Page 1 of 10
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, 1995
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) 426-3314
(Registrant's telephone number, including area code)
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, 1995 was 60,375,811.
FORM 10-Q Page 2 of 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Basis of Preparation
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
three months and six months ended March 31, 1995 are not necessarily indicative
of the results that may be expected for the year ending September 30, 1995.
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, 1994.
(b) Acquisition of Assets
As of the close of business on March 31, 1995, the Company acquired from
Westinghouse Electric Corporation ("Seller") all of the issued and outstanding
shares of capital stock of National Electric, Inc. ("NEI"), a wholly owned
subsidiary of the Seller. NEI owns all of the issued and outstanding shares of
capital stock of Aptus, Inc. ("Aptus"). 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 major facilities are located in Aragonite, Utah;
Coffeyville, Kansas; Denver, Colorado; Houston, Texas and Lakeville, Minnesota.
The Company intends to continue the business of Aptus.
The purchase price of $135,000,000 consisted of a cash payment of
$6,500,000, the assumption of the Seller's obligations and duties in connection
with the $45,700,000 of Tooele County, Utah Variable Rate Hazardous Waste
Treatment Revenue Bonds, Series A and the issuance to the Seller of $16,800,000
of 7.75% Senior Unsecured Debentures and $66,000,000 of 7.25% Convertible
Subordinated Debentures.
The acquisition is being accounted for under the purchase method of
accounting. The net asset valuation to properly allocate the purchase price is
in process, therefore, the Company's investment in Aptus, Inc. has been
presented on the March 31, 1995 consolidated balance sheet as a separate asset.
FORM 10-Q Page 3 of 10
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
($000 Omitted Except for Per Share Amounts)
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
Revenues $ 43,354 $ 41,363 $ 93,261 $ 88,878
Operating expenses 37,662 33,631 73,265 68,232
Special charge - 14,500 - 14,500
Depreciation 5,668 5,925 11,289 11,455
Selling and administrative expenses 7,445 6,914 14,174 13,929
Interest expense 87 83 165 225
50,862 61,053 98,893 108,341
Loss before income tax benefit
and cumulative effect of change
in accounting principle (7,508) (19,690) (5,632) (19,463)
Income tax benefit (2,931) (7,317) (2,275) (7,196)
Loss before cumulative effect of
change in accounting principle (4,577) (12,373) (3,357) (12,267)
Cumulative effect (to September 30,
1993) of adoption of SFAS No. 109 - - - 543
Net loss $ (4,577) $(12,373) $ (3,357) $(11,724)
Loss per share:
Loss before cumulative effect of
change in accounting principle $ (.08) $ (.20) $ (.06) $ (.20)
Cumulative effect of adoption of
SFAS No. 109 - - - .01
$ (.08) $ (.20) $ (.06) $ (.19)
Average common shares and equivalents
outstanding (000) 60,406 60,376
Dividends paid per common share None None None None
FORM 10-Q Page 4 of 10
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
March 31, September 30,
ASSETS 1995 1994
Current assets
Cash and cash equivalents (includes short-term
investments of: $37,963-March;
$45,437-September) $ 45,225 $ 54,772
Accounts receivable, net 29,877 28,727
Deferred income taxes 6,798 6,170
Income taxes recoverable 1,378 3,827
Other current assets 9,527 6,538
Total current assets 92,805 100,034
Property and equipment, at cost
Land 29,121 28,790
Buildings 35,533 32,360
Equipment and vehicles 195,718 190,785
Site improvements 28,683 29,072
Construction in progress 13,620 13,063
Accumulated depreciation (138,435) (127,687)
164,240 166,383
Investment in Aptus, Inc. See Part I, Item 1(b) 135,000 -
Other assets 6,492 6,969
Total assets $398,537 $273,386
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,271 $ 9,591
Accrued liabilities 19,032 17,556
Accrued remediation and other costs 7,283 5,895
Current maturities of long-term debt 662 623
Total current liabilities 37,248 33,665
Long-term debt 131,404 3,970
Accrued remediation and other costs 11,285 13,516
Other liabilities 5,518 5,331
Deferred income taxes 13,477 13,943
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
Capital in excess of par value 4,651 4,650
Retained earnings 134,578 137,935
Total shareholders' equity 199,605 202,961
Total liabilities and shareholders' equity $398,537 $273,386
FORM 10-Q Page 5 of 10
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Six Months Ended
March 31,
1995 1994
Cash flows from operating activities:
Net loss $ (3,357) $(11,724)
Reconciliation of net loss to net cash flows
from operating activities:
Special charge - 14,500
Expenditures charged to accrued remediation
and other costs, net (1,051) (639)
Depreciation 11,289 11,455
Current and deferred income taxes 1,355 (7,004)
(Increase) decrease in accounts receivable (1,150) 817
Increase (decrease) in accounts payable
and accrued liabilities 2,156 (287)
Other, net (2,141) (2,968)
Net cash flows from operating activities 7,101 4,150
Cash flows from investing activities:
Acquisition of Aptus, Inc. (135,000) -
Purchase of property and equipment (9,255) (7,209)
Proceeds from sale of equipment 135 57
Net cash flows (used in) investing activities (144,120) (7,152)
Cash flows from financing activities:
Debt issued upon acquisition of Aptus, Inc. 127,924 -
Repayment of long-term debt (452) (452)
Exercise of stock options - 88
Net cash flows from (used in) financing
activities 127,472 (364)
Net (decrease) in cash and cash equivalents (9,547) (3,366)
Cash and cash equivalents:
Beginning of period 54,772 47,487
End of period $ 45,225 $ 44,121
Supplemental information:
Interest paid $ 374 $ 511
Income taxes (recovered) $ (3,633) $ (733)
FORM 10-Q Page 6 of 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Six Months Ended March 31, 1995 vs. Six Months Ended
March 31, 1994
Revenues for the first six months increased by $4,383,000 (4.9%) due
mainly to the acquisition of Highway 36 Land Development Company in July
1994, offset in part by higher incineration volume processed at lower
average prices.
Operating expenses increased by $5,033,000 (7.4%) reflecting Highway 36
Land Development Company, the increased incineration volume and related
transportation costs and increased plant maintenance. Operating costs as a
percentage of revenues increased to 78.6% in 1995 from 76.8% in 1994.
Depreciation decreased by $166,000 (1.4%) due mainly to various
leasehold improvements which have become fully depreciated and the impact of
lower capital expenditures during the past few years.
Selling and administrative expenses increased by $245,000 (1.8%)
principally as a result of various pre-acquisition expenditures incurred in
connection with the acquisition of Aptus, Inc. As a percentage of revenues,
selling and administrative expenses were 15.2% in 1995 and 15.7% in 1994.
The income tax benefits recorded for the six months ended March 31,
1995 and 1994 were based on estimated annual effective rates of 40.4% and
37.0%, respectively.
The net loss for the first six months of 1995 was $3,357,000 or $.06
per share compared to a net loss of $11,724,000 or $.19 per share in 1994.
The prior year results include a special charge before taxes of $14,500,000
($9,031,000 after taxes or $.15 per share) and a favorable adjustment in the
first quarter of $543,000 or $.01 per share representing the cumulative
effect to September 30, 1993 of the adoption of SFAS No. 109-Accounting For
Income Taxes.
Results of Operations: Three Months Ended March 31, 1995 vs. Three Months
Ended March 31, 1994
Revenues increased by $1,991,000 (4.8%) mainly due to higher Chempak
(customer site management service) revenues as well as the acquisition of
Highway 36 Land Development Company in July 1994, offset in part by lower
incineration revenue resulting from higher volume processed at lower average
prices.
Operating expenses increased by $4,031,000 (12.0%) reflecting the
increased incineration volume and related transportation costs, the
operating expenses of the Highway 36 Land Development Company acquisition
and increased plant maintenance. Operating costs as a percentage of
revenues increased to 86.9% in 1995 compared to 81.3% in 1994.
Depreciation decreased by $257,000 (4.3%) mainly due to various
leasehold improvements which have become fully depreciated and the impact of
lower capital expenditures during the past few years.
FORM 10-Q Page 7 of 10
Selling and administrative expenses increased by $531,000 (7.7%)
principally as a result of various pre-acquisition expenditures incurred in
connection with the acquisition of Aptus, Inc. As a percentage of revenues,
selling and administrative expenses were 17.2% in 1995 compared with 16.7%
in 1994.
The income tax benefit recorded in the second quarter of 1995 was based
on an estimated annual effective rate of 40.4%. The income tax benefit for
1994 was based on an estimated annual effective rate of 37.0%.
The net loss for the second quarter was $4,577,000 or $.08 per share
compared with a net loss of $12,373,000 or $.20 per share in 1994. The
prior year results include a special charge before taxes of $14,500,000
($9,031,000 after taxes or $.15 per share).
Liquidity and Capital Resources
The strength of the Company's March 31, 1995 financial position is
evidenced by its cash position of $45,225,000 which exceeds current
liabilities by $11,650,000. The Company's working capital ratio at March
31, 1995 was 2.5 to 1.0.
The Company's purchases of property and equipment have been financed with
the cash flows from operations and available cash balances.
As more fully discussed in Item 1(b) and in connection with the Company's
acquisition of Aptus, Inc., various forms of additional debt have been
incurred in an aggregate amount of $128,500,000 before reflecting certain
discounts.
For additional information on the Company's liquidity and capital
resources, see page 8 of the Company's 1994 Annual Report on Form 10-K.
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 3 through 5 of
the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1994.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None required to be reported.
FORM 10-Q Page 8 of 10
Item 5. Other Information
In connection with the acquisition described in Part I, Item 1(b), the
Company entered into Amendment No. 1 dated March 31, 1995 amending the
Rights Agreement dated as of June 14, 1989 between the Company and Registrar
and Transfer Company. In order to avoid a Triggering Event (as defined in
the Rights Agreement), the amendment provides that Seller shall not be
deemed to be the Beneficial Owner (as defined in the Rights Agreement) of
Common Stock of the Company due to its ownership of the Convertible
Debentures or any Common Stock acquired upon conversion of the Convertible
Debentures.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (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 with the Company's current report on Form 8-K
dated April 13, 1995, 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
$16,800,000 of 7.75% Senior Unsecured Debentures Due
March 31, 2005, as filed with the Company's current
report on Form 8-K dated April 13, 1995, is
incorporated herein by reference.
(b) Indenture dated as of March 31, 1995 between Rollins
Environmental Services, Inc. and Texas Commerce Bank
National Association, as Trustee covering the issue of
$66,000,000 of 7.25% Convertible Subordinated
Debentures Due March 31, 2005, as filed with the
Company's current report on Form 8-K dated April 13,
1995, is incorporated herein by reference.
(c) Debenture Purchase Agreement dated as of March 31,
1995 between Rollins Environmental Services, Inc. and
Westinghouse Electric Corporation, as filed with the
Company's current report on Form 8-K dated April 13,
1995, is incorporated herein by reference.
(d) Assignment and Assumption Agreement dated March 31,
1995 between Rollins Environmental Services, Inc. and
Westinghouse Electric Corporation assigning to Rollins
all of the obligations of Westinghouse under the Loan
Agreement dated as of June 1, 1990 between Tooele
County, Utah and Westinghouse Electric Corporation
relating to Variable Rate Hazardous Waste Treatment
Revenue Bonds, Series A (as attached to the Assignment
and Assumption Agreement), as filed with the Company's
current report on Form 8-K dated April 13, 1995, is
incorporated herein by reference.
FORM 10-Q Page 9 of 10
Item 6. Exhibits and Reports on Form 8-K (Con'd)
(e) Rights Agreement dated as of June 14, 1989 between
Rollins Environmental Services, Inc. and Registrar and
Transfer Company, as Rights Agent. The Rights
Agreement includes Exhibit A the form of Right
Certificate. The Rights Agreement including the form
of Right Certificate, as filed with the Company's
current report on Form 8-K dated April 13, 1995, is
incorporated herein by reference.
(f) Amendment No. 1 dated as of March 31, 1995 to Rights
Agreement between Rollins Environmental Services, Inc.
and Registrar and Transfer Company, as Rights Agent,
as filed with the Company's current report on Form 8-K
dated April 13, 1995, is incorporated herein by
reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1995. However, on April 13, 1995, a report on Form 8-K was filed in
connection with the Company's acquisition made on March 31, 1995 as more
fully described in Part I, Item 1(b).
FORM 10-Q Page 10 of 10
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: April , 1995 ROLLINS ENVIRONMENTAL SERVICES, INC.
(Registrant)
______________________________________
Nicholas Pappas
President and Chief Operating Officer
______________________________________
Leo F. Rattigan, Jr.
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer
FORM 10-Q Page 10 of 10
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: April , 1995 ROLLINS ENVIRONMENTAL SERVICES, INC.
(Registrant)
/s/ Nicholas Pappas
Nicholas Pappas
President and Chief Operating Officer
/s/ Leo F. Rattigan, Jr.
Leo F. Rattigan, Jr.
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer