1
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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, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
--------------- ------------
COMMISSION FILE NUMBER 0-25890
------------------
REPUBLIC ENVIRONMENTAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------
DELAWARE 22-2769024
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
16 SENTRY PARK WEST
1787 SENTRY PARKWAY WEST, SUITE 400
BLUE BELL, PENNSYLVANIA 19422
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (215) 283-4900
------------------
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value, 5,392,715 shares
outstanding as of May 3, 1996
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2
REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 . . . . . . . . . . . 2
Consolidated and Combined Statements of Operations for the three months ended
March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated and Combined Statements of Cash Flows for the three months ended
March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated and Combined Financial Statements. . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . 6
PART II - Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Change in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . 9
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1
3
REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
ASSETS 1996 1995
-------------- -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,926 $ 3,255
Accounts receivable, less allowance for doubtful accounts of
$1,090 and $1,031, respectively . . . . . . . . . . . . . . . . 6,763 7,614
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 1,421 1,445
-------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . 10,110 12,314
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 19,678 19,469
Goodwill, net of accumulated amortization of $1,264 and $1,187,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,061 9,109
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848 858
-------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 39,697 $ 41,750
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,120 $ 2,568
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 2,413 2,825
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 78 193
Current maturities of long-term debt and capitalized lease
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 507
Current portion of accrued environmental costs . . . . . . . . . . 1,849 1,999
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 60 56
-------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . 6,973 8,148
Long-term debt and capitalized lease obligations, net of current maturities 547 618
Accrued environmental costs, net of current portion . . . . . . . . . . . 1,781 1,790
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,218 2,344
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 257
-------- ---------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 11,776 13,157
-------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share; 20,000,000 shares
authorized, 5,387,235 issued . . . . . . . . . . . . . . . . . . 57 57
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 28,160 27,710
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 512 778
Cumulative translation adjustment . . . . . . . . . . . . . . . . 232 193
Treasury stock, 347,921 shares, at cost . . . . . . . . . . . . . (1,040) (145)
-------- ---------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . . . . . 27,921 28,593
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY . . . . . . . . $ 39,697 $ 41,750
======== =========
The accompanying notes are an integral part of these financial statements.
2
4
REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
----------------------
1996 1995
---- ----
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,971 $ 12,148
Expenses:
Cost of operations . . . . . . . . . . . . . . . . . . . . . . . . 6,043 8,759
Selling, general and administrative . . . . . . . . . . . . . . . . 2,372 2,566
--------- --------
Operating income (loss) . . . . . . . . . . . . . . . . . . (444) 823
Other (income) expense:
Interest and other income . . . . . . . . . . . . . . . . . . . . . (113) (65)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 92 82
--------- --------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . (423) 806
Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . (157) 298
--------- --------
Net (loss) income . . . . . . . . . . . . . . . . . . . . . $ (266) $ 508
========= ========
(Loss) earnings per common and common equivalent share . . . . . . . $ (.05) $ 0.09
========= ========
Weighted average common and common equivalent shares . . . . . . . . 5,465 5,458
========= ========
The accompanying notes are an integral part of these financial statements.
3
5
REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended March 31,
--------------------------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income . . . . . . . . . . . . . . . . . . $ (266) $ 508
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Depreciation and amortization . . . . . . . . . . . 541 590
Provision for doubtful accounts . . . . . . . . . . 69 229
Provision for accrued environmental costs . . . . . 74 99
Gain on the sale of equipment . . . . . . . . . . . (57) (14)
Changes in assets and liabilities -
Accounts receivable . . . . . . . . . . . . . . . 787 666
Prepaid expenses and other assets . . . . . . . . 256 (393)
Accounts payable and accrued liabilities . . . . (733) (1,033)
Income taxes payable . . . . . . . . . . . . . . 4 142
Due to Republic Industries, Inc. . . . . . . . . - 762
Other liabilities . . . . . . . . . . . . . . . . (332) (406)
--------- --------
Net cash provided by operations . . . . . . 343 1,150
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions . . . . . . . . . . . . . . . . . (666) (853)
Proceeds from the sale of equipment . . . . . . . . . 57 31
--------- --------
Net cash used in investing activities . . . (609) (822)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts paid to Republic Industries, Inc. . . . . . - (501)
Cash received from Stout - capital contribution . . . 74 -
Payments on payroll taxes from stock options . . . . (2) -
Purchase of treasury stock . . . . . . . . . . . . . (895) -
Payments of long-term debt and notes payable . . . . (240) (293)
Proceeds from long-term debt and notes payable . . . - 128
-------- --------
Net cash used in financing activities . . . (1,063) (666)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . (1,329) (338)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . 3,255 1,433
-------- --------
End of period . . . . . . . . . . . . . . . . . . . . $ 1,926 $ 1,095
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 92 $ 79
Income taxes . . . . . . . . . . . . . . . . . . . . $ 31 $ 9
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases of $0 and $536 were financed in the three months ended
March 31, 1996 and 1995, respectively by borrowings and capitalized lease
obligations.
The accompanying notes are an integral part of these financial statements.
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6
REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated and combined financial statements at
March 31, 1996 include the accounts of Republic Environmental Systems, Inc. and
its subsidiaries ("RESI"), the successor to the business of Stout
Environmental, Inc. ("Stout"), a Delaware corporation, acquired by Republic
Industries, Inc. ("RII"), formerly Republic Waste Industries, Inc. in March
1992, as well as the accounts of Republic Environmental Systems Ltd. ("RESL")
(formerly known as Great Lakes Environmental Group Ltd.), the former Canadian
hazardous waste services subsidiary of RII, which was acquired by RII in July
1991 and was contributed to RESI as of the Distribution Date (collectively, the
"Company"). One of RESI's subsidiaries, Republic Environmental Systems
(Cleveland) (RES (Cleveland)), Inc. (formerly known as Evergreen Environmental
Group, Inc.), was acquired by RII in September 1991, in a transaction separate
from the Stout acquisition and was contributed to RESI in May 1993. The
accounts of RESI and all its majority owned subsidiaries are included in the
accompanying consolidated financial statements. All significant intercompany
transactions have been eliminated.
The consolidated and combined financial statements of RESI and its subsidiaries
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
the Company, the accompanying statements reflect all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
those periods indicated, and contain adequate disclosure to make the
information presented not misleading. Such adjustments are of a normal,
recurring nature unless otherwise disclosed in the notes to consolidated
financial statements. It is suggested that these consolidated condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's latest annual report on Form 10-K.
Results of operations for any three month period are not necessarily indicative
of the results of operations for a full year.
The combined financial statements for all periods presented prior to the
Distribution Date include the historical accounts and operations of the former
RII businesses that now comprise the Company. Material transactions between
entities included herein have also been eliminated.
2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The computation of weighted average common and common equivalent shares used in
the calculation of earnings per share for the three months ended March 31, 1996
is shown below (in thousands):
Three Months Ended
March 31, 1996
----------------
Common shares outstanding, net of treasury shares . . . . 5,632
Effect of stock options and warrants assumed exercisable 13
Effect of using weighted average common shares outstanding
during the period . . . . . . . . . . . . . . . . . . . . (180)
----------
Weighted average common and common equivalent shares . . 5,465
==========
Earnings per share for the three months ended March 31, 1995 has been
determined based on the assumed weighted average number of shares of common
stock, $.01 par value per share, of RESI ("common stock") outstanding which was
considered to be equal to one-fifth of the weighted average number of shares of
RII's common stock for the respective periods.
5
7
REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The difference between shares for primary and fully diluted earnings per common
and common equivalent share was not significant for the periods presented.
3. TREASURY STOCK
During 1995 the Board of Directors adopted resolutions authorizing, but not
requiring, the Company to purchase up to a total of 250,000 shares of its
Common Stock from time to time. Through December 31, 1995, the Company acquired
51,000 shares for an aggregate value of approximately $145,000. In February,
1996 the Board of Directors adopted resolutions authorizing an additional
250,000 shares to be repurchased and since January 1, 1996 the Company had
repurchased 297,000 shares for an aggregate value of approximately $896,000.
Repurchases have been effected at prevailing market prices from time to time
on the open market.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship which certain captioned items in the Company's Consolidated
Statements of Operations bear to total revenue and other pertinent data:
Three Months Ended
March 31,
-------------------------
1996 1995
---- ----
STATEMENTS OF OPERATIONS DATA:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of operations . . . . . . . . . . . . . . . . . . . 75.8 72.1
Selling, general and administrative expenses . . . . . . 29.8 21.1
---------- -----------
Operating income . . . . . . . . . . . . . . . . . . . . (5.6%) 6.8%
========== ===========
Revenue
Revenue for the first quarter of 1996 decreased to $8.0 million from $12.1
million in the first quarter of 1995. This decrease is primarily the result of
a decrease in services provided due to the severe winter weather conditions
experienced throughout the Northeastern United States and Canada. Also, the
Company continues to be effected by the delay in the granting of certain permit
extensions and revisions at the Company's Cleveland, Ohio facility that were
anticipated to coincide with the closure of the Company's Dayton, Ohio facility
in the fourth quarter of 1995.
Cost of Operations
Cost of operations decreased $2.8 million, or 32.0%, to $6.0 million in the
first quarter of 1996 from $8.8 million in the first quarter of 1995. As a
percentage of revenue these costs were 75.8% and 72.1% respectively. This
decrease is a result of the decrease in services provided in 1996 due to the
adverse weather conditions described above. In addition several factors
including the continued intense competition in the hazardous waste management
industry and the uncertainties that prevail regarding state and federal
regulation changes which affect waste generators have had an adverse affect on
pricing and margins within the industry.
Selling, general and administrative expenses decreased by 7.7% to $2.4 million
in the quarter ended March 31, 1996 from $2.6 million
6
8
in the same period in 1995. This decrease is a result of the Company's
continued measures to reduce costs. As a percentage of revenue these costs
were approximately 29.8% and 21.1%, respectively.
Interest Expense
Interest expense increased slightly to $92,000 in the quarter ended March 31,
1996 from $82,000 in the same period in 1995.
Income Taxes
The Company recorded an income tax benefit of $157,000 the three months ended
March 31, 1996, reflecting an effective tax rate of approximately 37.0%. The
Company's income tax provision in the same period for 1995 was $298,000
reflecting an effective tax rate of approximately 37.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company made capital expenditures of $0.7 million in the first three months
of 1996 which included expenditures to upgrade existing waste treatment,
storage and disposal ("TSD") facilities and fixed assets for normal
replacement, compliance with regulations and market development. The Company
anticipates that it may make up to approximately $4.8 million in capital
expenditures during the remainder of 1996 to upgrade existing TSD facilities
and comply with current and proposed regulations. The Company considers its
financial resources to be adequate to fund its capital expenditures for 1996.
In May 1995, the Company secured a $6.0 million credit facility with a United
States commercial bank to provide the Company with additional liquidity and
working capital. This facility provides for borrowings at the prime lending
rate plus 0.5% or adjusted LIBOR rate plus 2.5%, which would be 8.75% and 7.95%
at March 31, 1996 respectively, and will mature in 1998. Up to $4.5 million of
the credit facility is available for the issuance of standby letters of credit.
At March 31, 1996 the Company had issued $2.6 million in standby letters of
credit and had no cash borrowing under the credit facility. The credit
facility contains various affirmative and negative covenants which, among other
things, restrict the payment of dividends and require the maintenance of
certain financial ratios. Borrowings under the credit facility are secured by
substantially all of the Company's U.S. based assets.
In April 1995, the Board of Directors of RESI authorized the Company to
repurchase up to 250,000 shares or 4.6% of its Common Stock during 1995 as
deemed appropriate by management and an additional 250,000 repurchase was
authorized in February 1996. Between April 26, 1995 and early March 1996 the
Company had repurchased approximately 348,000 shares of its Common Stock for a
cost of approximately $1 million under the previously announced repurchase
programs authorized by the Board of Directors. The repurchases have been made
at prevailing market prices from time to time on the open market. The
repurchased shares will represent additions to treasury stock and may be
retired or used for future acquisitions.
Cash flow from operations was $0.3 million in the three months ended March 31,
1996, compared with $1.2 million in the same period in 1995. In the first
three months of 1996 and 1995, the Company made capital expenditures from cash
on hand and operating cash flow. The Company anticipates that in the remainder
of 1996, it will continue to fund expenditures from cash on hand and operating
cash flow supplemented by borrowing under its revolving credit facility, as
necessary. Management believes that the Company currently has sufficient cash
and lines of credit to fund current operations and expansion thereof.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. The Company has no long-term fixed-price contracts and the Company
believes it will be able to pass through most cost increases resulting from
inflation to its customers. As discussed in Results of Operations above, in
recent years the Company has been adversely affected by changes in the
hazardous waste service sector in the United States and a weak economy in the
Canadian market place and is unable to determine the future impact of a
sustained economic downturn.
7
9
FOREIGN CURRENCY TRANSACTIONS
The Company is subject to the effects of Canadian currency fluctuations,
however the Company derives less than 12% of its revenues and operating profits
from Canadian sources. There was no material effect on foreign cash balances of
foreign currency translations in the first three months of 1996 and 1995.
8
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable events have occurred which would require modification of
the discussion under Item 3 - Legal Proceedings contained in the
Company's report on Form 10-K for the year ended December 31, 1995.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1996.
9
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant, Republic Environmental Systems, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REPUBLIC ENVIRONMENTAL SYSTEMS, INC.
By:/s/ MICHAEL D. SCHMIDT
------------------------------------
Michael D. Schmidt
Secretary/Treasurer
(As authorized Officer and
Principal Accounting Officer)
May 10, 1996
10
5
1,000
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
1,926
0
7,853
1,090
0
10,110
34,102
14,424
39,697
6,973
547
0
0
57
27,864
39,697
7,971
7,971
0
6,043
0
0
92
(423)
(157)
(266)
0
0
0
(266)
(.05)
(.05)
