UNITED STATES
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 June 30, 1998.
[ ] 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.
(Exact name of registrant as specified in its charter)
Delaware 51-0068479
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2170 Piedmont Road, N.E., Atlanta, Georgia 30324
(Address of principal executive offices)(Zip Code)
Telephone Number -- (404) 888-2000
(Registrant's telephone number, including area code)
____________________________
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 June 30, 1998, there were 32,629,551 shares of Common Stock $1
Par Value, outstanding.
ROLLINS, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Statements of Financial Position -
June 30, 1998 and December 31, 1997 1
Statements of Income and Earnings Retained
- Three months and six months ended
June 30, 1998 and 1997 2
Statements of Cash Flows
- Six months ended June 30, 1998 and 1997 3
Notes to Financial Statements 4-5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-8
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)
June 30, December 31,
1998 1997
ASSETS
Cash and Short-Term Investments $ 40,756 $ 125,842
Marketable Securities 124,385 75,037
Trade Receivables, Net 47,916 49,166
Materials and Supplies 16,252 15,010
Deferred Income Taxes 27,347 24,826
Other Current Assets 12,296 11,737
Current Assets 268,952 301,618
Equipment and Property, Net 35,963 34,639
Intangible Assets 39,529 39,383
Deferred Income Taxes 44,601 49,072
Other Assets 7,533 7,968
Total Assets $ 396,578 $ 432,680
LIABILITIES
Capital Lease Obligations $ 3,236 $ 3,138
Accounts Payable 17,940 25,420
Accrued Insurance Expenses 18,254 21,225
Accrued Payroll 18,988 17,913
Unearned Revenue 16,643 13,831
Other Expenses 59,366 49,191
Current Liabilities 134,427 130,718
Capital Lease Obligations 7,595 9,239
Long-Term Accrued Liabilities 127,198 147,079
Total Liabilities 269,220 287,036
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share; authorized
99,500,000 shares; 32,629,551 shares issued in 1998;
33,279,281 shares issued in 1997 32,630 33,279
Earnings Retained 94,728 112,365
Total Stockholders' Equity 127,358 145,644
Total Liabilities and
Stockholders' Equity $ 396,578 $ 432,680
The accompanying notes are an integral part of these statements.
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ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME AND EARNINGS RETAINED
(In thousands except share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
REVENUES
Customer Services $ 155,050 $ 154,371 $ 278,015 $ 281,322
COSTS AND EXPENSES
Cost of Services Provided 86,723 88,555 163,632 160,872
Depreciation and Amortization 2,169 2,015 4,261 3,924
Sales, General & Administrative Expenses 57,434 54,943 106,865 100,667
Interest Income (2,425) (1,172) (5,047) (2,389)
143,901 144,341 269,711 263,074
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 11,149 10,030 8,304 18,248
PROVISION (CREDIT) FOR INCOME TAXES
Current 2,006 5,464 (1,305) 9,582
Deferred 2,230 (1,653) 4,460 (2,648)
4,236 3,811 3,155 6,934
INCOME FROM CONTINUING
OPERATIONS 6,913 6,219 5,149 11,314
DISCONTINUED OPERATIONS
Operating income, less income tax expense
of $61 and $91, respectively - 100 - 149
NET INCOME 6,913 6,319 5,149 11,463
EARNINGS RETAINED
Balance at Beginning of Period 104,030 146,734 112,365 155,696
Cash Dividends (4,969) (5,059) (9,957) (10,252)
Common Stock Purchased and Retired (11,280) (7,741) (12,876) (16,573)
Other 34 312 47 231
BALANCE AT END OF PERIOD $ 94,728 $ 140,565 $ 94,728 $ 140,565
EARNINGS PER SHARE
Continuing operations $ 0.21 $ 0.19 $ 0.16 $ 0.34
Discontinued operations - - - -
EARNINGS PER SHARE - BASIC AND
DILUTED $ 0.21 $ 0.19 $ 0.16 $ 0.34
WEIGHTED SHARES OUTSTANDING - BASIC 33,078,672 33,807,036 33,173,701 34,135,825
WEIGHTED SHARES OUTSTANDING - DILUTED 33,109,672 33,815,036 33,197,701 34,143,325
The accompanying notes are an integral part of these statements.
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ROLLINS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
OPERATING ACTIVITIES
Net Income $ 5,149 $ 11,463
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 4,261 3,924
Provision (Credit) for Deferred Taxes 4,460 (2,648)
Discontinued Operations, Net of Taxes (149)
Other, Net 646 1,488
(Increase) Decrease in Assets:
Trade Receivables 1,266 (3,424)
Materials and Supplies (1,229) (4,330)
Other Current Assets (3,553) 1,090
Other Non-Current Assets 1,258 (3,508)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 665 5,182
Unearned Revenue 2,812 504
Long-Term Accrued Liabilities (19,881) 5,280
Net Cash Provided by (Used in) Operating
Activities (4,146) 14,872
INVESTING ACTIVITIES
Purchases of Equipment and Property (5,756) (4,930)
Net Cash Used for Acquisition of
Companies (870) (1,056)
Marketable Securities, Net (49,306) 14,783
Net Cash Provided by (Used in) Investing
Activities (55,932) 8,797
FINANCING ACTIVITIES
Dividends Paid (9,957) (10,252)
Common Stock Purchased and Retired (13,545) (17,495)
Payments on Capital Lease (1,546) (1,264)
Other 40 197
Net Cash Used in Financing Activities (25,008) (28,814)
Net Cash Provided by (Used in)
Discontinued Operations - (18)
Net Increase (Decrease) in Cash
and Short-Term Investments (85,086) (5,163)
Cash and Short-Term Investments
at Beginning of Period 125,842 12,150
Cash and Short-Term Investments
at End of Period $ 40,756 $ 6,987
The accompanying notes are an integral part of these statements.
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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, 1997.
Prior year amounts have been restated to reflect the 1997
divestitures of the Company's Rollins Protective Services
division and its Lawn Care and Plantscaping businesses.
In the opinion of management, the consolidated financial
statements included herein contain all normal recurring
adjustments necessary to present fairly the financial position of
of the Registrant as of June 30, 1998 and December 31, 1997,
and the results of operations and cash flows for the six months
ended June 30, 1998 and 1997. Operating results for the quarter
ended June 30, 1998 or the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1998.
NOTE 2. PROVISION FOR INCOME TAXES
The book provision for income taxes includes the liability for
state income taxes, net of the federal tax benefit. The deferred
provision arises from the changes during the year in the Company's
net deferred tax asset or liability.
NOTE 3. EARNINGS PER SHARE
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," the number of weighted
averge shares used in computing basic and diluted earnings per
share (EPS) are as follows (in thousands):
Second Quarter Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
Basic EPS 33,078,672 33,807,036 33,173,701 34,135,825
Effect of dilutive
stock options 31,000 8,000 24,000 7,500
Diluted EPS 33,109,672 33,815,036 33,197,701 34,143,325
No adjustments to net income available to common stockholders
were required during the periods presented.
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NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
Effective January, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which establishes standards for the presentation and
disclosure of other comprehensive income. For the second quarter and
six months ended June 30, 1998, comprehensive income is not materially
different from net income and, as a result, the impact is not reflected
in the attached Statements of Income and Earnings Retained or Statements
of Financial Position.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits,"
will be adopted effective with the year-end financial statements
dated December 31, 1998.
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ROLLINS, INC. AND SUBSIDIARIES
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SECOND QUARTER ENDED JUNE 30, 1998
RESULTS OF OPERATIONS
The divestitures of the Orkin Lawn Care and Plantscaping divisions in
July, 1997 marked the Company's return to a single operational focus.
Accordingly, the results of operations are presented on a continuing
operations basis.
Revenues for the second quarter ended June 30, 1998 increased 0.4% to
$155.1 million. Net income increased 9.4% to $6.9 million. Basic and
diluted earnings per share were 21 cents compared to 19 cents last year,
a 10.5% increase.
Year-to-date, revenues decreased 1.2% to $278.0 million with net income
decreasing 55.1% to $5.1 million for an earnings per share of 16 cents
compared to 34 cents last year.
For the quarter, pest control revenue and customer base increased
substantially. The number of pest control contracts sold grew at a
double-digit rate over last year. The positive trend in pest control
revenue is a direct effect of the success of the Company's new marketing,
sales and customer service programs. Termite revenue continues to lag
due to more restrictive sales policies. The Company continues to
undertake proactive measures in its termite business and believes these
measures will contribute to its long-term revenue growth and
profitability. Net income improved due to higher revenues and margin
improvement.
Revenue and income from discontinued operations after income taxes for
the second quarter ended June 30, 1997 were $23.4 million and $100,000,
respectively. Year-to-date revenue and income from discontinued
operations for 1997 were $46.9 million and $149,000, respectively.
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FINANCIAL CONDITION
June 30, December 31,
1998 1997
(In thousands)
Cash and Short-Term
Investments $ 40,756 $ 125,842
Marketable Securities 124,385 75,037
$ 165,141 $ 200,879
Working Capital $ 134,525 $ 170,900
Current Ratio 2.0 2.3
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 share repurchases.
Interest income increased 111.3% for the six months ended June 30, 1998
as compared to the same period in 1997 due to the increase in average
cash invested in short-term investments and marketable securities as a
result of the 1997 divestitures.
Net trade receivables decreased $1.3 million or 2.5% at June 30, 1998
compared with December 31, 1997. Trade receivables include installment
receivables which are due subsequent to one year from the balance sheet
date. These amounts were approximately $15.4 million and $13.9 million
at June 30, 1998 and December 31, 1997, respectively. The decrease in
receivables is primarily the result of decreased financed sales in the
termite business.
Over the past several years, the termite treatment division of the pest
control industry has faced great challenges in solving property owners'
termite problems. Some of the reasons for the increased difficulty in
protecting structures have been changes in building practices and
materials that have increased the property owners' potential for
termites, the loss of Chlordane from the market in 1987 which resulted
in the use of termiticides that may only last for a few years under some
conditions, and laws and regulations restricting certain retreatment
practices. All of the above factors have subjected termite service
providers to experience elevated levels of claims. The Company's
response to the industry-wide conditions is to undertake broad changes
in its own termite processes. New quality control and field training
programs, more thorough communication to customers concerning conducive
conditions, and restrictions on the sale of certain structures were
initiated during 1997. As a result of the factors described above and
new information which became available in 1997, a Provision for Termite
Contracts of $117.0 million was recorded at December 31, 1997 related
to the anticipated costs of reinspections, repair obligations, and
associated labor, chemicals, and other costs incurred relative to termite
work performed prior to December 31, 1997. The Company believes the
related accrued liabilities are still reasonable at June 30, 1998.
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During the six month period ended June 30, 1998, the Company invested
$6.6 million in capital expenditures and acquisitions. Also, $10.0
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.
During the quarter ended June 30, 1998, the Company repurchased 587,000
shares of its common stock, confirming management's and the Board of
Director's confidence in the Company's future. For the six months ended
June 30, 1998, 669,000 shares have been repurchased.
During the fourth quarter of 1997, Orkin received a letter from the
Federal Trade Commission (FTC) advising of their investigation of the
pest control industry - more specifically, the termite control
practices of the industry. The FTC has requested certain information
voluntarily from Orkin and they have been advised of our intention to
cooperate fully with their investigation. At this point in time, it is
too early to determine the impact, if any, of the investigation.
MANAGEMENT CHANGES
In the second quarter of 1998, the Company announced two senior
management changes. Harry J. Cynkus, age 48, was appointed as the
Company's new Vice President of Finance, Chief Financial Officer and
Treasurer. Also, Michael W. Knottek, age 53, Vice President of
Corporate Administration, was elected to the office of Vice President
and Secretary.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. The actual results of
the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties,
including without limitation, general economic conditions, changes in
industry practices or technologies, climate and weather trends,
competitive factors and pricing pressures, uncertainties of litigation
and changes in various government laws and regulations, including
environmental regulations. All of the foregoing risks and uncertainties
are beyond the ability of the Company to control, and in many cases the
Company cannot predict the risks and uncertainties that could cause its
actual results to differ materially from those indicated by the
forward-looking statements.
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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 28, 1998.
The stockholders elected Bill J. Dismuke and Wilton Looney
as Class III Directors for the three year term expiring in
2001. The 1998 Employee Stock Incentive Plan was approved
by shareholders.
ITEM 5. OTHER INFORMATION
With respect to the Company's annual meeting of stockholders to
be held in 1999, all stockholder proposals submitted outside the
stockholder proposal rules contained in Rule 14a-8 promulgated
under the Securities Exchange Act of 1934, as amended, which
pertains to the inclusion of shareholder proposals in a Company's
proxy materials, must be received by the Company by March 14,
1999, in order to be considered timely. With regard to such
stockholder proposals, if the date of the next annual meeting of
stockholders is advanced or delayed by more than 30 calendar days
from April 28, 1999, the Company shall, in a timely manner, inform
its stockholders of the change, and the date by which such
proposals must be received. As set forth in the Company's Proxy
Statement dated March 24, 1998, shareholders who wish to avail
themselves of the provisions of Rule 14a-8 must submit their
proposals no later than November 24, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3)(i) The Company's Certificate of Incorporation is
incorporated herein by reference to Exhibit
(3)(i) as filed with its Form 10-K for the year
year ended December 31, 1997.
(ii) By-laws of Rollins, Inc. are incorporated herein by
reference to Exhibit 3(b) as filed with its Form
10-K for the year ended December 31, 1993.
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
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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: August 13, 1998
Rollins, Inc.
(Registrant)
_________________________
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
_________________________
Harry J. Cynkus
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
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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: August 13, 1998
Rollins, Inc.
(Registrant)
Gary W. Rollins
Gary W. Rollins
President and Chief
Operating Officer
(Member of the Board of
Directors)
Harry J. Cynkus
Harry J. Cynkus
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
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