 Rollins Environmental Services, Inc.
Financial Data Schedule at
September 30, 1996
Exhibit 4 (g) First Supplemental Indenture dated
as of September 30, 1995 between
Rollins Environmental Services, Inc.
and First Fidelity Bank
(h) Second Supplemental Indenture dated
as of September 30, 1996 between
Rollins Environmental Services, Inc.
and First Fidelity Bank
(i) Amendment No. 1 to Debenture Purchase
Agreement dated as of September 30,
1996 between Rollins Environmental
Services, Inc. and Westinghouse
Electric Corporation
(j) First Supplemental Indenture dated
as of September 30, 1996 between
Rollins Environmental Services, Inc.
and Texas Commerce Bank
(k) Third Supplemental Indenture dated
as of November 27, 1996 between
Rollins Environmental Services, Inc.
and First Fidelity Bank
<PAGE>
Exhibit 21
ROLLINS ENVIRONMENTAL SERVICES, INC.
Subsidiaries of the Registrant
September 30, 1996
JURISDICTION OF
NAME INCORPORATION
Allworth of Tennessee, Inc. Tennessee
Highway 36 Land Development Company Colorado
National Electric, Inc. (Parent of Aptus, Inc.) Minnesota
Rollins O.P.C. Inc. California
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
Rollins Environmental, Inc. Delaware
Sussex Contractors, Inc. Delaware
Gloucester County Construction Company Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 27,231
<SECURITIES> 0
<RECEIVABLES> 42,950
<ALLOWANCES> 648
<INVENTORY> 0
<CURRENT-ASSETS> 93,564
<PP&E> 455,793
<DEPRECIATION> 182,982
<TOTAL-ASSETS> 384,967
<CURRENT-LIABILITIES> 59,499
<BONDS> 132,453
0
0
<COMMON> 60,376
<OTHER-SE> 94,107
<TOTAL-LIABILITY-AND-EQUITY> 384,967
<SALES> 241,130
<TOTAL-REVENUES> 241,130
<CGS> 0
<TOTAL-COSTS> 243,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,854
<INCOME-PRETAX> (45,911)
<INCOME-TAX> (15,725)
<INCOME-CONTINUING> (30,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,186)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
</TABLE>
AMENDMENT NO. 1
TO
DEBENTURE PURCHASE AGREEMENT
Dated as of September 30, 1996
between
ROLLINS ENVIRONMENTAL SERVICES, INC.
("Rollins")
and
WESTINGHOUSE ELECTRIC CORPORATION
("Westinghouse")
Amending that certain
DEBENTURE PURCHASE AGREEMENT
Between Rollins and Westinghouse
Dated as of March 31, 1995
Relating to
7.25% Convertible Subordinated Securities Due 2005
and
7.75% Senior Unsecured Securities Due 2005
<PAGE>
This Amendment No. 1 dated as of September 30, 1996 between Rollins
Environmental Services, Inc. ("Rollins") and Westinghouse Electric Corporation
("Westinghouse") amends that certain Debenture Purchase Agreement (the
"Debenture Purchase Agreement") between Rollins and Westinghouse dated as of
March 31, 1995 relating to Rollins 7.25% Convertible Subordinated Securities
Due 2005 (the "Subordinated Securities") and Rollins 7.75% Senior Unsecured
Securities Due 2005 (the "Senior Securities").
WHEREAS, Rollins and First Fidelity Bank National Association
(the "Trustee") have entered into a Second Supplemental Indenture
(the "Second Supplemental Indenture") dated as of September 30, 1996
supplementing and amending that certain Indenture between Rollins and
the Trustee dated as of March 31, 1995 relating to the Senior Securities; and
WHEREAS, Rollins and Texas Commerce Bank National Association
(the "Trustee") have entered into a First Supplemental Indenture (the "First
Supplemental Indenture") dated as of September 30, 1996 supplementing and
amending that certain Indenture between Rollins and the Trustee dated as of
March 31, 1995 relating to the Subordinated Securities; and
WHEREAS, Westinghouse, as the holder of 100% of the Senior Securities
and the holder of 100% of the Subordinated Securities, has agreed to approve
and consent to the Second Supplemental Indenture relating to the Senior
Securities and the First Supplemental Indenture relating to the Subordinated
Securities upon the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby
and in consideration of the mutual covenants herein contained, do hereby agree
as follows:
1. Westinghouse approves and consents to the Second Supplemental
Indenture relating to the Senior Securities.
2. Westinghouse approves and consents to the First Supplemental
Indenture relating to the Subordinated Securities.
3. Section 5.1 ("Resale of Securities") to the Debenture Purchase
Agreement shall be of no further force and effect after February 28, 1997.
4. Section 5.3 ("Voting Power") to the Debenture Purchase Agreement is
deleted and of no further force and effect as of the date above.
In Witness Whereof, the parties have caused this Amendment No. 1 to be
duly executed by their authorized officers as of the day and year first above
written.
Rollins Environmental Services, Inc.
By:
Title:
Westinghouse Electric Corporation
By:
Title:
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 30, 1995
between
ROLLINS ENVIRONMENTAL SERVICES, INC.
(the "Company")
and
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
(the "Trustee")
Supplementing and amending that certain
Indenture
Between the Company and the Trustee
Dated as of March 31, 1995
Relating to
$13,839,000 Principal Amount
of
7.75% Senior Unsecured Debentures Due 2005
<PAGE>
This First Supplemental Indenture dated as of September 30, 1995 (the "First
Supplemental Indenture") between ROLLINS ENVIRONMENTAL SERVICES, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal executive offices at 2200
Concord Pike, One Rollins Plaza, Wilmington, Delaware 19803, and FIRST
FIDELITY BANK, NATIONAL ASSOCIATION, a national banking association, as
Trustee (herein called the "Trustee"), supplements and amends that certain
Indenture between the Company and the Trustee dated as of March 31, 1995 (the
"Indenture") relating to $13,839,000 Principal Amount of the Company's 7.75%
Senior Unsecured Debentures Due 2005.
WHEREAS, Westinghouse Electric Corporation, as the holder of 100% in principal
amount of the Securities, has consented to this First Supplemental Indenture
in accordance with Section 8.2 of the Indenture; and
WHEREAS, the execution and delivery of this First Supplemental Indenture
have been and are in all respects duly and validly authorized by a resolution
duly adopted by the Company;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
That the parties hereto, intending to be legally bound hereby and in
consideration of the mutual covenants herein contained, DO HEREBY AGREE as
follows:
ARTICLE I
CONFIRMATION OF INDENTURE
Section 1.1. Confirmation of Indenture. Except as supplemented and amended
hereby, the Indenture is hereby confirmed and reaffirmed in all particulars.
The Indenture shall be read, taken and construed as one and the same
instrument, notwithstanding the date and time of execution and delivery of
each instrument. Terms not otherwise defined herein shall have the meaning
ascribed to them in the Indenture. Anything in the Indenture to the contrary
notwithstanding, all provisions contained in this First Supplemental
Indenture shall take precedence over the provisions of the Indenture to the
extent of any conflict between the two.
ARTICLE II
NEGATIVE COVENANTS
Section 2.1. Maintenance of Fixed Charges Coverage Ratio. Section 10.1 of the
Indenture is hereby amended and restated to read as follows:
"Section 10.1 Maintenance of Fixed Charges Coverage Ratio.
The Company will maintain the following Fixed Charges Coverage Ratio:
<PAGE>
Period Ending Ratio
September 30, 1996 0.8 : 1.0
December 31, 1996 1.25 : 1.0
March 31, 1997 and thereafter 1.50 : 1.0"
IN WITNESS WHEREOF, FIRST FIDELITY BANK, NATIONAL ASSOCIATION and
ROLLINS ENVIRONMENTAL SERVICES, INC. have caused this First Supplemental
Indenture to be duly executed by its authorized officers as of the day and
year first above written.
FIRST FIDELITY BANK,
NATIONAL ASSOCIATION
By:
Title:
ROLLINS ENVIRONMENTAL
SERVICES, INC.
By:
Title:
Westinghouse Electric Corporation, as the holder of 100% of the
Securities, hereby approves and consents to the foregoing First Supplemental
Indenture.
WESTINGHOUSE ELECTRIC
CORPORATION
By:
Title:
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 30, 1995
between
ROLLINS ENVIRONMENTAL SERVICES, INC.
(the "Company")
and
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
(the "Trustee")
Supplementing and amending that certain
Indenture
Between the Company and the Trustee
Dated as of March 31, 1995
Relating to
$13,839,000 Principal Amount
of
7.75% Senior Unsecured Debentures Due 2005
<PAGE>
This First Supplemental Indenture dated as of September 30, 1995 (the
"First Supplemental Indenture") between ROLLINS ENVIRONMENTAL SERVICES, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal executive offices at 2200
Concord Pike, One Rollins Plaza, Wilmington, Delaware 19803, and FIRST
FIDELITY BANK, NATIONAL ASSOCIATION, a national banking association, as
Trustee (herein called the "Trustee"), supplements and amends that certain
Indenture between the Company and the Trustee dated as of March 31, 1995 (the
"Indenture") relating to $13,839,000 Principal Amount of the Company's 7.75%
Senior Unsecured Debentures Due 2005.
WHEREAS, Westinghouse Electric Corporation, as the holder of 100% in
principal amount of the Securities, has consented to this First Supplemental
Indenture in accordance with Section 8.2 of the Indenture; and
WHEREAS, the execution and delivery of this First Supplemental
Indenture have been and are in all respects duly and validly authorized by a
resolution duly adopted by the Company;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
That the parties hereto, intending to be legally bound hereby and in
consideration of the mutual covenants herein contained, DO HEREBY AGREE as
follows:
ARTICLE I
CONFIRMATION OF INDENTURE
Section 1.1. Confirmation of Indenture. Except as supplemented and amended
hereby, the Indenture is hereby confirmed and reaffirmed in all particulars.
The Indenture shall be read, taken and construed as one and the same
instrument, notwithstanding the date and time of execution and delivery of
each instrument. Terms not otherwise defined herein shall have the
meaning ascribed to them in the Indenture. Anything in the Indenture to the
contrary notwithstanding, all provisions contained in this First Supplemental
Indenture shall take precedence over the provisions of the Indenture to the
extent of any conflict between the two.
ARTICLE II
NEGATIVE COVENANTS
Section 2.1. Maintenance of Fixed Charges Coverage Ratio. Section 10.1 of the
Indenture is hereby amended and restated to read as follows:
"Section 10.1 Maintenance of Fixed Charges Coverage Ratio.
The Company will maintain the following Fixed Charges Coverage Ratio:
<PAGE>
Period Ending Ratio
September 30, 1996 0.8 : 1.0
December 31, 1996 1.25 : 1.0
March 31, 1997 and thereafter 1.50 : 1.0"
IN WITNESS WHEREOF, FIRST FIDELITY BANK, NATIONAL ASSOCIATION and
ROLLINS ENVIRONMENTAL SERVICES, INC. have caused this First Supplemental
Indenture to be duly executed by its authorized officers as of the day and year
first above written.
FIRST FIDELITY BANK,
NATIONAL ASSOCIATION
By:
Title:
ROLLINS ENVIRONMENTAL
SERVICES, INC.
By:
Title:
Westinghouse Electric Corporation, as the holder of 100% of the
Securities, hereby approves and consents to the foregoing First Supplemental
Indenture.
WESTINGHOUSE ELECTRIC
CORPORATION
By:
Title:
SECOND SUPPLEMENTAL INDENTURE
Dated as of September 30, 1996
between
ROLLINS ENVIRONMENTAL SERVICES, INC.
(the "Company")
and
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
(the "Trustee")
Supplementing and amending that certain
Indenture
Between the Company and the Trustee
Dated as of March 31, 1995
Relating to
$13,839,000 Principal Amount
of
7.75% Senior Unsecured Debentures Due 2005
<PAGE>
This Second Supplemental Indenture dated as of September 30, 1996 (the
"Second Supplemental Indenture") between ROLLINS ENVIRONMENTAL SERVICES,
INC., a corporation duly organized and existing under the laws of the State
of Delaware (herein called the "Company"), having its principal executive
offices at 2200 Concord Pike, One Rollins Plaza, Wilmington, Delaware 19803,
and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, a national banking
association, as Trustee (herein called the "Trustee"), supplements and amends
that certain Indenture between the Company and the Trustee dated as of
March 31, 1995 (the "Indenture") relating to $13,839,000 Principal Amount of
the Company's 7.75% Senior Unsecured Debentures Due 2005, as amended by the
First Supplemental Indenture dated as of September 30, 1995 (the "First
Supplemental Indenture").
WHEREAS, Westinghouse Electric Corporation, as the holder of 100% in
principal amount of the Securities, has consented to this Second Supplemental
Indenture in accordance with Section 8.2 of the Indenture; and
WHEREAS, the execution and delivery of this Second Supplemental
Indenture have been and are in all respects duly and validly authorized by a
resolution duly adopted by the Company;
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:
That the parties hereto, intending to be legally bound hereby and in
consideration of the mutual covenants herein contained, DO HEREBY AGREE as
follows:
ARTICLE I
CONFIRMATION OF INDENTURE
Section 1.1. Confirmation of Indenture. Except as supplemented and amended
hereby, the Indenture is hereby confirmed and reaffirmed in all particulars.
The First Supplemental Indenture is hereby terminated and of no further force
and effect. The Indenture shall be read, taken and construed as one and the
same instrument, notwithstanding the date and time of execution and delivery
of each instrument. Terms not otherwise defined herein shall have the
meaning ascribed to them in the Indenture. Anything in the Indenture to the
contrary notwithstanding, all provisions contained in this Second
Supplemental Indenture shall take precedence over the provisions of the
Indenture to the extent of any conflict between the two.
ARTICLE II
NEGATIVE COVENANTS
Section 2.1. Maintenance of Fixed Charges Coverage Ratio. Section 10.1 of
the Indenture is hereby amended and restated to read as follows:
<PAGE>
"Section 10.1Maintenance of Fixed Charges Coverage Ratio.
The Company will maintain the following Fixed Charges Coverage Ratio:
Period Ending Ratio
September 30, 1996 0.63 : 1.00
December 31, 1996 0.65 : 1.00
March 31, 1997 0.80 : 1.00
June 30, 1997 1.10 : 1.00
September 30, 1997 1.25 : 1.00
December 31, 1997 and thereafter 1.50 : 1.00
Notwithstanding the definition of Fixed Charges Coverage Ratio in
Section 1.1, the ratio for any period ending on or before September 30, 1997
shall be computed for that fiscal quarter only, the ratio for December 31,
1997 shall be computed for the that fiscal quarter together with the
immediately preceding fiscal quarter, and the ratio for March 31, 1998 shall
be computed for that fiscal quarter together with the immediately preceding
two fiscal quarters."
Section 2.1 Maintenance of Net Worth.
Section 10.2 of the Indenture is hereby amended to replace
$160,000,000 with $145,000,000. "Tangible Net Worth" for purposes of
Section 10.2 shall be calculated to exclude the effect of any
extraordinary gain or loss occurring after June 30, 1996.
IN WITNESS WHEREOF, FIRST FIDELITY BANK, NATIONAL ASSOCIATION and
ROLLINS ENVIRONMENTAL SERVICES, INC. have caused this Second Supplemental
Indenture to be duly executed by its authorized officers as of the day and
year first above written.
FIRST FIDELITY BANK,
NATIONAL ASSOCIATION
By:
Title:
ROLLINS ENVIRONMENTAL
SERVICES, INC.
By:
Title:
<PAGE>
Westinghouse Electric Corporation, as the holder of 100% of the
Securities, hereby approves and consents to the foregoing Second Supplemental
Indenture.
WESTINGHOUSE ELECTRIC
CORPORATION
By:
Title:
THIRD SUPPLEMENTAL INDENTURE
Dated as of November 27, 1996
between
ROLLINS ENVIRONMENTAL SERVICES, INC.
(the "Company")
and
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
(the "Trustee")
Supplementing and amending that certain
Indenture
Between the Company and the Trustee
Dated as of March 31, 1995
Relating to
$13,839,000 Principal Amount
of
7.75% Senior Unsecured Debentures Due 2005
This Third Supplemental Indenture dated as of November 27, 1996 (the
"Third Supplemental Indenture") between ROLLINS ENVIRONMENTAL SERVICES, INC.,
a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal executive
offices at 2200 Concord Pike, One Rollins Plaza, Wilmington, Delaware 19803,
and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, a national banking
association, as Trustee (herein called the "Trustee"), supplements and amends
that certain Indenture between the Company and the Trustee dated as of
March 31, 1995 (the "Indenture") relating to $13,839,000 Principal Amount of
the Company's 7.75% Senior Unsecured Debentures Due 2005, as amended by the
First Supplemental Indenture dated as of September 30, 1995 (the "First
Supplemental Indenture") and the Second Supplemental Indenture dated as of
September 30, 1996 (the "Second Supplemental Indenture").
WHEREAS, Westinghouse Electric Corporation, as the holder of 100% in
principal amount of the Securities, has consented to this Third Supplemental
Indenture in accordance with Section 8.2 of the Indenture; and
WHEREAS, the execution and delivery of this Third Supplemental
Indenture have been and are in all respects duly and validly authorized by a
resolution duly adopted by the Company;
NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH:
That the parties hereto, intending to be legally bound hereby and in
consideration of the mutual covenants herein contained, DO HEREBY AGREE as
follows:
ARTICLE I
CONFIRMATION OF INDENTURE
Section 1.1. Confirmation of Indenture. Except as supplemented and amended
hereby, the Indenture is hereby confirmed and reaffirmed in all particulars.
The First Supplemental Indenture and Second Supplemental Indenture are hereby
terminated and of no further force and effect. The Indenture shall be read,
taken and construed as one and the same instrument, notwithstanding the date
and time of execution and delivery of each instrument. Terms not otherwise
defined herein shall have the meaning ascribed to them in the Indenture.
Anything in the Indenture to the contrary notwithstanding, all provisions
contained in this Third Supplemental Indenture shall take precedence over
the provisions of the Indenture to the extent of any conflict between the two.
ARTICLE II
NEGATIVE COVENANTS
Section 2.1. Maintenance of Fixed Charges Coverage Ratio. Section 10.1 of
the Indenture is hereby amended and restated to read as follows:
<PAGE>
"Section 10.1Maintenance of Fixed Charges Coverage Ratio.
The Company will maintain the following Fixed Charges Coverage Ratio:
Period Ending Ratio
December 31, 1996 0.65 : 1.00
March 31, 1997 0.80 : 1.00
June 30, 1997 1.10 : 1.00
September 30, 1997 1.25 : 1.00
December 31, 1997 and thereafter 1.50 : 1.00
Notwithstanding the definition of Fixed Charges Coverage Ratio in
Section 1.1, the ratio for any period ending on or before September 30, 1997
shall be computed for that fiscal quarter only, the ratio for December 31,
1997 shall be computed for the that fiscal quarter together with the
immediately preceding fiscal quarter, and the ratio for March 31, 1998 shall
be computed for that fiscal quarter together with the immediately preceding
two fiscal quarters."
Section 2.1 Maintenance of Net Worth.
Section 10.2 of the Indenture is hereby amended to replace
$160,000,000 with $145,000,000. "Tangible Net Worth" for purposes of
Section 10.2 shall be calculated to exclude the effect of any
extraordinary gain or loss occurring after June 30, 1996.
IN WITNESS WHEREOF, FIRST FIDELITY BANK, NATIONAL ASSOCIATION and
ROLLINS ENVIRONMENTAL SERVICES, INC. have caused this Third Supplemental
Indenture to be duly executed by its authorized officers as of the day and
year first above written.
FIRST FIDELITY BANK,
NATIONAL ASSOCIATION
By:
Title:
ROLLINS ENVIRONMENTAL
SERVICES, INC.
By: /s/ John W. Rollins, Jr.
Title: Sr. Vice Chairman of Board
<PAGE>
Westinghouse Electric Corporation, as the holder of 100% of the
Securities, hereby approves and consents to the foregoing Third Supplemental
Indenture.
WESTINGHOUSE ELECTRIC
CORPORATION
By:
Title:
