Page 1 of 8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
/___/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Rollins Plaza, Wilmington, Delaware 19803
(Address of principal executive offices) (Zip Code)
(302) 426-2784
(Registrant's telephone number, including area code)
(Former name of registrant)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 _____
The number of shares of the registrant's common stock outstanding as
of March 31, 1997 was 60,375,811.
FORM 10-Q Page 2 of 8
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter and six months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending September 30, 1997. These statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1996.
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
($000 Omitted Except for Per Share Amounts)
Quarter Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
Revenues $ 46,553 $58,731 $105,937 $120,167
Operating expenses 48,965 54,259 98,112 106,997
Depreciation 7,783 8,419 15,897 15,949
Selling and administrative expenses 7,424 8,720 15,271 17,934
Interest expense 2,126 2,311 4,362 4,674
66,298 73,709 133,642 145,554
Loss before income tax benefit (19,745) (14,978) (27,705) (25,387)
Income tax benefit (7,406) (5,417) (10,198) (9,153)
Net loss $(12,339) $(9,561) $(17,507) $(16,234)
Loss per share $ (.20) $ (.16) $ (.29) $ (.27)
Average common shares and
equivalents outstanding (000) 60,385 60,378
Dividends paid per common share None None None None
FORM 10-Q Page 3 of 8
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
March 31, September 30,
ASSETS 1997 1996
Current assets
Cash and cash equivalents (includes
short-term investments of:
$16,988-March; $18,166-September) $ 19,612 $ 27,231
Accounts receivable, net 35,936 42,302
Income taxes recoverable - 7,059
Deferred income taxes 5,101 5,616
Other current assets 6,540 11,356
Total current assets 67,189 93,564
Property and equipment, at cost
Land 31,324 31,324
Buildings 76,129 75,661
Equipment and vehicles 304,027 303,305
Site improvements 40,780 39,978
Construction in progress 5,970 5,525
Accumulated depreciation (198,215) (182,982)
260,015 272,811
Excess of cost over net assets of
businesses acquired 9,080 9,331
Other assets 9,135 9,261
Total assets $345,419 $384,967
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,615 $ 21,369
Accrued liabilities 17,488 34,432
Accrued remediation and other costs 2,387 1,970
Income taxes payable 399 -
Current maturities of long-term debt 1,728 1,728
Total current liabilities 41,617 59,499
Long-term debt 131,428 132,453
Accrued remediation and other costs 7,723 9,829
Other liabilities 8,531 7,396
Deferred income taxes 19,144 21,307
Commitments and contingent liabilities
See Part II, Item 1 Legal Proceedings
Shareholders' equity
Preferred stock, $1 par value,
1,000,000 shares authorized; issued and
outstanding - None
Common stock, $1 par value, 120,000,000 shares
authorized; issued and outstanding:
March-60,375,811; September-60,375,811 60,376 60,376
Additional paid-in capital 4,650 4,650
Retained earnings 71,950 89,457
Total shareholders' equity 136,976 154,483
Total liabilities and shareholders' equity $345,419 $384,967
FORM 10-Q Page 4 of 8
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Six Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net loss $(17,507) $(16,234)
Adjustments to reconcile net loss to net cash
used in operating activities:
Expenditures charged to accrued remediation
and other costs (1,689) (1,537)
Depreciation and amortization 16,161 16,362
Changes in assets and liabilities:
Current and deferred income taxes 5,810 728
Accounts receivable 6,366 508
Accounts payable and accrued liabilities (18,698) (6,675)
Other, net 6,064 1,423
Net cash used in operating activities (3,493) (5,425)
Cash flows from investing activities:
Purchase of property and equipment (3,101) (5,788)
Proceeds from sale of equipment - 119
Net cash used in investing activities (3,101) (5,669)
Cash flows from financing activities:
Repayment of long-term debt (1,025) (984)
Net cash used in financing activities (1,025) (984)
Cash and cash equivalents:
Net decrease in cash and cash equivalents (7,619) (12,078)
Beginning of period 27,231 38,691
End of period $ 19,612 $ 26,613
Supplemental information:
Interest paid $ 4,531 $ 4,862
Income taxes recovered $(16,008) $ (9,880)
FORM 10-Q Page 5 of 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Six Months Ended March 31, 1997 vs. Six Months
Ended March 31, 1996
Revenues decreased by $14,230,000 (11.8%) to $105,937,000 from the
$120,167,000 reported last year. Incineration revenues decreased by
$9,580,000, which was the result of higher incineration volumes processed
at lower average prices. Transportation, landfill and other revenues
decreased by $4,650,000 which primarily was the result of the expiration of
a large disposal contract with one customer in December 1996. The
Company's incineration revenues continue to be adversely affected by
industry-wide overcapacity and intense price competition.
Operating expenses decreased by $8,885,000 (8.3%) to $98,112,000 from
the $106,997,000 reported last year. The decrease was the result of lower
transportation, insurance and maintenance costs offset in part by higher
costs related to the increased incineration volumes and the use of
subcontractors to dispose of various waste streams outside the Company's
permitted capabilities. Operating expenses as a percentage of revenues
increased to 92.6% in 1997 from 89.0% in 1996.
Depreciation expense for the six months ended March 31, 1997 was
essentially the same as last fiscal year.
Selling and administrative expenses decreased $2,663,000 (14.8%). The
decrease is attributed to the continued integration of various acquisitions
into the existing business and continued Company-wide costs containment
efforts. As a percentage of revenues, selling and administrative expenses
decreased to 14.4% in 1997 from 14.9% in 1996.
Interest expense decreased by $312,000 (6.7%) primarily as the result
of the reduction in long-term debt from the same period last year.
The effective rates of income tax benefit for the six months ended
March 31, 1997 and 1996 were 36.8% and 36.1%, respectively.
Results of Operations: Quarter Ended March 31, 1997 vs. Quarter Ended
March 31, 1996.
Revenues decreased by $12,178,000 (20.7%) to $46,553,000 from the
$58,731,000 reported last year. Incineration revenues decreased by
$7,116,000 which was the result of lower incineration volumes processed at
lower average prices. Transportation, landfill and other revenues
decreased by $5,062,000 which was the result of lower incineration volumes
and the expiration of a large disposal contract with one customer in
December 1996. The Company's incineration revenues continue to be
adversely affected by industry-wide overcapacity and intense price
competition.
FORM 10-Q Page 6 of 8
Operating expenses decreased by $5,294,000 (9.8%) to $48,965,000 from
the $54,259,000 reported last year. The decrease in operating expense
reflects the lower levels of incineration volumes and lower transportation
costs. Operating costs as a percentage of revenues increased to 105.2% in
1997 from 92.4% in 1996 mainly due to the large component of the Company's
cost structure which is fixed.
Depreciation expense decreased $636,000 (7.6%) mainly due to a
decrease in the amortization of airspace which resulted from lower landfill
revenues.
Selling and administrative expenses decreased by $1,296,000 (14.9%).
The decrease is attributed to the continued integration of various
acquisitions into the existing business and continued Company-wide costs
containment efforts. As a percentage of revenues, selling and
administrative expenses increased to 15.9% in 1997 from 14.8% in 1996
mainly due to the lower levels of revenues.
Interest expense decreased by $185,000 (8.0%) primarily as a result of
the reduction in long-term debt from the same period last year.
The effective rates of income tax benefit for the three months ended
March 31, 1997 and 1996 were 37.5% and 36.2%, respectively.
Liquidity and Capital Resources
The cash used in operations during the first six months of fiscal 1997
is not representative of the Company's expectations for future quarters due
to the unfavorable working capital changes experienced. The decrease in
cash was mainly due to RES (NJ) and the EPA settling the outstanding claims
with the Bridgeport Rental & Oil Services Superfund Site for a payment of
$13,035,000.
During the first six months of fiscal 1997 and 1996, expenditures for
property and equipment were $3,101,000 and $5,788,000, respectively. In
addition, expenditures on remediation projects at the Company's facilities
for the first six months of fiscal 1997 and 1996 were $1,689,000 and
$1,537,000, respectively. The Company financed its capital and remediation
expenditures from available cash resources which included income tax
refunds.
The Company's projected capital and remediation expenditures for the
remainder of fiscal 1997 are approximately $3,864,000. Capital and
remediation expenditures are expected to be financed from available cash
balances.
For the remainder of fiscal year 1997, the Company anticipates lower
operating cash requirements as it realizes the benefits of cost reductions
and a lower capital spending. The Company believes that existing cash
balances and cash expected to be generated from operations will be
sufficient to meet the Company's cash requirements for the remainder of
fiscal 1997. For further details, see pages 8 and 9 of the Company's 1996
Annual Report on Form 10-K.
FORM 10-Q Page 7 of 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no additional significant legal proceedings nor any
material changes in the legal proceedings reported on pages 4 and 5 of the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1996.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on January 31,
1997. With regard to Proposal No. 1 of the NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JANUARY 31, 1997 to elect three Class III
Directors to the Board of Directors, Nicholas Pappas, John W. Rollins and
Don S. Stansberry, Jr. were elected. At the meeting, 48,263,782,
48,259,102 and 48,564,299 affirmative votes were cast for Nicholas Pappas,
John W. Rollins and Don C. Stansberry, Jr., respectively. There were no
votes cast against any nominee and 4,075,968, 4,080,648 and 3,775,451 votes
were withheld from Nicholas Pappas, John W. Rollins and Don C. Stansberry,
Jr., respectively.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 3(ii) - By-Laws.
By-Laws of Rollins Environmental Services, Inc. as last amended
on January 31, 1997
(b) Reports on Form 8-K.
On January 6, 1997, a report on Form 8-K was filed reporting that
Rollins Environmental Services, Inc. ("Rollins") had entered into
a letter of intent with Laidlaw, Inc. (("Laidlaw") which provides
for the sale to Rollins of 100% of the outstanding stock of the
United States and Canadian subsidiaries conducting the hazardous
and industrial waste operations of Laidlaw. The full text of the
letter of intent was disclosed.
FORM 10-Q Page 8 of 8
(b) Reports on Form 8-K (continued).
On February 7, 1997, a report on Form 8-K was filed reporting
that on February 6, 1997, Rollins Environmental Services, Inc.
had entered into a stock purchase agreement with Laidlaw, Inc.,
among others, which provides for the sale to Rollins of 100% of
the outstanding stock of the United States and Canadian
subsidiaries conducting the hazardous and industrial waste
operations of Laidlaw. The stock purchase agreement among
Rollins Environmental Services, Inc., Laidlaw, Inc. and Laidlaw
Transportation, Inc. dated as of February 6, 1997 was filed as
Exhibit 2.1 to the Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATE: May 9, 1997 ROLLINS ENVIRONMENTAL SERVICES, INC.
(Registrant)
/s/ John V. Flynn, Jr.
John V. Flynn, Jr.
President and Chief Operating Officer
/s/ Frank H. Minner, Jr.
Frank H. Minner, Jr.
Group Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer