UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2002.
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission file number 1-4422
A. Full title of the plan and address of the plan, if different from that of
issuer named below:
ROLLINS, INC.
ROLLINS 401(k) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive offices:
ROLLINS, INC.
2170 PIEDMONT ROAD, N.E.
ATLANTA, GA 30324
REQUIRED INFORMATION
ROLLINS, INC.
ROLLINS 401(k) PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
As of December 31, 2002 and 2001 and for the Year Ended December 31, 2002
Page No.
--------------
REPORT OF INDEPENDENT AUDITORS - ERNST & YOUNG 1
LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - 2
ARTHUR ANDERSON LLP
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits 3
Statement of Changes in Net Assets Available for Benefits 4
Notes to Financial Statements 5
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i - Schedule of Assets (Held at End of 12
Year)
INDEX TO EXHIBITS 14
Report of Independent Auditors
Plan Administrator
Rollins 401(k) Plan
We have audited the accompanying statement of net assets available for benefits
of Rollins 401(k) Plan as of December 31, 2002, and the related statement of
changes in net assets available for benefits for the year then ended. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Rollins 401(k) Plan as of December 31,
2001 were audited by other auditors who have ceased operations and whose report
dated February 22, 2002 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of Rollins
401(k) Plan at December 31, 2002, and the changes in its net assets available
for benefits for the year then ended, in conformity with accounting principles
generally accepted in the United States.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2002, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
- ---------------------------
Ernst & Young LLP
Atlanta, Georgia
June 12, 2003
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
Rollins 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of the ROLLINS 401(k) PLAN as of December 31, 2001 and 2000 and the related
statement of changes in net assets available for benefits for the year ended
December 31, 2001. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2001 and 2000 and the changes in its net assets available for
benefits for the year ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Andersen LLP
- ----------------------
Arthur Andersen LLP
Atlanta, GA
February 22,2002
NOTE: THIS IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP, OUR
FORMER INDEPENDENT ACCOUNTANTS. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN LLP IN CONNECTION WITH THE FILING OF THE FORM 11-K.
2
Rollins 401(k) Plan
Statements of Net Assets Available for Benefits
December 31
2002 2001
------------------------------------------------
Assets
Investment in Master Trust (Note 3) $ 95,322,365 $ 94,320,433
Loans to participants 5,112,838 5,673,608
Employer contribution receivable 2,158,914 1,723,994
------------------------------------------------
Net assets available for benefits $ 102,594,117 $ 101,718,035
================================================
See accompanying notes.
3
Rollins 401(k) Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
Additions to net assets attributed to:
Contributions:
Participants $ 11,572,329
Employer 2,170,694
Interest income from loans to participants 473,118
-----------------------
Total additions 14,216,141
Deductions from net assets attributed to:
Net loss from investment in Master Trust 3,391,785
Distributions to participants 9,948,274
-----------------------
Total deductions 13,340,059
Net increase 876,082
Net assets available for benefits at the beginning of the year 101,718,035
-----------------------
Net assets available for benefits at the end of the year $ 102,594,117
=======================
See accompanying notes.
4
Rollins 401(k) Plan
Notes to Financial Statements
December 31, 2002
1. Description of the Plan
The following brief description of the Rollins 401(k) Plan (the "Plan") provides
only general information. Participants should refer to the Plan agreement for a
more complete description of the Plan's provisions.
General
The Plan, as amended and restated, is a defined contribution plan. All employees
of Rollins, Inc. (the "Company"), except those who are members of a collective
bargaining unit, are eligible to participate in the Plan following the
completion of six months of service, as defined. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
Contributions and Investment Options
All investment options are established by the Plan with guidelines as to the
purpose of each fund. Each of the investment funds has a custodian responsible
for the safekeeping and investment of the assets of the fund.
The plan administrator is responsible for the overall administration of the
Plan. The trustee of the Plan is Northern Trust Company (the "Trustee"). The
Trustee is responsible for the overall safekeeping and investment of the assets
of the Plan.
Effective January 1, 2002, the Plan was amended to reflect the Economic Growth
and Tax Relief Reconciliation Act of 2001. The amendment allows participants to
contribute, via payroll deductions, from 1% to 25% of their pretax compensation
to the Plan, subject to certain provisions of the Internal Revenue Code (the
"Code"), into any of the seven investment fund options or a combination thereof
in multiples of 5%. Previously, participants could elect to contribute up to 15%
of their pretax compensation. Additionally, if a participant was age 50 or older
by December 31, 2002, he or she could have made an additional contribution of
$1,000 for 2002. All participant contributions are fully vested and
nonforfeitable.
5
Rollins 401(k) Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Effective January 1, 2002, the Plan was also changed to increase the employer
matching contribution to 30 cents for every dollar a participant contributes up
to 6% of his or her pretax compensation. Previously, the Plan provided for an
employer matching contribution of 30% of contributions up to 5% of a
participant's pretax compensation. Employer contributions under this provision
are made in Rollins, Inc. common stock. In order to receive a matching
contribution for the plan year, a participant must be actively employed on
December 31.
Vesting terms effective January 1, 2002 are shown below:
Vested
Percentage
----------------------
Years of service:
Less than two 0%
Two 20
Three 40
Four 60
Five 80
Six or more 100
Previously, participants in the Plan vested in the Company's contribution based
on the following schedule:
Vested
Percentage
----------------------
Years of service:
Less than three 0%
Three 20
Four 40
Five 60
Six 80
Seven or more 100
Forfeited nonvested accounts are used to reduce employer contributions. Total
forfeitures used to reduce employer contributions for 2002 were $179,144.
6
Rollins 401(k) Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
The Plan's record keeper is Northern Trust Retirement Consulting ("NTRC").
Separate accounts are maintained for each participant by NTRC. Income and losses
on plan investments are allocated to the participants' accounts in accordance
with the provisions of the Plan. NTRC provides daily valuation of participant
accounts.
Loans Receivable From Plan Participants
The balance represents loans receivable from Plan participants. The Plan
provides for loans to participants of up to the lesser of 50% of the individual
participant's vested account balance or $50,000. The plan administrator
administers this fund. A participant's loan payments of principal and interest
are allocated to his/her accounts under the Plan and invested according to the
participant's then current investment elections. Loan terms range from 1 to 5
years. The loans are secured by the balance in the participant's account and
bear interest at the prime rate as of the end of the month prior to the month in
which the loan is processed plus 2.0%. Principal and interest are paid ratably
through monthly payroll deductions.
Payment of Benefits
Upon retirement, death, total and permanent disability, or termination for any
reason, the participant or his or her beneficiary may receive the total value of
his or her vested account in a lump sum distribution. A participant may elect to
defer the payment of his or her account from the Plan to the April 1st after he
or she attains age 70 1/2.
In addition, a participant may elect to withdraw all or a portion of his account
at any time through hardship provisions as defined by the Code and subject to
approval by the Company. Except in the case of withdrawals for qualifying
emergencies, a participant who makes a withdrawal may not make any contributions
or additional withdrawals for a period of six months.
Administrative Expenses
Administrative expenses of the Plan, including trustee and custodian fees, are
paid by the Plan to the extent such expenses are not paid by the Company. The
Company paid all expenses of the Plan for the year ended December 31, 2002.
7
Rollins 401(k) Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies
Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100 percent vested in their accounts.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Plan's management to make
estimates that affect the amounts reported in the accompanying financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain amounts for the previous year have been reclassified to conform to the
2002 financial statement presentation.
Investment Valuation
All investment fund options, excluding the employer contribution portion of the
Rollins, Inc. Common Stock Fund, are 100% participant-directed. Except for the
Fixed Income Fund, the Plan's investments are stated at fair value, which equals
the quoted market price on the last business day of the plan year. The
participant loans are valued at their outstanding balances, which approximate
fair value.
Fixed Income Fund
The Fixed Income Fund represents deposits and interest earned thereon in this
fund managed by Connecticut General Life Insurance Company.
8
Rollins 401(k) Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The group annuity contract under which these deposits have been made has been
determined to be fully benefit-responsive under Statement of Position 94-4.
Therefore, this investment is carried at contract value in the accompanying
financial statements. At December 31, 2002 and 2001, the crediting interest rate
was 6.25% and 7.5%, respectively. This rate may be changed under the terms of
the contract, but in no case is it adjusted to less than 0%. The annual yield on
the contract for the years ended December 31, 2002 and 2001 was 5.9% and 7.45%,
respectively. The fair value of the contract at December 31, 2002 was
approximately $33.3 million. This contract is subject to credit risk based on
the ability of the insurance company to meet interest or principal payments or
both as they become due.
Investments, in general, are subject to various risks, including credit,
interest and overall market volatility risks. Due to the level of risk
associated with certain investment securities, it is reasonably possible that
changes in values of investment securities will occur in the near term, and such
changes could materially affect the amount reported in the statements of net
assets available for benefits.
3. Master Trust
The Plan participates in the Rollins Retirement Account Master Trust (the
"Master Trust") with the 401(k) Plan of LOR, Inc., a company controlled by R.
