FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1996.
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 1-4422
____________________________
ROLLINS, INC.
Incorporated I.R.S. Employer
in Identification Number
Delaware 51-0068479
2170 Piedmont Road, N.E., Atlanta, Georgia 30324
Telephone Number -- (404) 888-2000
____________________________
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 [ ]
At September 30, 1996, there were 35,480,782 shares of Common Stock
$1 Par Value, outstanding.
ROLLINS, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Statements of Financial Position -
September 30, 1996 and December 31, 1995 1
Statements of Income and Earnings Retained
- Three months and nine months ended September 30, 1996 2
Statements of Cash Flows
- Nine months ended September 30, 1996 and 1995 3
Notes to Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-8
Part II Other Information 9
ROLLINS, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(In thousands except share data)
(Unaudited)
September 30, December 31,
1996 1995
ASSETS
Cash and Short-Term Investments $ 31,792 $ 33,623
Marketable Securities 83,030 65,743
Trade Receivables, Net 84,423 88,542
Materials and Supplies 16,083 13,924
Deferred Income Taxes 4,963 7,447
Other Current Assets 8,145 13,486
Current Assets 228,436 222,765
Equipment and Property, Net 40,353 37,799
Intangible Assets 41,954 42,013
Other Assets 16,440 12,348
Total Assets $ 327,183 $ 314,925
LIABILITIES
Capital Lease Obligation $ 1,587 $ 1,314
Accounts Payable 15,854 13,334
Accrued Insurance Expenses 13,500 14,314
Accrued Payroll 13,856 12,028
Unearned Revenue 16,447 14,695
Other Expenses 17,632 15,324
Current Liabilities 78,876 71,009
Capital Lease Obligation 6,222 7,422
Long-Term Accrued Liabilities 22,825 15,936
Deferred Income Taxes 6,885 6,240
Total Liabilities 114,808 100,607
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share; authorized
99,500,000 shares; 35,476,381 shares
issued in 1996; 41,431,814 shares
issued in 1995 35,476 41,432
Earnings Retained 176,899 224,009
212,375 265,441
Less--Common Stock In Treasury, At Cost,
0 in 1996 ; 5,573,589 shares in 1995 0 51,123
Total Stockholders' Equity 212,375 214,318
Total Liabilities and
Stockholders' Equity $ 327,183 $ 314,925
The accompanying notes are an integral part of these statements.
1 of 10
ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME AND EARNINGS RETAINED
(In thousands except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
REVENUES
Customer Services $ 162,514 $ 162,333 $ 482,863 $ 480,337
COSTS AND EXPENSES
Cost of Services Provided 94,745 88,167 268,345 248,279
Depreciation and Amortization 2,307 2,047 6,077 5,781
Special Charge -- 12,000 (1) -- 12,000 (1)
Sales, General and Administrative 61,645 55,972 176,392 165,665
Expenses
Interest Income (1,516) (1,424) (4,297) (3,586)
157,181 156,762 446,517 428,139
INCOME BEFORE INCOME TAXES 5,333 5,571 36,346 52,198
PROVISION (CREDIT) FOR INCOME TAXES
Current 1,703 4,683 15,062 23,588
Deferred 324 (2,566) (1,250) (3,753)
2,027 2,117 13,812 19,835
NET INCOME 3,306 3,454 22,534 32,363
EARNINGS RETAINED
Balance at Beginning of Period 223,722 223,565 224,009 203,582
Cash Dividends (5,143) (5,019) (15,528) (15,056)
Common Stock Retired (45,371) -- (54,133) --
Other 385 62 17 1,173
BALANCE AT END OF PERIOD $ 176,899 $ 222,062 $ 176,899 $ 222,062
EARNINGS PER SHARE $ 0.09 $ 0.09 $ 0.63 $ 0.90
WEIGHTED AVERAGE
SHARES OUTSTANDING 35,481,076 35,852,695 35,681,298 35,847,015
(1) $7,440,000 after tax benefit or $.21 per share.
The accompanying notes are an integral part of these statements.
2 of 10
ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
OPERATING ACTIVITIES
Net Income $ 22,534 $ 32,363
Noncash Charges (Credits) to Earnings:
Special Charge -- 12,000
Depreciation and Amortization 6,077 5,781
Deferred Income Taxes (1,250) (3,753)
Other, Net 3,368 4,124
(Increase) Decrease in Assets:
Trade Receivables 4,199 (2,418)
Materials and Supplies (2,097) (103)
Other Current Assets 6,512 (561)
Other Non-Current Assets (517) (1,242)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 5,901 678
Unearned Revenue 1,415 (1,546)
Long-Term Accrued Liabilities 6,889 (5,313)
Non-Current Deferred Income Taxes 2,565 (5,060)
Net Cash Provided by Operating Activities 55,596 34,950
INVESTING ACTIVITIES
Purchases of Equipment and Property (8,646) (7,435)
Net Cash Used for Acquisition of Companies (6,031) (2,653)
Marketable Securities, Net (17,600) (15,033)
Proceeds from Sales of Equipment and Proper 51 148
Net Cash Used in Investing Activities (32,226) (24,973)
FINANCING ACTIVITIES
Dividends Paid (15,528) (15,056)
Purchase of Treasury Stock (9,164) --
Payments on Capital Lease (927) --
Treasury Stock Issued to Benefit Plans 418 667
Net Cash Used in Financing Activities (25,201) (14,389)
Net Increase (Decrease) in Cash
and Short-Term Investments (1,831) (4,412)
Cash and Short-Term Investments
at Beginning of Period 33,623 31,917
Cash and Short-Term Investments
at End of Period $ 31,792 $ 27,505
The accompanying notes are an integral part of these statements.
3 of 10
ROLLINS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.BASIS OF PREPARATION
The consolidated financial statements included herein have been prepared
by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations.
These consolidated financial statements should be read in conjunction
with the financial statements and related notes contained in the
Registrant's annual report on Form 10-K for the year ended
December 31, 1995.
In the opinion of management, the consolidated financial statements
included herein contain all normal recurring adjustments necessary to
present fairly the financial position of the Registrant as of
September 30, 1996 and December 31, 1995, and the results of
operations and cash flows for the nine months ended September 30, 1996
and 1995.
NOTE 2.TREASURY STOCK
During the third quarter the Company retired all shares of treasury
stock, totaling approximately 5.6 million shares of common stock.
NOTE 3.PROVISION FOR INCOME TAXES
The book provision for income taxes includes the liability for state
income taxes, net of the federal income tax benefit. The deferred
provision for income taxes arises from the changes during the year in
the Company's net deferred tax asset or liability.
NOTE 4.EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of shares outstanding during the respective periods.
4 of 10
ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
SELECTED INDUSTRY SEGMENT DATA
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(In thousands)
REVENUES
Orkin $ 143,953 $ 143,302 $ 427,642 $ 425,851
Rollins Protective 16,025 15,595 47,337 44,473
Other 2,536 3,436 7,884 10,013
$ 162,514 $ 162,333 $ 482,863 $ 480,337
OPERATING INCOME
Orkin $ 6,240 $ 17,201 $ 38,215 $ 64,170
Rollins Protective 413 1,355 3,126 4,117
Other (333) (11,714) (833) (11,327)
$ 6,320 $ 6,842 $ 40,508 $ 56,960
5 of 10
General Operating Comments
In the third quarter, the Company continued to execute strategic plans to
build on its dedication to customer service and investments for long-term
growth. Investments in the core businesses include a renewed emphasis on
recurring monthly pest control, increased focus on Commercial opportunities,
and expanding the number of locations.
Revenues for the third quarter ended September 30, 1996 increased 0.1% or $0.2
million, to $162.5 million from the prior year period. Operating income
decreased $0.5 million to $6.3 million for the quarter, while net income
decreased 4.3% to $3.3 million. Earnings per share were 9 cents, equal with
last year. (Net income and earnings per share decreased 69.7% and 70.0%,
respectively, excluding the prior year Special Charge of $12 million or $7.4
million and $.21 per share on an after tax basis). For the nine months ended
September 30, 1996, net income decreased 30.4% to $22.5 million and earnings
per share were 63 cents versus 90 cents last year. (Excluding the prior year
Special Charge, net income decreased 43.4% and earnings per share decreased
43.2% compared to the nine month period last year).
For the quarter, Orkin's operating income decreased 63.7% to $6.2 million on
a .5% revenue increase to $144.0 million. Operating margins were 4.3%,
compared to 12.0% in the prior year. Rollins Protective Services' (RPS)
operating income decreased 69.5% to $0.4 million on a revenue increase of
$0.4 million or 2.8% to $16.0 million. RPS' operating margins were 2.6%
compared to 8.7% last year.
