QUARTERLY INFORMATION STOCK PRICES AND DIVIDENDS (Rounded to the nearest 1/8)
Stock Prices Dividends Stock Prices Dividends 1993 High Low Paid 1992 High Low Paid First Quarter $26-7/8 $23-5/8 $.11 First Quarter $20-1/2 $17-5/8 $.10 Second Quarter 25-7/8 21-1/2 .11 Second Quarter 20-1/8 17-3/8 .10 Third Quarter 26 22-1/2 .11 Third Quarter 22-1/8 18-1/8 .10 Fourth Quarter 27-3/4 21-3/4 .11 Fourth Quarter 23-5/8 21-1/8 .10
The number of stockholders of record as of December 31, 1993 was 4,012. REVENUES, NET INCOME, AND EARNINGS PER SHARE (In thousands except per share data) First Second Third Fourth 1993 Revenues $127,295 $163,248 $151,808 $133,451 Net Income 5,867 19,071 11,688 7,843 Earnings per Share .16 .54 .33 .22 1992 Revenues $117,449 $150,204 $137,732 $122,281 Net Income 5,087 16,382 10,295 6,238 Earnings per Share .14 .47 .28 .18 1991 Revenues $104,631 $135,610 $124,516 $110,798 Net Income 4,022 13,612 8,632 5,233 Earnings per Share .11 .39 .24 .15 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS % CHANGE FROM PRIOR YEAR SELECTED INDUSTRY SEGMENT DATA increase/(decrease) (In thousands) 1993 1992 1991 1993 1992 REVENUES Orkin $506,399 $461,971 $415,363 9.6% 11.2% Rollins Protective 57,698 55,942 53,326 3.1 4.9 Other 11,705 9,753 6,866 20.0 42.0 $575,802 $527,666 $475,555 9.1 11.0 Operating Income Orkin $70,720 $61,687 $51,389 14.6 20.0 Rollins Protective 5,896 5,398 4,956 9.2 8.9 Other 4,504 3,617 2,350 24.5 53.9 $81,120 $70,702 $58,695 14.7% 20.5% GENERAL OPERATING COMMENTS Rollins, Inc.'s consolidated revenues of $575.8 million were 9.1% higher than in 1992. Operating income increased $10.4 million or 14.7% over the prior year. Operating margins improved 5.2% over 1992 compared to 1992's improvement over 1991 of 8.9%. Both the cost of services provided and sales, general and administrative expenses improved as a percentage of revenues in each of the past two years. This strong financial performance was a result of our continued emphasis on 13 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) customer service, improved productivity, employee training, efficient sales and marketing programs, and improved cost control. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". The cumulative effect of the change in the method of accounting for income taxes attributable to years prior to 1993 was not material. Prior years' financial statements have not been restated to reflect the provisions of SFAS 109. The Omnibus Budget Reconciliation Act of 1993, which retroactively raised the 1993 statutory federal tax rate from 34% to 35% for the Company, reduced earnings approximately $.01 per share for the year. Including the 1% federal statutory tax rate increase, the estimated effective income tax rate was 39.0% for 1993 versus 39.5% for both 1992 and 1991. The reduction in our overall effective tax rate was attributable to our active pursuit of current tax strategies. Operating profit margins for the Orkin business segment increased 4.5% over the prior year, compared to a 8.1% margin improvement from 1992 over 1991. Rollins Protective Services' operating margins increased 6.3% over 1992. This compares to a 3.2% margin improvement from 1992 over 1991. Detailed segment information follows. ORKIN 1993 VERSUS 1992 The Orkin business segment had 1993 revenues and operating income increases of 9.6% and 14.6%, respectively, over the results achieved in 1992. Orkin Pest Control's revenue increases were the result of our continued emphasis on providing premium services, improved customer service, opening new branches, an increased number of customers, and the successful introduction of new services. Marketing programs included an effective, highly focused national advertising campaign, the money-back guarantee expanded to termite control, and our new agribusiness service. Operating income benefited from increased employee productivity, further improvements in the control of operating costs, and revenue growth resulting from new customers and new services. We expect the 1994 operating results of the termite and pest control business to exceed those of 1993 by continuing the growth of our customer base in both new and existing markets through acquisitions and cross-marketing efforts between divisions. Orkin Plantscaping's operating results continued to be impacted by slowdowns in commercial real estate construction. Revenues increased primarily due to expanded Holiday, Exterior Color, and National Accounts Programs. Cross-marketing efforts by Orkin Pest Control and Orkin Plantscaping have enabled Plantscaping to increase its national corporate customer list. During 1993, Plantscaping continued to improve operational efficiencies, enhance service delivery, and provide internal standardization among its nine major markets. We expect the 1994 operating results to benefit from the continued emphasis on operational improvements, enhanced service delivery, expense control and employee training. Orkin Lawn Care has sustained its turnaround trend with improved sales, customer retention, better cost controls, and employee productivity. Lawn Care introduced new services during 1993 which increased revenues and operating income. Lawn Care has planned additional enhancements in 1994, benefiting from a more seasoned management staff, new marketing programs, further increased employee productivity and more efficient execution of operational programs. ORKIN 1992 VERSUS 1991 The Orkin business segment had 1992 revenues and operating income increases of 11.2% and 20.0%, respectively, over the results achieved in 1991. Orkin Pest Control's revenue increases were the result of opening new branches and the continued expansion through acquisitions in key markets. Also, revenue gains related to an increased number of customers, improved customer retention, higher prices, and more effective marketing programs. Marketing programs included more efficient advertising and the offering of convenient financing available from our in-house finance company. Operating income improvements were attained through cost containment, productivity gains, and lower employee turnover. Orkin Plantscaping entered three new growth markets in 1992, expanding its operations to nine major markets and becoming the industry's second largest company. During 1992, the financial results of our Orkin Lawn Care Operation had significant improvement over the prior year. Some branch operations, primarily in the Northeast, were either closed, sold, or merged during the fourth quarter of 1992 in a consolidation program in order to concentrate our resources on maximizing revenue and profit opportunities in growth locations. The downsizing did not have a material impact on the financial statements. ROLLINS PROTECTIVE SERVICES (RPS) 1993 VERSUS 1992 RPS had 1993 revenues and operating income increases of 3.1% and 9.2%, respectively, over the results achieved in 1992. Operational improvements were reported by the 14 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) RPS division in 1993 primarily due to improvements made in the third and fourth quarters with more effective sales programs and a concentration of service delivery resulting in improved customer retention. Revenue increases were also attributed to the opening of two new branches and marketing new credit plans offered by our in-house finance company in the second and third quarters. RPS's operating income benefited from better trained employees, increased sales and service productivity, and management's efforts to reduce cost and control inventory levels. RPS is positioned for a successful 1994 with the continued focus on its residential business and commercial security markets and our expansion plans to add two new branches in existing geographical markets. RPS 1992 VERSUS 1991 RPS had 1992 revenues and operating income increases of 4.9% and 8.9%, respectively over the results achieved in 1991. During 1992, residential customer sales were affected somewhat by the continued economic recession; however, revenues from new commercial customers increased, making this the fastest growing part of the Company's security business. Operating income benefited from improved productivity in both sales and service. This was attributable to increased training, lower employee turnover, and cost controls, in addition to our revenue increase. During 1992, RPS entered a new market with the opening of a branch in Phoenix, Arizona. To accommodate the growing commercial business, RPS opened several commercial operating units at current branch locations in 1992. FINANCIAL CONDITION % CHANGE FORM PRIOR YEAR increase/(decrease) (Dollars in thousands) 1993 1992 1991 1993 1992 Cash and Short-Term Investments $18,102 $20,061 $41,230 Marketable Securities 50,991 30,657 -- $ 69,093 $50,718 $41,230 36.2% 23.0% Working Capital $117,528 $89,944 $64,741 30.7 38.9 Current Ratio 2.8 2.4 2.1 16.7 14.3 Cash Provided From Operations $40,034 $33,319 $31,987 20.2% 4.2% Rollins, Inc.'s financial position at December 31, 1993 remained solid. The Company's operations have historically provided a strong positive cash flow which represents the Company's principal source of funds. Current assets are stated at cost which approximates fair value. During 1993, the Company invested $8.1 million in capital expenditures and acquisitions. Also, $15.7 million were paid out in cash dividends. The Company has been able and continues to expect to fund these cash requirements out of operations. The Company had no long-term debt during the three year period ended December 31, 1993. Net trade receivables increased $20.5 million or 30.7% at December 31, 1993 compared with the prior year. Trade receivables include installment receivables amounts which are due subsequent to one year from the balance sheet date. These amounts were approximately $28.7 million and $21.5 million at the end of 1993 and 1992, respectively. (Delinquency statistics, as a percentage of total receivables, have improved over the prior year). The increase in receivables, was attributed to the expansion of Orkin's financed termite marketing program and the increased average contract length. These factors, combined with improved revenues and market share, created substantial growth in our receivables compared to 1992. The weighted-average discount rate used in determining the projected benefit obligation of the Company's pension plan was decreased from 8.5% in 1991 and 1992 to 8.0% in 1993 to more closely approximate rates on high-quality, long-term obligations. The change in the weighted-average discount rate will have no material effect on the Company's financial position or results of operations. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." The Company will adopt the new method of accounting for marketable securities in the first quarter of 1994. The adoption of SFAS 115 will not have a material impact on the Company's financial position or results of operations. 15 STATEMENTS OF FINANCIAL POSITION Rollins, Inc. and Subsidiaries
At December 31, (In thousands except share data) 1993 1992 ASSETS Cash and Short-Term Investments $ 18,102 $ 20,061 Marketable Securities 50,991 30,657 Trade Receivables, Net 87,518 66,980 Materials and Supplies 15,829 18,253 Deferred Income Taxes 4,980 9,310 Other Current Assets 7,112 6,808 Current Assets 184,532 152,069 Equipment and Property, Net 28,890 28,838 Intangible Assets 42,171 42,283 Other Assets 11,601 13,101 Total Assets $267,194 $236,291 LIABILITIES Accounts Payable $ 12,279 $ 12,028 Accrued Insurance Expenses 13,600 14,022 Accrued Payroll 15,519 15,043 Unearned Revenue 12,854 9,507 Other Expenses 12,752 11,525 Current Liabilities 67,004 62,125 Deferred Income Taxes 12,983 21,211 Long-Term Accrued Liabilities 26,699 23,056 Total Liabilities 106,686 106,392 Commitments and Contingencies STOCKHOLDERS' EQUITY Common Stock, par value $1 per share; authorized 99,500,000 shares; 41,431,814 shares issued 41,432 41,432 Earnings Retained 171,862 141,999 213,294 183,431 Less -- Common Stock In Treasury, At Cost, 5,758,619 shares in 1993; 5,840,109 shares in 1992 52,786 53,532 Total Stockholders' Equity 160,508 129,899 Total Liabilities and Stockholders' Equity $267,194 $236,291
The accompanying notes are an integral part of these statements. 16 STATEMENTS OF Income Rollins, Inc. and Subsidiaries
Years Ended December 31, (In thousands except per share data) 1993 1992 1991 REVENUES Customer Services $575,802 $527,666 $475,555 COSTS AND EXPENSES Cost of Services Provided 293,499 271,518 247,994 Sales, General and Administrative Expenses 203,483 187,238 169,825 Depreciation and Amortization 8,310 7,966 7,806 Interest Income (2,390) (1,870) (2,134) 502,902 464,852 423,491 INCOME BEFORE INCOME TAXES 72,900 62,814 52,064 PROVISION (CREDIT) FOR INCOME TAXES: Current 30,339 25,317 21,431 Deferred (1,908) (505) (866) 28,431 24,812 20,565 NET INCOME $ 44,469 $38,002 $ 31,499 EARNINGS PER SHARE $ 1.25 $ 1.07 $ .89 AVERAGE SHARES OUTSTANDING 35,638 35,569 35,510 STATEMENTS OF EARNINGS RETAINED Rollins, Inc. and Subsidiaries Years Ended December 31, (In thousands except per share data) 1993 1992 1991 Balance at Beginning of Year $141,999 $131,602 $113,678 Net Income 44,469 38,002 31,499 Cash Dividends (15,680) (14,226) (13,731) Employee Benefit Plans 1,074 445 156 Adjustment for Three-for-Two Stock Split -- (13,824) -- Balance at End of Year $171,862 $141,999 $131,602 DIVIDENDS PER SHARE $ .44 $ .40 $ .39
The accompanying notes are an integral part of these statements. 17 STATEMENTS OF CASH FLOWS Rollins, Inc. and Subsidiaries
Years Ended December 31, (In thousands) 1993 1992 1991 OPERATING Net Income $ 44,469 $38,002 $ 31,499 ACTIVITIES Noncash Charges (Credits) to Earnings: Depreciation and Amortization 8,310 7,966 7,806 Deferred Income Taxes (1,908) (505) (866) Other, Net 3,152 3,292 2,705 (Increase) Decrease in: Trade Receivables (20,474) (13,966) (14,731) Materials and Supplies 1,477 (2,643) (2,086) Other Current Assets 3,473 (3,821) (174) Increase (Decrease) in: Accounts Payable and Accrued Expenses 924 3,597 3,582 Unearned Revenue 3,347 1,009 2,621 Non-Current Deferred Income Taxes (5,767) 753 4,078 Long-Term Accrued Liabilities 3,643 837 (1,660) Other Non-Current Assets (612) (1,202) (787) Net Cash Provided by Operating Activities 40,034 33,319 31,987 INVESTING Purchases of Equipment and Property (7,690) (6,645) (8,366) ACTIVITIES Net Cash Used for Acquisition of Companies (397) (4,299) (1,500) Purchases of Marketable Securities (20,334) (30,657) -- Proceeds from Sale of Equipment and Property 288 339 357 Net Cash Used in Investing Activities (28,133) (41,262) (9,509) FINANCING Dividends Paid (15,680) (14,226) (13,731) ACTIVITIES Treasury Stock Issued to Benefit Plans 1,820 1,000 651 Net Cash Used in Financing Activities (13,860) (13,226) (13,080) Net Increase (Decrease) in Cash and Short-Term Investments (1,959) (21,169) 9,398 Cash and Short-Term Investments at Beginning of Year 20,061 41,230 31,832 Cash and Short-Term Investments at End of Year $18,102 $ 20,061 $41,230
The accompanying notes are an integral part of these statements. 18 NOTES TO FINANCIAL STATEMENTS Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries 1. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of Rollins, Inc. (the Company) and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Revenues - Revenue is recognized at the time services are performed. Unearned time charges are recognized under methods which will result in the Company realizing a constant rate of return on the related outstanding installment receivables. Cash and Short-Term Investments - The Company considers all investments with a maturity of three months or less to be cash equivalents. Short-term investments are stated at cost which approximates fair value. Marketable Securities - Marketable securities, which are all fixed income securities, are carried at cost which approximates fair value. The fair value of marketable securities are based on quoted market prices. Materials and Supplies - Materials and supplies are recorded at the lower of cost (first-in, first-out basis) or market. Equipment and Property - Depreciation and amortization are provided principally on a straight-line basis over the estimated useful lives of the related assets. Annual provisions for depreciation are computed using the following asset lives: buildings, 10 to 40 years; and furniture, fixtures, and operating equipment, 3 to 10 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal with the resulting gain or loss credited or charged to income. Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are expensed as incurred. Insurance - The Company self-insures up to specified limits certain risks related to general liability, workers' compensation and vehicle liability. The estimated costs of existing and future claims under the self-insurance program are accrued based upon historical trends as incidents occur, whether reported or unreported (although actual settlement of the claims may not be made until future periods) and may be subsequently revised based on developments relating to such claims. The noncurrent portion of these estimated outstanding claims comprises most of the long-term accrued liabilities balance shown on the Statements of Financial Position. Income Taxes - Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial and tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. These differences are more inclusive in nature than differences determined under previously applicable accounting principles. Common Stock - Earnings per share is computed on the basis of weighted-average shares outstanding. Stock options outstanding do not have a significant dilutive effect. Reclassifications - Certain prior year amounts have been reclassified to conform with the 1993 presentation. 2. TRADE RECEIVABLES Trade receivables, net, at December 31, 1993, totalling $87,518,000 and at December 31, 1992, totalling $66,980,000 are net of allowances for doubtful accounts of $4,548,000 and $2,948,000, respectively, and unearned time charges of $172,000 and $1,165,000, respectively. Trade receivables include installment receivables amounts which are due subsequent to one year from the balance sheet dates. These amounts were approximately $28,737,000 and $21,496,000 at the end of 1993 and 1992, respectively. The carrying amount of installment receivables approximates fair value because the interest rates approximate market rates. 19 NOTES TO FINANCIAL STATEMENTS (continued) Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries 3. EQUIPMENT AND PROPERTY Equipment and property are presented at cost less accumulated depreciation and are detailed as follows: (In thousands) 1993 1992 Buildings $ 8,666 $ 8,547 Operating equipment 55,932 53,844 Furniture and fixtures 11,078 10,569 75,676 72,960 Less - accumulated depreciation 49,881 47,217 25,795 25,743 Land 3,095 3,095 $ 28,890 $ 28,838 4. INTANGIBLE ASSETS Intangible assets represent goodwill arising from acquisitions and are stated at cost less accumulated amortization. Intangibles which arose from acquisitions prior to November, 1970 are not being amortized for financial statement purposes, since, in the opinion of management, there has been no decrease in the value of the acquired businesses. Intangibles arising from acquisitions since November, 1970 are being amortized over forty years. 5. INCOME TAXES A reconciliation between taxes computed at the statutory rate on the income before income taxes and the provision for income taxes is as follows: (In thousands) 1993 1992 1991 Federal income taxes at statutory rate $25,515 $21,357 $17,702 State income taxes (net of federal benefit) 3,137 3,148 2,683 Other (221) 307 180 $28,431 $24,812 $20,565 The provision for income taxes was based on a 39.0%, 39.5%, and 39.5% estimated effective income tax rate on income before income taxes for the years ended December 31, 1993, 1992, and 1991, respectively. The effective income tax rate differs from the annual federal statutory tax rate primarily because of state income taxes. The deferred income tax credits for the three year period ended December 31, 1993 are due to differences between financial and income tax reporting. A summary of those deferred income tax debits (credits) is as follows: (In thousands) 1993 1992 1991 Self-insurance $ 1,761 $1,752 $ 629 Safe harbor lease (1,274) (1,085) (959) Depreciation (593) (544) (472) Other (1,802) (628) (64) $ (1,908) $ (505) $(866) Income taxes remitted were $25,796,000, $24,447,000 and $17,520,000 for the years ended December 31, 1993, 1992, and 1991, respectively. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". The cumulative effect of the change in the method of accounting for income taxes attributable to years prior to 1993 was not material. Prior years' financial statements have not been restated to reflect the provisions of SFAS 109. The tax effect of the temporary differences which comprise the current and non-current deferred income tax amounts on the balance sheet at December 31, 1993 is as follows: (In thousands) Debits (Credits) Deferred Tax Assets (Liabilities): Self-insurance $ 13,551 Safe harbor lease (17,268) Accruals (5,685) Payroll and related accruals 1,571 Other (172) $ (8,003) During 1982, the Company entered into a twenty-year "Safe Harbor" lease agreement under the Economic Recovery Tax Act (Act) of 1981 for the purchase of federal income tax benefits. The Company has invested $29,096,000 in the lease. The investment in tax benefits from the safe harbor lease agreement has been allocated between investment tax credit benefits and tax deduction timing benefits. Such investment amount has been reflected as a reduction in non-current deferred income taxes. Amortization of timing benefits into expense is computed at a constant rate of return. 20 NOTES TO FINANCIAL STATEMENTS (continued) Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries 6. COMMITMENTS AND CONTINGENCIES Minimum annual rentals for non-cancelable leases with terms in excess of one year, in effect at December 31, 1993, are summarized as follows: (In thousands) Real Estate Vehicles Other Total 1994 $ 9,239 $ 8,099 $1,122 $18,460 1995 8,838 4,668 740 14,246 1996 7,524 1,861 383 9,768 1997 6,894 534 68 7,496 1998 4,523 -- 6 4,529 1999-2003 20,624 -- -- 20,624 2004-2008 13,441 -- -- 13,441 2009-2013 8,022 -- -- 8,022 $79,105 $15,162 $2,319 $96,586 Total rental expense charged to operations was $24,274,000, $23,384,000, and $22,157,000 for the years ended December 31, 1993, 1992, and 1991, respectively. In the normal course of business, the Company is a defendant in a number of lawsuits which allege that plaintiffs have been damaged as a result of the rendering of services by Company personnel and equipment. The Company is actively contesting these actions. It is the opinion of Management that the outcome of these actions will not have a material adverse effect on the Company's financial position, results of operations, or liquidity. 7. BUSINESS SEGMENT INFORMATION The Company operates two major business segments. Certain information with respect to the Company's business segments is as follows: (In thousands) 1993 1992 1991 REVENUES Orkin $ 506,399 $ 461,971 $ 415,363 Rollins Protective 57,698 55,942 53,326 Other businesses 11,705 9,753 6,866 $ 575,802 $ 527,666 $ 475,555 OPERATING INCOME Orkin $ 70,720 $ 61,687 $ 51,389 Rollins Protective 5,896 5,398 4,956 Other businesses 4,504 3,617 2,350 81,120 70,702 58,695 OTHER Corporate expenses, net (10,610) (9,758) (8,765) Interest income 2,390 1,870 2,134 Income before income taxes $ 72,900 $ 62,814 $ 52,064 IDENTIFIABLE ASSETS Orkin $ 161,850 $ 145,115 $ 127,533 Rollins Protective 18,420 18,535 16,778 Other 86,924 72,641 60,266 $ 267,194 $ 236,291 $204,577 DEPRECIATION AND AMORTIZATION EXPENSE Orkin $ 6,992 $ 6,163 $ 5,926 Rollins Protective 433 1,076 1,146 Other 885 727 734 $ 8,310 $ 7,966 $ 7,806 CAPITAL EXPENDITURES Orkin $ 5,919 $ 5,320 $ 7,607 Rollins Protective 413 349 368 Other 1,395 1,373 561 $ 7,727 $ 7,042 $ 8,536 21 NOTES TO FINANCIAL STATEMENTS (continued) Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries 8. EMPLOYEE BENEFIT PLANS The Company maintains a noncontributory tax-qualified defined benefit retirement plan covering all employees meeting certain age and service requirements. The qualified plan provides benefits based on the average compensation for the highest five years during the last ten years of credited service (as defined) in which compensation was received, and the average anticipated Social Security covered earnings. The Company funds the Plan with at least the minimum amount required by ERISA. The Company's net pension expense (benefit) for the past three years is summarized as follows: (In thousands) 1993 1992 1991 Service cost - benefits earned during the period $ 2,345 $ 2,057 $ 1,670 Interest cost on projected benefit obligation 3,248 2,827 2,385 Actual return on plan assets (4,218) (4,976) (7,878) Net amortization of transition asset (1,099) (1,099) (1,099) Deferral of net investment gain 227 1,255 4,390 Net pension expense (benefit) $ 503 $ 64 $ (532) The funded status of the Plan is summarized as follows at December 31: (In thousands) 1993 1992 Actuarial present value of benefit obligations: Accumulated benefit obligation including vested benefits of $31,265 in 1993 and $25,471 in 1992 $ (33,989) $(27,597) Effect of projected future compensation levels (8,468) (7,588) Projected benefit obligation (42,457) (35,185) Plan assets at fair value 48,153 45,665 Plan assets in excess of projected obligation 5,696 10,480 Unrecognized net (gain) loss 1,574 (1,609) Unrecognized net asset at transition being amortized over 10 years (4,026) (5,177) Unrecognized prior service cost 264 316 Prepaid pension expense included in other assets $ 3,508 $ 4,010 At December 31, 1993, the Plan's assets were comprised of listed common stocks and U. S. Government and corporate securities. Included in the assets of the Plan were shares of Rollins common stock with a market value of $8,249,000. The expected long-term rate of return on plan assets was 9.5% in 1993, 1992, and 1991. The weighted-average discount rate used in determining the projected benefit obligation was decreased from 8.5% in 1991 and 1992 to 8.0% in 1993 to more closely approximate rates on high-quality, long-term obligations. The assumed growth rate of compensation decreased from 6.0% in 1991 and 1992 to 5.5% in 1993. The Company sponsors a deferred compensation 401(k) plan that is available to substantially all employees with six months of service. The charges to expense for the Company match were $1,379,000 in 1993, $1,320,000 in 1992, and $1,033,000 in 1991. 22 NOTES TO FINANCIAL STATEMENTS (continued) Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries The Company has an employee incentive stock option plan (1984 Plan), adopted in October, 1984, under which 1,200,000 shares of common stock are subject to options to be granted. The options are granted at the fair market value of the shares on the date of the grant and expire ten years from the date of the grant, if not exercised. On January 25, 1994, the Board of Directors approved a new long-term compensation program consisting of various stock incentive programs. The new plan is subject to stockholders' approval at the annual stockholders' meeting on April 26, 1994. Option transactions during the last three years for the 1984 Plan are summarized as follows: (Number of shares) 1993 1992 1991 Outstanding at January 1, 117,781 129,915 109,988 Granted 9,900 9,900 36,150 Exercised (9,965) (17,715) (15,323) Cancelled (3,510) ( 4,319) (900) Outstanding at December 31, 114,206 117,781 129,915 Exercisable at December 31, 70,976 68,671 72,135 Option price ranges per share: Granted $ 25.50 $ 19.08 $ 13.25 Exercised 5.92-13.25 5.92-13.25 5.92-12.25 Cancelled 12.58-25.50 5.92-13.25 11.75 Outstanding 5.92-25.50 5.92-19.08 5.92-13.25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Directors and Stockholders of Rollins, Inc.: We have audited the accompanying statements of financial position of Rollins, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992 and the related statements of income, earnings retained and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 financial position of Rollins, Inc. and subsidiaries as of December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Arthur Andersen & Co. Atlanta, Georgia February 14, 1994 23 FIVE-YEAR FINANCIAL SUMMARY Rollins, Inc. and Subsidiaries 1993 1992 1991 1990 1989 OPERATIONS SUMMARY (In thousands except per share data) Revenues $ 575,802 $ 527,666 $ 475,555 $ 436,398 $ 402,324 Cost of Services Provided 293,499 271,518 247,994 230,107 211,604 Sales, General and