10-Q 1 w49084e10-q.txt FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- ------- Commission File No. 0-4643 ROY F. WESTON, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1501990 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1400 WESTON WAY, P.O. BOX 2653 WEST CHESTER, PENNSYLVANIA 19380 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (610)-701-3000 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 --- --- As of April 30, 2001, the registrant had outstanding 7,898,983 shares of Series A common stock and 2,089,019 shares of common stock. 2

3 ROY F. WESTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS

See notes to consolidated financial statements. 1 4 LIABILITIES AND STOCKHOLDERS' EQUITY

See notes to consolidated financial statements. 2 5 ROY F. WESTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to consolidated financial statements. 3 6 ROY F. WESTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to consolidated financial statements. 4 7 ROY F. WESTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The unaudited consolidated financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2000 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Results for the three months ended March 31, 2001 are not necessarily indicative of results for the full year 2001. NOTE 2 - PROPOSED MERGER The Company entered into an Agreement and Plan of Merger on March 9, 2001 with certain portfolio companies of American Capital Strategies, Ltd. (Nasdaq: ACAS). Under the Agreement and Plan of Merger with ACAS Acquisitions (Weston), Inc. (referred to as "Parent") and Weston Acquisition Corporation, Parent will acquire control of the Company through a merger of its wholly-owned subsidiary, Weston Acquisition Corporation, with and into the Company. In the merger, all outstanding shares of the Company's publicly traded Series A Common Stock and non-publicly traded Common Stock (as well as options and stock appreciation rights, except options and rights held by certain members of the Company's senior management, as described below) will be converted into the right to receive cash consideration. The merger consideration is $5.02 per share of Series A Common Stock and $5.38 per share of Common Stock. The Company will survive the merger and, following the merger, will be 100%-owned by Parent. Also in connection with the merger, certain members of the Company's existing senior management will acquire an equity interest in Parent and will enter into new employment agreements in exchange for the cancellation of their existing stock options, stock appreciation rights and rights under their existing employment agreements. Such members of senior management will have an indirect ownership interest in the Company after the merger. Consummation of the merger is subject to, among other things, approval of the holders of a majority of the Company's outstanding shares of Series A common Stock at a special meeting of shareholders scheduled for June 1, 2001. If the merger is consummated, the Company will no longer be a public company subject to the reporting requirements under the Securities Exchange Act of 1934. Further information about the merger is available in the Company's proxy statement, which has been filed with the Securities and Exchange Commission. NOTE 3 - RESTRUCTURING CREDITS AND OTHER COSTS During the three months ended March 31, 2001, the Company received cash payments on a note related to the 1997 sale of its laboratory operations. The payments aggregated $856,000, including $254,000 of interest and $602,000 of principal. The principal amount has been reported as a restructuring credit in the consolidated statement of operations for the three months ended March 31, 2001. 5 8 In connection with the proposed merger discussed in Note 2, the Company paid $266,000 of legal and financial advisory fees incurred on behalf of certain of its holders of Common Stock and members of senior management. These fees are included in restructuring credits and other costs in the consolidated statement of operations for the three months ended March 31, 2001. NOTE 4 - SEGMENTS Net revenues and segment profit (loss) for the three months ended March 31, 2001 and 2000 were as follows:

NOTE 5 - COMPREHENSIVE INCOME Comprehensive income consists of net income, adjusted for other increases and decreases affecting stockholders' equity that, under generally accepted accounting principles, are excluded from the determination of net income. The calculation of comprehensive income for the three months ended March 31, 2001 and 2000 follows.

NOTE 6 - CONSOLIDATED STATEMENTS OF CASH FLOW Cash payments for income taxes were $205,000 and $39,000 in the three months ended March 31, 2001 and 2000, respectively. Cash payments for interest were $196,000 and $275,000 in the three months ended March 31, 2001 and 2000, respectively. 6 9 The Company incurred $419,000 and $110,000 of capital lease obligations in the three months ended March 31, 2001 and 2000, respectively, when the Company entered into leases for office equipment. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the unaudited interim consolidated financial statements and the notes thereto included in this Quarterly Report and the audited financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2000. The Company entered into an Agreement and Plan of Merger on March 9, 2001 with certain portfolio companies of American Capital Strategies, Ltd. (Nasdaq: ACAS). Under the Agreement and Plan of Merger with ACAS Acquisitions (Weston), Inc. (referred to as "Parent") and Weston Acquisition Corporation, Parent will acquire control of the Company through a merger of its wholly-owned subsidiary, Weston Acquisition Corporation, with and into the Company. In the merger, all outstanding shares of the Company's publicly traded Series A Common Stock and non-publicly traded Common Stock (as well as options and stock appreciation rights, except options and rights held by certain members of the Company's senior management, as described below) will be converted into the right to receive cash consideration. The merger consideration is $5.02 per share of Series A Common Stock and $5.38 per share of Common Stock. The Company will survive the merger and, following the merger, will be 100%-owned by Parent. Also in connection with the merger, certain members of the Company's existing senior management will acquire an equity interest in Parent and will enter into new employment agreements in exchange for the cancellation of their existing stock options, stock appreciation rights and rights under their existing employment agreements. Such members of senior management will have an indirect ownership interest in the Company after the merger. Consummation of the merger is subject to, among other things, approval of the holders of a majority of the Company's outstanding shares of Series A Common Stock at a special meeting of shareholders scheduled for June 1, 2001. If the merger is consummated, the Company will no longer be a public company subject to the reporting requirements under the Securities Exchange Act of 1934. Further information about the merger is available in the Company's proxy statement, which has been filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS Net income for the three months ended March 31, 2001 was $289,000, or $.03 per share, compared to $745,000, or $.07 per share, for the three months ended March 31, 2000. Net revenues decreased 4% to $37,123,000 for the three months ended March 31, 2001 compared to $38,691,000 for the comparable 2000 period. An increase of $1,207,000, or 4%, from the Company's Infrastructure Redevelopment segment was offset by a decrease of $2,669,000, or 61%, in net revenues from the Company's Federal Programs segment. The decrease in Federal Programs' net revenue was primarily due to the end of several large dedicated-site contracts, some of which were replaced with nondedicated-site contracts included in the Infrastructure Redevelopment segment. 7 10 For the three months ended March 31, 2001, income from operations was $355,000, down 60% from $880,000 in the 2000 period. General and administrative expenses increased $387,000, or 10%, in the three months ended March 31, 2001 principally due to higher legal expenses and severance costs. The three months ended March 31, 2001 also included $602,000 of principal payments on a note related to the 1997 sale of the Company's laboratory operations. The principal payment is reflected as a restructuring credit in the consolidated statement of operations for the three months ended March 31, 2001. The Company had $126,000 of other income in the three months ended March 31, 2001 compared to $361,000 in the comparable 2000 period. The three months ended March 31, 2001 and 2000 include $209,000 and $315,000, respectively, of equity in undistributed earnings of WESKEM, LLC, a limited liability company 40%-owned by the Company, which began operations in late 1999. Other income included $210,000 in the three months ended March 31, 2000 of gains on redemption of the Company's 7% Convertible Subordinated Debentures. Interest expense decreased $69,000, or 16%, in the three months ended March 31, 2001, due primarily to a decrease in short-term borrowings. MATERIAL CHANGES IN FINANCIAL CONDITION Cash and cash equivalents increased $2,622,000 in the first three months of 2001 to $4,717,000 at March 31, 2001 from $2,095,000 at December 31, 2000. Operating activities provided cash of $10,263,000 in the first three months of 2001, compared to using cash of $3,616,000 in the comparable 2000 period. Cash collections for the three months ended March 31, 2001 were $82,605,000, resulting in a reduction of the Company's days sales outstanding from 102 days at December 31, 2000 to 82 days at March 31, 2001. Accounts receivable declined $7,666,000 and unbilled costs and estimated earnings on contracts in process, net of advance billings declined $6,912,000 in the three months ended March 31, 2001. The cash generated from collections was used, in part, to repay $7,000,000 of borrowings under the Company's line of credit during the three months ended March 31, 2001. FORWARD LOOKING STATEMENTS From time to time, the Company, its management, or other Company representatives may make or publish statements that contain projections, beliefs, expectations, predictions or intentions relating to anticipated financial performance, business prospects, potential contract value, business strategy and plans, technological developments, and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for these forward looking statements, including statements contained in this report. In order to comply with the terms of the safe harbor, the Company notes that a number of factors could cause the Company's actual results, experience or outcome to differ materially from projections, beliefs, expectations, predictions, or intentions expressed in forward looking statements. These risks and uncertainties, which may affect the operations, performance, development and results of the Company's business, include, but are not limited to, the following: - The failure of shareholders to adopt the proposed merger agreement. - The highly competitive marketplace in which the Company operates. 8 11 - Changes in and levels of enforcement of federal, state and local environmental legislation and regulations. - The Company's ability to obtain new contracts from existing as well as new clients, and the uncertain timing of awards and contracts. - The Company's ability to execute new projects and those currently in backlog within reasonable cost estimates, as well as other contract performance risks, including successful resolution of any contract disputes. - Funding appropriation, funding delay, and the issuance of work orders on government projects. - The Company's ability to achieve any planned overhead or other cost reductions while maintaining adequate work flow. - The Company's ability to obtain adequate financing for its current operations, including adequate financing to fund working capital needs. - The Company's ability to execute its strategic plan through successful marketing activities and continued cost containment. - The nature of the Company's work with hazardous materials, toxic wastes, and other pollutants, and the potential for uninsured claims or claims in excess of insurance limits, including professional liability and pollution claims. - The Company's ability to retain key personnel. - The potential for loss of key personnel, including members of the Company's senior management, if the proposed merger is not approved. The Company disclaims any intent or obligation to update forward looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company may have exposure to market risk for changes in interest rates, primarily related to the Company's line of credit and its investments. The Company does not have any derivative financial instruments included in its quality standards. The Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. As of March 31, 2001, the Company's investments consisted of mutual funds. The Company does not expect any material loss with respect to its investments. 9 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable. Item 2. Changes in Securities and Use of Proceeds Not Applicable. Item 3 Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K (a) The exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. Exhibit No. Description ----------- ----------- 2 Agreement and Plan of Merger dated as of March 9, 2001 by and among ACAS Acquisitions (Weston), Inc., Weston Acquisition Corporation and the Company. Incorporated by reference to Appendix A to the Company's definitive proxy statement on Schedule 14A filed with the Commission on May 2, 2001. 10.1 Letter Agreement dated March 9, 2001 amending the Pool Majority Notice dated October 23, 2000 executed pursuant to a stock pooling agreement among the Company and certain holders of the Company's common stock. Incorporated by reference to Exhibit (d)(3) to the Company's Schedule 13E-3 filed with the Commission on March 22, 2001. 10.2 Letter Agreement dated March 9, 2001 amending the Agreement dated October 23, 2000 by and among the Special Committee of the Company's Board of Directors and the signatories to the Pool Majority Notice. Incorporated by reference to Exhibit (d)(4) to the Company's Schedule 13E-3 filed with the Commission on March 22, 2001. 10 13 10.3 Management Exchange Letter Agreement dated March 9, 2001 among ACAS Acquisitions (Weston), Inc., American Capital Strategies, Ltd. and William L. Robertson. Incorporated by reference to Exhibit (d)(5) to the Company's Schedule 13E-3 filed with the Commission on March 22, 2001. 10.4 Management Exchange Letter Agreement dated March 9, 2001 among ACAS Acquisitions (Weston), Inc., American Capital Strategies, Ltd. and Patrick G. McCann. Incorporated by reference to Exhibit (d)(6) to the Company's Schedule 13E-3 filed with the Commission on March 22, 2001. 10.5 Essential Terms Letter Agreement dated March 9, 2001 among ACAS Acquisitions (Weston), Inc. and certain members of the Weston family (including forms of Roy F. Weston, Inc. Consulting and Non-Compete Agreement for each of Katherine W. Swoyer and A. Frederick Thompson, Employment Agreement between Roy F. Weston, Inc. and Wayne F. Hosking, Jr., Employment Agreement between Roy F. Weston, Inc. and Thomas M. Swoyer, Jr., Amendment to Employment Agreement between Roy F. Weston, Inc. and Melissa T. Kalucki and Letter Agreement with Thomas M. Swoyer regarding real estate matters. Incorporated by reference to Exhibit (d)(9) to the Company's Schedule 13E-3 filed with the Commission on March 22, 2001. 10.6 Letter Agreement regarding the Company's proposed merger with portfolio companies of American Capital Strategies, Ltd., among ACAS Acquisitions (Weston), Inc., the Company, RFW Enterprises, Inc., Katherine W. Swoyer, Susan W. Thompson and Roy F. Weston. Incorporated by reference to Exhibit (d)(15) to the Company's Schedule 13E-3 filed with the Commission on March 22, 2001. 11 Statements of Computation of Earnings per Share. (b) Reports on Form 8-K: On March 12, 2001, the Company filed a report on Form 8-K reporting under Item 5 the execution of a definitive merger agreement with certain portfolio companies of American Capital Strategies, Ltd. 11 14 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. ROY F. WESTON, INC. (Registrant) Date: May 11, 2001 By:/s/ William L. Robertson --------------------------- William L. Robertson Chief Executive Officer (Duly Authorized Officer) Date: May 11, 2001 By:/s/ William G. Mecaughey --------------------------------- William G. Mecaughey Vice President and Chief Financial Officer (Principal Financial Officer) 12

WESTON ROY F INC 10-Q