For the nine months ended September 30, 1996, Orkin's revenue increased 0.4%
with operating income declining 40.4%. Operating margins were 8.9%, compared to
15.1% for the same period last year. RPS revenue increased 6.4% while
operating income decreased 24.1%. Operating margins declined from 9.3% to
6.6%. Detail segment information follows.
Orkin 1996 Versus 1995
Orkin realized an increase in pest control revenue, termite renewal revenue,
and its customer base. However, these gains were offset by a decrease in
termite sales revenue resulting from the lagging effect of a disappointing
termite season. The termite business continues to be an important part of
Orkin's business mix, however Orkin will continue its strategic marketing and
customer service programs toward expansion of the less weather sensitive
recurring pest control segment. To augment the positive results in the
recurring pest control business, a Commercial Pest Control Division was created
during the second quarter.
The decrease in operating income was the result of branch and region openings,
operating insurance costs, and termite claims. Business development
activities included 27 new branch and franchise openings during the first
nine months, compared to 14 for all of 1995.
6 of 10
Rollins Protective Services (RPS) 1996 Versus 1995
During the third quarter, RPS continued to focus on the System VII product
sales, Commercial sales and service initiatives, as well as cross-marketing
opportunities from the National Customer Support Center.
RPS operating margins were negatively impacted by investments in new, dedicated
commercial branches, related market development, and costs associated with
acquisitions during the last twelve months.
Other 1996 Versus 1995
Other businesses' revenue and operating income decreased for the quarter due to
revisions of the Company's credit and internal operating policies within the
consumer finance area, Rollins Acceptance Company (RAC). The volume of
Company financed sales is lower than last year as the revised policies
redirected marketing efforts toward stronger customer demographics in
conjunction with a lower termite demand.
The expanded physical facility, increased collector headcount, and new
computers and phone dialing equipment caused margin deterioration, however
these investments have better positioned RAC to more effectively manage the
receivables portfolio and function as a marketing support operation.
FINANCIAL CONDITION
September 30, December 31,
1996 1995
(In thousands)
Cash and Short-Term
Investments $ 31,792 $ 33,623
Marketable Securities 83,030 65,743
$ 114,822 $ 99,366
Working Capital $ 149,560 $ 151,756
Current Ratio 2.9 3.1
Cash Provided By Operations$ 67,556 $ 46,910
(Twelve Months Ended)
7 of 10
Rollins, Inc.'s financial position remained solid. The Company's operations
have historically provided a strong positive cash flow which represents the
Company's principal source of funds. Management believes that this
liquidity, along with expected cash from operations, will support the
Company's continued growth, capital expenditures, cash dividends, and
expansion plans.
Interest income increased 19.8% for the nine months ended September 30, 1996
due to the increase in average funds invested in short-term investments and
marketable securities, coupled with the increase in the average rate of return.
Net trade receivables decreased $4.1 million or 4.7% at September 30, 1996
compared with December 31, 1995. Trade receivables include installment
receivables which are due subsequent to one year from the balance sheet date.
These amounts were approximately $18.8 million and $26.2 million at September
30, 1996 and December 31, 1995, respectively.
During the nine month period, the Company invested $14.7 million in capital
expenditures and acquisitions. Also, $15.5 million was paid out in cash
dividends. The Company maintains a $40.0 million unused line of credit.
This source of funds has not been used, but is available for future
acquisitions and growth, if needed.
Subsequent to the third quarter ended, September 30, 1996, the Company completed
the repurchase of 1,000,000 shares of its common stock, authorized on
November 21, 1995. Furthermore, the Board of Directors authorized the
purchase by the Company of up to an additional 2,000,000 shares of its common
stock. The purchases will be made from time to time using funds already on
hand.
8 of 10
ROLLINS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
None
ITEM 2.CHANGES IN SECURITIES
None
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The Annual Stockholders' Meeting was held on April 23, 1996. The results
of that meeting were disclosed in the Company's Form 10-Q for the
first quarter 1996.
ITEM 5.OTHER INFORMATION
None
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
9 of 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1996
Rollins, Inc.
(Registrant)
Gary W. Rollins
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
Gene L. Smith
Gene L. Smith
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
10 of 10