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