Administrative 203,483 187,238 169,825 155,904 146,658 Depreciation and Amortization 8,310 7,966 7,806 7,482 7,509 Interest Income (2,390) (1,870) (2,134) (2,460) (2,215) Income Before Income Taxes 72,900 62,814 52,064 45,365 38,768 Income Taxes 28,431 24,812 20,565 17,919 15,236 Net Income $ 44,469 $ 38,002 $ 31,499 $ 27,446 $ 23,532 Earnings per Share $ 1.25 $ 1.07 $ .89 $ .77 $ .67 Dividends per Share $ .44 $ .40 $ .39 $ .37 $ .36 Cash Provided from Operations $ 40,034 $ 33,319 $ 31,987 $ 36,350 $ 31,955 Capital Expenditures $ 7,727 $ 7,042 $ 8,536 $ 8,929 $ 9,747 Total Assets $ 267,194 $ 236,291 $ 204,577 $ 177,961 $ 160,121 Long-Term Debt -- -- -- -- -- Stockholders' Equity $ 160,508 $ 129,899 $ 105,137 $ 86,718 $ 72,228 SELECTED RATIO ANALYSIS (As a % of revenues Cost of Services Provided 51.0% 51.5% 52.1% 52.7% 52.6% except return on Sales, General and Administrative 35.3 35.5 35.7 35.7 36.5 average equity) Depreciation and Amortization 1.4 1.5 1.6 1.7 1.9 Interest Income (0.4) (0.4) (0.4) (0.6) (0.6) Income Before Income Taxes 12.7 11.9 11.0 10.5 9.6 Net Income 7.7 7.2 6.6 6.3 5.8 Return on Average Equity 30.6 32.3 32.8 34.5 35.3 SHARES OUTSTANDING (In thousands) Average 35,638 35,569 35,510 35,465 35,438 At Year End 35,673 35,592 35,532 35,478 35,453 GROWTH RATES AVERAGE 1993 3 Years 5 Years Revenues 9.1% 9.7% 8.6% Net Income 17.0 17.5 12.9 Earnings per Share 16.8 17.5 12.7
24 DIRECTORS, OFFICERS AND STOCKHOLDER INFORMATION DIRECTORS JOHN W. ROLLINS Chairman of the Board and Chief Executive Officer of Rollins Truck Leasing Corp. (vehicle leasing and transportation), Chairman of the Board and Chief Executive Officer of Rollins Environmental Services, Inc. (hazardous waste treatment and disposal) HENRY B. TIPPIE (Dagger) Chairman of the Board and Chief Executive Officer of Tippie Communications, Inc. (radio stations) R. RANDALL ROLLINS * Chairman of the Board and Chief Executive Officer of Rollins, Inc., Chairman of the Board and Chief Executive Officer of RPC Energy Services, Inc. (oil and gas field services, and boat manufacturing) WILTON LOONEY (dagger) Honorary Chairman of the Board of Genuine Parts Company (automotive parts distributor) JAMES B. WILLIAMS (dagger) Chairman, Chief Executive Officer, and Director of SunTrust Banks, Inc. (bank holding company) GARY W. ROLLINS * President and Chief Operating Officer of Rollins, Inc. BILL J. DISMUKE President of Edwards Baking Company * Member of the Executive Committee (dagger) Member of the Audit and Compensation Committees OFFICERS R. RANDALL ROLLINS Chairman of the Board and Chief Executive Officer GARY W. ROLLINS President and Chief Operating Officer GENE L. SMITH Chief Financial Officer, Secretary, and Treasurer STOCKHOLDER INFORMATION ANNUAL MEETING: The Annual Meeting of the Stockholders will be held at 11:30 a.m. Tuesday, April 26, 1994, at the Company's corporate offices in Atlanta, Georgia. TRANSFER AGENT AND REGISTRAR: For inquiries related to stock certificates, including changes of address, lost certificates, dividends, and tax forms, please contact: Trust Company Bank Corporate Trust Department P. O. Box 4625 Atlanta, Georgia 30302 Telephone: 1-800-568-3476 STOCK EXCHANGE INFORMATION: The Common Stock of the Company is listed on the New York and Pacific Stock Exchanges and traded on the Philadelphia, Chicago and Boston Exchanges under the symbol ROL. DIVIDEND REINVESTMENT PLAN: This Plan provides a simple, convenient, and inexpensive way for stockholders to invest cash dividends in additional Rollins, Inc. shares. For further information, contact Trust Company Bank at the above address or write to the Secretary at the Company's mailing address. FORM 10-K: The Company's annual report on Form 10-K to the Securities and Exchange Commission provides certain additional information. Stockholders may obtain a copy by contacting the Secretary at the Company's mailing address. CORPORATE OFFICES: Rollins, Inc. 2170 Piedmont Road, N.E. Atlanta, Georgia 30324 MAILING ADDRESS: Rollins, Inc. P. O. Box 647 Atlanta, Georgia 30301 TELEPHONE: (404) 888-2000 (Recycled logo) Printed on Recycled paper 25