Randall Rollins and Gary W. Rollins, executives of Rollins, Inc. The Master
Trust reinvests all dividend and interest income received on securities owned by
the Master Trust. The value of the units in the Master Trust is adjusted daily
to reflect the fair value of the investments. The Master Trust units may be
redeemed by the Plan for an amount equal to their current market values, except
for units in the Fixed Income Fund, which are redeemed at contract value.
9
Rollins 401(k) Plan
Notes to Financial Statements (continued)
3. Master Trust (continued)
The Plan's interest in the assets of the Master Trust is included in the
accompanying statements of net assets available for benefits at December 31,
2002 and 2001. A summary of the net assets of the Master Trust is as follows:
December 31
2002 2001
-------------------------------------------------
Investments, at fair value as determined by quoted
market prices:
Mutual funds $ 47,573,003 $ 57,311,082
Common stock - Rollins, Inc. 21,357,055 15,795,800
Money market funds 1,067,497 907,830
Investments, at contract value:
Group annuity contract 33,230,242 28,653,627
Accrued investment income 28,663 16,240
Accrued expenses and other liabilities (2,964) (2,466)
Adjustments for pending trades - (134,015)
-------------------------------------------------
Net assets of Master Trust $ 103,253,496 $ 102,548,098
=================================================
Allocations of the net assets of the Master Trust to participating plans are as
follows:
December 31
2002 2001
-------------------------------------------------------------------------
Amount Percent Amount Percent
-------------------------------------------------------------------------
Rollins 401(k) Plan $ 95,322,365 92.3% $ 94,320,433 92.0%
LOR 401(k) Plan 7,931,131 7.7 8,227,665 8.0
-------------------------------------------------------------------------
$103,253,496 100.0% $102,548,098 100.0%
=========================================================================
Master Trust income (loss) allocated to the participating plans for the year
ended December 31, 2002 is as follows:
Interest income $ 2,083,036
Dividends 481,651
Net depreciation in fair value of mutual funds (11,605,321)
Net appreciation in fair value of Rollins, Inc. common stock 4,748,903
-----------------------
Net investment loss $ (4,291,731)
=======================
10
Rollins 401(k) Plan
Notes to Financial Statements (continued)
4. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated March 15, 2002, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Subsequent to this issuance of the determination letter,
the Plan was amended. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The plan sponsor has
indicated that it will take the necessary steps, if any, to maintain the Plan's
qualified status.
5. Nonparticipant-Directed Investments
The employer matching contribution is invested in the Rollins, Inc. Common Stock
Fund and may not be transferred by the participants. The portion of the Rollins,
Inc. Common Stock Fund that is nonparticipant-directed was $17,429,126 and
$12,917,306 at December 31, 2002 and 2001, respectively. Net assets of the
Rollins, Inc. Common Stock Fund (including both participant-directed and
nonparticipant-directed amounts) are as follows:
December 31
2002 2001
--------------------------------------------------
Rollins, Inc. common stock $ 21,357,055 $ 15,795,800
Money market fund 383,592 266,044
Employer contribution receivable 2,158,914 1,723,994
Accrued income 503 544
--------------------------------------------------
$ 23,900,064 $ 17,786,382
==================================================
Changes in net assets for the year ended December 31, 2002 are as follows:
Employer contributions, net of forfeitures $ 2,170,694
Participant contributions 852,977
Gain from investment in Master Trust 4,928,195
Distributions to participants (1,661,486)
Interest on loans 30,083
Net transfers to other funds (206,781)
----------------------
Net change $ 6,113,682
======================
11
Rollins 401(k) Plan
EIN: 51-0068479 Plan No.: 001
Schedule H, Line 4i
Schedule of Assets (Held at End of Year)
December 31, 2002
(b) Identity of Issuer,
Borrower, (e) Current
(a) Lessor, or Similar Party (c) Description of Investment (d) Cost Value
- ----------------------------------------------------------------------------------------------------------------
* Participant Loans Interest rates ranging from 6.75% to 11.50% - $5,112,838
---------------------------
---------------------------
Total - $5,112,838
===========================
* Indicates a party-in-interest to the Plan.
12
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
ROLLINS 401(k) Plan
(Registrant)
Date: June 30, 2003 By: /s/ Harry J. Cynkus
------------------------------------------
Harry J. Cynkus
Plan Administrator
13
INDEX TO EXHIBITS
Exhibit Number
---------------
(23.1) Consent of Ernst & Young LLP, independent auditors.
(23.2) Notice Regarding Consent of Arthur Andersen LLP.
(99.1) Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
14